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Africa Moyo and Nesia Mhaka
Government is set to generate over $3 billion from excise duty levied on petrol and diesel this year following the recent fuel price adjustment, according to a report compiled by Zimnat Asset Management.
Government reviewed fuel prices upwards on January 12, 2019 to eliminate rampant corruption that was taking place in the fuel sector, which resulted in spiking demand for petrol and diesel.
The fuel price adjustment left petrol prices at $3,31 per litre while diesel is retailing at $3,11 per litre. The price adjustments eliminated long winding queues for fuel as demand suddenly slumped.
The adjustment of the fuel price pushed up Government’s excise duties on fuel from 45c per litre to $2,31 per litre for petrol, while excise duty for diesel and paraffin rose from 40c per litre to $2,05 per litre, which allow for more revenue to be generated.
The Ministry of Energy and Power Development says the normal consumption of diesel is 2,5 million litres per day while 1,5 million litres of petrol are gulped per day.
Said Zimnat: “Against this background, the excise duty on petrol (excluding rebates) is likely to increase from $20 million per month to $100 million per month, while the excise duty on diesel (excluding rebates) is likely to increase from $30 million per month to around $150 million per month.
“On an annual basis, assuming normal fuel consumption levels remain unchanged, Government stands to collect in excise duties, at least $1,2 billion from petrol and $1,8 billion from diesel, excluding tax rebates.
“Excise duties on fuel will therefore be projected to surpass the 2 percent intermediated tax collection projections for 2019, as the largest source of Government tax revenue.”
The rise in potential revenues from fuel are expected to provide Government some breathing space, if the funds are channelled towards infrastructure development.
Zimnat also said the fuel price adjustment, which has eased the demand for fuel demand, puts Government in an admirable position from which to boost economic growth, taking advantage of funds being conserved per month from reduced imports of petrol and diesel. The report says some of the positive impacts of raising the prices include taming the demand for fuel, reallocation of scarce foreign currency from fuel to the productive sectors and mopping up excess liquidity in the country.
“The immediate impact of the price of fuel increase will likely be a reduction in demand for fuel by both business and households,” reads the report.
“Households may likely have the largest decline in demand, as incomes have been under pressure since the price hikes of October 2018 . . . the likely fall in demand for fuel may translate to foreign currency savings for Government, which could be reallocated to other productive sectors of the economy.”
Zimnat Asset Management said the diversion of an additional $50 million per month of foreign currency to diesel and petrol imports over the last 6 to 8 months had a “destabilising effect” on the country’s non-exporter productive sectors, as they were unable to source crucial imported raw materials.
“The normalisation of demand in the fuel sectors is therefore likely to improve the availability of foreign currency in other key sectors of the economy,” reads the report.
Bongani Ndlovu