Zimbabwe recently leveled excise duty for both imported diesel and petrol to US$ 0.30 per liter as part of a deliberate strategy to plug arbitrage opportunities for fuel importers arising from differences in the tariff regime of the two commodities.
The pronouncement was made by Finance and Economic Development Minister, Professor Mthuli Ncube on the 26th of November while presenting the 2021 National Budget statement in Parliament.
Prior to the announcement, which has taken effect from December 1, petrol was levied US$0.30 per liter while diesel was taxed US$ 0.25/liter – thus US$ 0.05 less.
When the government temporarily liberalized the petroleum sector in March last year, allowing bulk fuel consumers with free funds to import fuel for own use to ease fuel shortages due to depleting foreign reserves, some importers abused these legislative pitfalls.
In most cases, petrol imports from South Africa and Mozambique were being disguised as diesel and attracted a lesser tax.
Trade misinvoicing has become the leading form of illicit financial flows (IFFs) in Zimbabwe, disenfranchising tax authorities of US$1 billion between 2008 and 2017, says Global Financial Integrity (GFI), a US think tank.
In an interview with online publication, NewZimbabwe.com in June this year, GFI senior economist Rick Rowden said Zimbabwe’s trade with the 36 advanced economies identified value gaps totaling US$ 59 million for the year 2017 alone.
According to GFI, trade misinvoicing is a method for moving money illicitly across borders which involves the deliberate falsification of the value, volume, and/or type of commodity in an international commercial transaction of goods or services by at least one party to the transaction.
In most cases it is done with the knowledge and approval of the seller and the buyer in the transaction. The two parties will agree to the misinvoicing and often settle each other through a deposit into another bank account.
Until now, Zimbabwean authorities are finally making headways in plugging some of the revenue loopholes despite facing challenges.
“One of the things that we had to do was trying to close the gap between petrol and diesel by equalizing the excise duty to make sure there is no misclassification of fuel in order to escape the right levels of tax,” Finance and Economic Development Minister Professor, Mthuli Ncube told 263Chat Business in an interview.
“It is an issue but I can’t tell you exactly how big it is in terms of losses per annum. However, we should expect losses through transfer pricing, misinvoicing, through under-pricing, through misclassification all to the benefit of the person perpetrating it and to the prejudice of the nation,” he added.
He said despite putting some stop-gap measures, strengthening checks at the country’s entry points remain critical.
“We will then have to continue closing these holes, some of them are not easy to close but as long as we know where they are then we continue progressively closing them,” said Prof Ncube.
According to one cross-border trucker, massive quantities of petroleum enter Zimbabwe via the Forbes border post with Mozambique unaccounted for.
“Our petrol does not appear on the declaration forms, instead it is disguised as diesel but now with the leveling of excise duty we falsely declare the product. This is done in a coordinated way involving Tax authorities in Beira and those at Forbes border together with the petroleum importers here in Zimbabwe,” said the trucker.
To illustrate the magnitude of the amounts at play, a 30 000 litre- truck of petrol misclassified as diesel robs Zimbabwean tax authorities of US$ 1 500.
Even worse, petrol and diesel are now disguised as some duty-free petroleum products to evade taxation.
This past week, three Zimbabwe Revenue Authority (Zimra) officials were arrested by an anti-smuggling unit at Beitbridge border for allegedly helping smugglers import 176 000 litres of unleaded petrol worth US$84 000 in import duty from four trucks belonging to Baker Tankers, a South African company.
The officials were complicit in falsely declaring petrol as one of the petroleum products exempted from duty which are paraffin, bulk cooking oil or Jet A1.
In the past six weeks alone, 13 tankers have been intercepted at Beitbridge, Zimra says.
Nevertheless, authorities are now pushing for importers of petroleum to opt for the pipeline to minimize arbitrage opportunities for petroleum products at the border posts.
An increase to US$ 0.05 per liter of Petroleum Importers Levy was set on importers by road on December 1 making the pipeline more viable.
But despite the new regulations, the tax collector concedes that it remains incapacitated to curb the rot in the petroleum sector.
Ordinarily, Zimra officials do not conduct 100 percent checks to authenticate whether or not the commodity appearing on the declaration forms match that which is actually being trucked into Zimbabwe due to congestion at the ports of entry.
“For petroleum products, challenges are related to the identification to distinguish diesel from petrol at the point of importation. This requires the stopping of suspected trucks to enable ZIMRA to engage the services of fuel experts for the proper identification of the product where non-compliant importers are suspected to have understated the quantities loaded. ZIMRA engages the services of experts for dipping or weighing in order to ascertain the actual quantities imported. These processes result in delays in releasing goods for delivery and may lead to complaints from importers,” Zimra Head of Corporate Communications, Francis Chimanda told this publication.
In September, the authority recovered ZWL$ 6.1 million from false declarations at the Beitbridge Border Post in one day after conducting 100 percent searches.
However, quantifying the exact losses incurred from misinvoicing remains a torrid task, Zimra says.
“It is difficult to quantify the revenue lost through misinvoicing alone as detected cases usually contain a combination of various non-compliant issues,” said Chimanda.
Despite these shortfalls in the petroleum sector, fuel recorded the biggest single contribution to total excise duty earnings for Zimra at 71.34 percent (US$ 909 million) in 2018, RBZ data shows.
This story was produced by 263Chat. It was written as part of Wealth of Nations, a media skills development programme run by the Thomson Reuters Foundation. More information at www.wealth-of-nations.org. The content is the sole responsibility of the author and the publisher.