Zimbabwe’s surtax – its incidence and implementation
Elisha Tshuma* comments on the use of surtax on goods imported by Zimbabwe
On 1 January 2012, the then Minister of Finance introduced a 25% surtax on certain imported products. The surtax is defined by the Customs and Excise Act (Chapter 23.02) as a duty payable on importation of selected goods. The authority to levy and collect the surtax is in terms of the Customs and Excise Act Section 97. Goods that attract surtax are listed in Statutory Instrument 112 of 2012 as amended. The general rate of surtax is currently 25% of the Value for Duty Purposes. The stated aim was to protect domestic industry; some analysts have suggested that it was introduced to increase revenue collection. A list of goods that attract the surtax can be accessed here.
What is the surtax and how is it applied?
Surtax is an additional duty on specific imports. In cases where surtax is chargeable, an importer pays customs duty, value added tax (VAT) and surtax. For example consider an imported product which is valued at $4000.00 for duty purposes, and it attracts surtax. Assuming that the rate of customs duty is 40%, the total duty, surtax and VAT payable, will be calculated as follows:
Value for duty purposes [Cost + Freight + Insurance] = $4000.00
Customs duty [40% x $4000.00] = $1600.00
Value for Vat purposes [ Value for duty purposes + customs duty] = $5600.00
Vat [ 15% of value for Vat purposes] = $840.00
Surtax [ 25% of value for duty purposes= $1000.00
Total payable [ Customs duty + Vat + surtax] = $3440.00
Treatment of surtax under trade agreements
- Goods imported under Bilateral Trade agreements and the Common Market for Eastern and Southern Africa (COMESA)
Goods imported under COMESA and bi-lateral trade agreements between Zimbabwe and Malawi, Zimbabwe and Namibia, Zimbabwe and Botswana and Zimbabwe and Mozambique do not attract Surtax.
- Bilateral agreement between Zimbabwe and South Africa
The bilateral agreement between Zimbabwe and South Africa provides for preferential market access for imports from South Africa; for example if the normal (most favoured nation) rate of duty is 40% the agreement may provide for a duty reduction of 10% which means that an importer would clear the goods at 30% [40%-10%]. Provision of duty-free market access is provided for specific products, subject to an import licence being secured. This is difficult to obtain as the Ministry responsible demands justification for such importation. Therefore, in practice very few goods enter Zimbabwe duty free under the bilateral agreement. Where an importer does get the import licence, both customs and surtax will be waived under the bilateral agreement.
Goods imported in terms of the bilateral agreement between Zimbabwe and the Republic of South Africa attracts Surtax at a rate of 25% if the goods are listed in the Surtax notice.
- Goods imported under the Southern African Development Community (SADC)
Under the SADC free trade agreement surtax is charged at the same rate as the customs duty in terms of the agreement. What this means is that goods which attract duty of 10% under the SADC free trade agreement and appear in the surtax tariff list, will attract surtax at 10%. However, goods with a duty rate of 40% under the agreement and appear in the surtax tariff will attract Surtax of 25% which is the general rate of surtax chargeable on any goods except second hand motor vehicles which now attract 35% surtax (ZIMRA, 2014).
For goods to enjoy preferential rates of duty and surtax they have to be covered by a valid certificate of origin properly completed and authenticated by the respective authorities in the country of export (ZIMRA, 2014)
Analysis of the Zimbabwean surtax regime
The above shows that South Africa is the country which is greatly affected by Zimbabwe’s surtax regime. Other countries have an option to use either the COMESA FTA or bilateral agreements they may have with Zimbabwe. Imports entering Zimbabwe under the SADC FTA and the bilateral agreement with South Africa attract surtax. However, surtax also applies to imports from countries outside the region such as China and Japan, among others.
