The Government has shelved the implementation of Statutory Instrument 20 of 2017, which imposed a 15 percent VAT on basic consumer goods to pave way for further consultation.
Businesses and suppliers had taken advantage of the new tax regime to increase prices by margins of up to 40 percent in the last few weeks thereby sparking public outcry.
The suspended tax was proposed in the 2017 national budget and had been imposed on rice, margarine, cereals, maheu, potatoes, meat (pork, beef, fish and chicken) with effect from last month.
Finance and Economic Development Minister Patrick Chinamasa announced the suspension of the new tax in Parliament on Tuesday.
“Following the debate that took place here and input from stakeholder representations, wherein concerns have been raised regarding potential informalisation due to perceived price increase, I propose to shelve the implementation of Statutory Instrument 20 of 2017, which levies VAT on potatoes, rice, margarine, maheu and meat products,” said Minister Chinamasa.
“This will allow for further consultation with relevant stakeholders and those consultations, I will start them with this august House. I need the august House to give me guidance,” he said.
Several interested parties that include consumers, farmers, millers, economic experts and civic society, have already raised the red flag warning that the price increases would trigger inflation, stimulate smuggling of cheap imports thereby crippling economic growth.
Minister Chinamasa said the basis for standard rating the products was mainly due to the need to rationalise the schedule of zero rated and exempt goods in order to broaden the tax base and minimise the cost of tax administration.
He said Zimbabwe and other Sadc member states had ratified the Sadc Protocol on Finance and Investment in which member states are mandated to harmonise taxation matters and coordinate tax regimes.
In an endeavour to harmonise taxation matters, Minister Chinamasa said the Sadc region has developed VAT guidelines, which enable member States to sustain and enhance tax revenues on an equitable and efficient basis.
As such he said the regional bloc had agreed that the list of zero rated and exempt products should be streamlined.
He said the approach was meant to; broaden the tax base, enhance revenue generation, promote administrative efficiency, minimise corruption, ensure similarity among member states and enhance equity and fairness among others.
The minister said in the Sadc region, Zimbabwe has one of the longest list of zero rated and exempt products.
Among the list of zero rated are grains such as maize and wheat, mealie meal, bread, cooking oil, salt, milk, fruits, vegetables, eggs, inputs for manufacture of cooking oil, soya beans, protective clothing, animal feeds and remedies, pesticides, fertilisers, medical services, selected pharmaceutical products, domestic supply of electricity, domestic supply of water and supply of goods such as books, typewriters and maps for use by physically challenged persons, among others.
Countries such as Namibia, Lesotho, Malawi, and Zambia have a minimum list of zero rated and exempt products and they charge VAT on products such as rice, fresh milk, fruits, eggs and meat products among others.
The minister expressed concern over low revenue in the Treasury saying he needs to tax something to raise money to pay for service delivery, allowances, and wages.
Legislators have since welcomed the move to suspend the 15 percent VAT on basic ommodities and urged businesses to revert to the old prices.
The law makers said the 15 percent VAT had resulted in a big jump in prices which had made most of the basic commodities unaffordable especially to the poor.
“I thank the Minister of Finance and Economic Development for suspending the tax. We were failing to provide for our children and some children were now under nourished because we could not afford to buy nutritional foods,” said Auxillia Mnangagwa, the MP for Chirumhanzu-Zibagwe constituency.