2,5pc insurance tax not only peculiar to tobacco
Agriculture Specialist Writer
AS some tobacco farmers whine over the 2,5 percent insurance tax contained in Statutory Instrument (S.I.) 103 of 2023, the Insurance and Pension Commission (IPEC) has revealed that it was the standard charge internationally and was not only peculiar to Zimbabwe or the tobacco crop.
IPEC director insurance and microinsurance Mrs Sibongile Siwela recently said the externalisation levy was charged for all insurance business that is placed outside the country and was not peculiar to tobacco insurance, adding that it had been in existence since 2016.
“The levy is partly meant to discourage the externalisation of insurance business outside Zimbabwe as this results in the country losing the much-needed foreign currency, yet the local market may have the capacity to absorb the risk.
“This practice is not unique to Zimbabwe but is done by most jurisdictions when an insurance company externalises risk. The main objective is to ensure that the collected premiums are used to develop the local economy instead of that of another country,” she said.
S.I. 21 of 2016, S.I. 46 of 2022 and the recent S.I. 103 of 2023 all use the same formula to calculate insurance.
According to S.I. 103 insurers and brokers placing business outside Zimbabwe shall be levied using the formula (a + rx), where a is fixed levy of US$92 per application, r is the rate of 0.025 and x is the external premium.
The only difference between these three S.I.s is the fixed levy, which was US$50 in 2016, $10 000 in 2022 and the current US$92.
Zimbabwe Tobacco Association (ZTA) chief executive officer Mr Rodney Ambrose recently said due to the high-risk nature of insuring the high value tobacco crop, 80 percent of the risk was insured offshore as the local re-insurance market was unable to cover the risk.
“IPEC has directed that all tobacco insurance premiums paid by farmers be subjected to a 2,5 percent tax payable to them. This tax will further increase the farmers cost of production and discourage farmers from taking out crop insurance, which is totally contrary to what the tobacco industry and the Government are pushing for, more so in light of climate change and the need for protection of the investments made by farmers and financiers,” he said.
Mr Ambrose believes before IPEC issues an approval for the placement of offshore insurance, the levy must be paid to them with the levy then added to the farmers insurance invoice by the insurance company who then remits it to IPEC on settlement.
“Our concern remains that due to insufficient local risk cover capacity, tobacco has to be insured externally with global insurers. This is not the fault of the farmer and as such should be exempted from the 2, 5 percent tax. If there was sufficient local risk cover capacity and farmers chose to insure externally, we would have no objection to the levy,” the ZTA boss added.
Meanwhile, in an effort to increase access to local funding, the Government localised tobacco production financing starting this 2023/24 season by removing restrictions on the use of locally sourced funds to support the production of tobacco in the country.
Presenting the mid-term monetary policy statement recently, Reserve Bank of Zimbabwe (RBZ) governor Dr John Mangudya said locally sourced funds can now be used in funding tobacco production.
“In terms of Section 4 of the Exchange Control (Tobacco Finance) Order, Statutory Instrument 61 of 2004, tobacco merchants are required to source offshore financing to produce and buyback green leaf tobacco. Tobacco merchants who fail to secure offshore financing are required to apply to the RBZ for authority to raise funds on the local market. With immediate effect, there will be no restrictions on the use of locally sourced funds to support the production of tobacco in the country,” said Dr Mangudya.
The RBZ boss said as a result of this development the Exchange Control (Tobacco Finance) Order, Statutory Instrument 61 of 2004 shall be amended to take account of this change. The RBZ has since issued directive RY114 of 2023 to operationalise the monetary policy statement.