The reason normally given for imposing surtax on imports from SADC member states and not from COMESA member states is that the authorities want to control the influx of imports as a way of protecting the local industry and South Africa is the leading source of Zimbabwe’s imports. “Overally, Zimbabwe continues to rely on imports from South Africa. South Africa remains Zimbabwe’s leading trading partner with total trade between the two countries for April 2015 being valued at $296.2 falling 11% from $332.7million registered in March 2015. Zimbabwe continues to be in deficit with its neighbour with the country importing goods and services worth $182.3 million while exports to South African were valued at $113.9 million, leaving Zimbabwe with a trade deficit of $68.4 million with South Africa” (ZNCC, 2015). This goes some way in explaining why Zimbabwe reviewed its tariff offers under SADC where South Africa is a member and not COMESA.
Another reason why Zimbabwe has not introduced surtax under COMESA could be that it is aware of the COMESA Court of Justice judgement in Polytol Adhesives Manufacturers vs The Republic of Mauritius. This case revealed that individuals can take their States to this Court after exhausting internal remedies. Mauritius was ordered to refund the customs duty it had imposed on goods coming from Egypt in violation of the COMESA treaty (Jere, 2013).
In July 2015, while presenting the mid-term fiscal policy review, the Minister of Finance proposed to increase the rate of surtax from 25% to 35% on second hand motor vehicles which are more than 5 years old from the date of manufacture and also extended the list of other items that attract surtax at the general rate of 25% (Statutory Instrument 93 of 2015). This is with effect from 1 October 2015. The Minister of Finance further increased customs duty on goods imported under the SADC FTA (Statutory Instrument 91 of 2015). These include poly knitted fabric which currently attracted 0%, now increased to 40% plus US$2.50/kg and selected pharmaceuticals whose duty has increased from 0% to 30%.
Irrespective of the reason of introducing surtax in 2012, the results show that, this has not supported industrial development. Many companies have continued to close down and Zimra has missed its revenue target by an average 6% since 2013. The rate of duty for second hand clothing (tariff heading 63090000) is $5/kg plus 15% VAT. Despite this high rate of duty, Mupedzanhamo Market in Mbare is full of second hand clothing. Most of it is imported through informal crossing points without paying import revenue to the State. Therefore, instead of protecting local industry, the high tariff has scared traders from border posts and the government has lost the little revenue it could have collected if the tariffs had been kept lower.
An anonymous writer in Confederation of Zimbabwe Industries’ Business Intelligence Report of September 2013 explained that a call for protection against imports is misplaced. He wrote: “Would we really be doing the sector any favour by shielding its inefficiency, emanating from obsolete equipment as well as lack of scale and capital, from lower priced better quality products that keep getting even better all the time? Will the consumer be thrilled to pay more for less to protect struggling companies that employ an ever shrinking minority of the work force? Surely the failure of companies that cannot compete in the market place is in my view strength of capitalism, not a weakness. In fact, one of the central themes of company law is the limited liability of shareholders which allows for the orderly bankruptcy of business models that are not fit to survive.”
* Elisha Tshuma is a graduate of the M Com programme (Management Practice, specialising in trade law and policy) which was offered by the University of Cape Town and the Trade Law Centre (tralac)
» Download the Public Notice from the Zimbabwe Revenue Authority (Zimra) concerning Mid-Term Fiscal Policy Changes here.
Zimbabwe Revenue Authority (2014). How Surtax Is Charged. Accessed from http://www.zimra.co.zw/index.php?option=com_content&view=article&id=1959:how-surtax-is-charged&catid=21:did-you-know&Itemid=91
Zimbabwe National Chamber of Commerce (2015). Trade deficit for 4months to April at $1.13 bln as platinum companies suspend exports. Accessed from http://www.zncc.co.zw/2015/05/trade-deficit-for-4months-to-april-at-1-13-bln-as-platinum-companies-suspend-exports/
Jere, K (2013). The role of national courts in ensuring COMESA Member States’ compliance with regional integration obligations. Accessed from http://www.tralac.org/discussions/article/5318-the-role-of-national-courts-in-ensuring-comesa-member-states-compliance-with-regional-integration-obligations.html
Zimbabwe Statutory Instrument 91 of 2015
Zimbabwe Statutory Instrument 93 of 2015