Prepacked rice exempted from VAT

Golden Sibanda
Senior Business Reporter
PREPACKED rice, in packages of 25kg or less, is now exempted from paying Value Added Tax (VAT) after the Government last week intervened to end confusion over the commodity’s VAT status.

Retailers had appealed to the Government for a review of the 14,5 percent VAT charged repacked rice, a requirement traders argued was repealed in 2017, but which tax authorities disputed.

Apparently, the challenge stemmed from confusion over interpretation of the law regarding packages where it was applicable or whether rice was tax liable at all following a number of policy changes since 2004.

In 2004 the VAT on rice was 15 percent, in 2008 it was zero rated, in 2016 it was exempted, in 2017 VAT was restored at 15 percent for two weeks from February 1 to 15.

In the same year rice was exempted from VAT again by Government. Now bulk rice is exempted from the tax, but small packs continue to attract VAT at 14,5 percent, as per demands by tax authorities.

Zimbabwe consumes about 200 000 tonnes of rice per annum. Players in the retail sector argued the policy inconsistency on VAT on rice was not attainable.

Former Finance and Economic Development Minister Patrick Chinamasa, repealed VAT for bulk rice in 2017, but packs of 25 kilogrammes or less remained liable, at least according to Treasury.

A request for backdated payment had ignited a sharp dispute between traders and the Zimbabwe Revenue Authority (Zimra), which argued that all repackaged rice 25kg or less were liable the for VAT.

While taxman did not collect the VAT since 2017, it had sent a payment request for repacked rice transactions since then, which retailers argued would affect viability.

But the Government has since moved to end confusion over the tax status repacked or prepacked rice, after issuing statutory instrument (SI)125 of 2021, which exempts specified rice packs from VAT.

The Confederation of Zimbabwe Retailers (CZR) expressed its gratitude to President Mnangagwa and his ministers of finance and trade for addressing retailers concerns.

“The confirmation of the VAT position for rice shows that Government is indeed committed to establishing a private sector led economy in line with the open for business policy,” CRZ president Denford Mutashu said.

Mr Mutashu added that confirmation that prepacked rice was VAT exempt would save many jobs, prevent informalisation and deindustrialisation of the economy.

But Mr Mutashu said the effective date of the exemption had led to ambiguity over application of the law and according to their understanding as per SI26A of 2017, the rice was tax exempt since February 2017.

He said this position is buttressed by the press statement issued by the then minister confirming the position that all rice was VAT exempt. Mr Mutashu said Finance and Economic Development Minister Mthuli Ncube should issue another SI, effective 2017, confirming the VAT status of rice.