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Business Reporter

Following new Government regulations aimed at boosting value chain efficiency and combating unfair competition from the informal sector, Zimbabwe’s top beverage companies have started enforcing stricter product distribution rules.

The new guidelines, in line with the Finance Act of 2023, announced by the Zimbabwe Revenue Authority (ZIMRA) this week limit purchases from manufacturers to tax-compliant wholesalers in a bid to combat tax evasion and ensure fair market competition.

While formal retailers face no buying limits from the wholesalers, non-VAT registered retailers, informal traders, and individuals have a US$1 000 purchase limit every 30 days under the new regulations.

Any person who purchases for the first time from that wholesaler in any calendar year, or if the person concerned cannot produce a receipt as proof of a previous purchase from the same wholesaler, they can only purchase goods not exceeding US$20.

Delta, Varun, and African Distillers urged customers yesterday to comply with new regulations mandating a valid tax compliance certificate, VAT certificate, taxpayer ID, and relevant trading or liquor licenses.

“We bring to your immediate attention the requirements of the new regulations contained in the Finance Act No. 13 of 2023, which come into effect on January 1, 2024.

“To comply with the legislation, we are required to obtain the following documents from all trading partners: a valid ITF 263 Tax Compliance Certificate (TCC), a Value Added Tax Certificate, only when applicable and for entities above the threshold defined by ZIMRA for 2023, and the requisite valid trading license, whether wholesale or retail, as applicable,” the companies said in separate statements.

The new regulations prescribe a penalty for non-compliance.

“The regulations prescribe that we collect a surcharge of 30 percent above the standard price for remittance to Zimra for any trader that cannot provide the listed documents. This applies to any sales exceeding US$1 000 per transaction, undertaken within a thirty (30) day period,” the firms said.

 A senior employee with Varun Beverages told this publication that the new regulations have caused a near-stoppage in product sales and distribution as the industry was trying to map a way forward.

“On Tuesday and Wednesday, our trucks did not deliver any beverages in fear of breaking the law, and the sentiment was the same across the industry. On Wednesday, we had an industry meeting with other players, and we decided to make a joint statement to our clients,” the source said.

“Yesterday, we started dispatching trucks, but we have reverted to the use of third-party distributors, who are VAT registered and compliant.”

In recent times, the heart of the beverage trade has been direct distribution to street vendors and small and medium-sized enterprises (SMEs). This symbiotic relationship allowed distributors to reach their target market seamlessly, while vendors flourished by offering a diverse range of beverages to consumers.

However, the introduction of the new regulations has disrupted this harmonious balance, leaving industry needing to readjust operations.

“In all honesty, this shift in policy has sent shockwaves through the industry, disrupting the long-standing distribution channels that were the lifeblood of local businesses,” the employee said.

Confederation of Zimbabwe Industries (CZI) chief executive officer Sekai Kuvarika said her organisation has been having marathon meetings with Government officials from the Ministry of Finance, Economic Development and Investment Promotion, and Industry and Commerce to find common ground with regards to the new measures.

She said industry fears that some of the measures, such as the introduction of VAT on some value-added products, could result in price increases, fuelling inflation.

Already, some butcheries have put out notices to customers that they will start adding a 15 percent value-added tax to the prices of their meat products. Prior to the new measures, meat and other basic products were zero-rated in terms of VAT.

CZI put forward submissions with regards to the new law that forbids businesses, other than wholesalers with a license, registered for VAT, and with a valid tax clearance certificate, from buying from manufacturers.

The same law allows only retailers with valid licenses, registered for VAT, and a valid tax clearance certificate to buy from wholesalers.

However, such a law, according to Ms Kuvarika, disrupts existing trade channels and will result in some players along the value chain not receiving goods.

“We have had meetings with Ministry of Finance officials on Wednesday, and we are set to hold further meetings with the same ministry and another meeting with our parent ministry of Industry and Commerce on yesterday.

“We have put forward our submissions, and hopefully we will see some changes to some of the measures,” she said.

In January 2017 Government introduced VAT on basic commodities but revoked the measures a month later following an outcry.

Ms Kuvarika said her organisation had also met with the Ministry of Industry and Commerce to discuss similar issues.

She said key issues that were part of CZI’s submissions to the ministry include the movement from VAT zero-rated to VAT exempt, the disruption to the route to market, the sugar tax issue, as well as the 10 percent cap on trading exchange rates.

According to the CZI presentation seen by this publication, the new tax measures will have different impacts in the various value chains in terms of magnitude, “but the general impact is that the VAT that is no longer claimable will have to be passed on to consumers with resultant price increases.”

The industry lobby group is of the view that “there is a greater likelihood that the unintended consequences will be achieved than there is a likelihood of achieving the intended consequences’.

“Trade in the informal sector will not stop; they will import or smuggle goods,” reads part of CZI’s presentation.

“Formal manufacturing will lose market share to imported goods being sold by the informal trade sector. Poverty will worsen if micro-traders are restricted from accessing goods for subsistence-level trade.

CZI proposed that the value chain be allowed to “continue trading as is current.” The other proposal was to put a 12-month moratorium on restricting trade with the informal sector while efforts to formalise are being pursued.

“As a transitional mechanism, formal businesses charge a presumptive VAT on all goods sold to the informal sector after invoice values in excess of a certain amount,” reads part of the proposal.