By Amb. Emmanuel Mwamba
ON 31st December 2020, the Ministry of Finance issued a Statutory Instrument No. 125 of 2020 called the Value Added Tax (Zero-Rating) Order.
The objective of the Statutory Instrument was to zero-rate (suspend) VAT on all petroleum and petroleum products.
This was in addition to an earlier decision to suspend import duty taxes on petroleum products.
This was to cushion the potential rise in pump price in light of the worsening fuel pricing variables, exchange rate fluctuations and fuel increase on the world market.
This is because Oil Marketing Companies were landing the products at a higher price than the base price set by the Energy Regulation Board (ERB).
These subsidies associated with the petroleum sector were factored in the 2021 National Budget.
Further, another Statutory Instrument No. 89 of 2021; The Customs and Excise (Suspension) (Fuel) No. 4 of 2021 was passed to continue to suspend these taxes until 15th January 2022.
This SI suspended VAT
Since then, these costs have been quantified to cost government an amount of $67.4m per month broken down as;
1. $26m price differential arising from exchange regulations and world market price.
2. $41.4m opportunity cost on foregone taxes.
By December 2021 the total annual cost to government would amount to $809million.
Government has since accumulated arrears owed to OMCs amounting to $506.1m.
In my view, this debt is a case of irresponsibility as the cycle of the sale of fuel is self-financing.
Having this information now, do you think that Government should have;
1. Reinstated the import and VAT taxes before the end of the cycle of the 2021 Budget? This has resulted in the fresh fuel price increase.
2. Should Government have yielded to IMF’s condition demand that government abolishes any relief of subsidies whether in form of foregone taxes or actual support to the sector?
3. What should be done in the medium to long-term period to restore stability and equitable fuel prices to consumers?
Let us discuss