‘VAT may drive food price hike’

Business Reporter
FOOD prices may rise this year driven by value added tax, which was reintroduced from April on previously zero rated products, a research report by a local economic think tank says.

The Zimbabwe Economic Policy Analysis and Research Unit says that three factors could push the food prices northward, including VAT on previously zero rated food imports.

Finance and Economic Development Minister Patrick Chinamasa gave notice of the intention to reintroduce the VAT from February 1 2016 in the Government Gazette in January.

The previously zero rated products on which the VAT has been reintroduced include maize meal, cooking oil, rice, flour, potatoes, margarine, eggs and various fruits and vegetables.

Zimbabwe is susceptible to external inflation factors because it relies heavily on imports in the wake of lack of competitiveness of local producers, also operating below capacity.

Other factors that could see food prices trending north include effect of El Niño on agriculture (cereals); maize and wheat and the effect of the 14 percent hike of power tariffs.

“Proposed increase in electricity price may lead to pass through in consumers, further undermining competitiveness of locally manufactured goods,” ZEPARU said in its research findings report presented recently at an Africa Think Tanks Forum.

In terms of the power tariff, the Zimbabwe Energy Regulatory Authority has reportedly sanctioned power utility Zesa Holdings, to effect a 14 percent increase on the cost of electricity.

Zesa had applied for a 49 percent adjustment, but its proposal was cut to just 14 percent on concern a higher tariff increase would worsen the plight of already struggling consumers.

In terms of El Niño, Government has since declared state of disaster after the bad weather destroyed crops in most parts of Zimbabwe, leaving 5,4 million people in need of food aid.

But ZEPARU pointed out that the deflationary environment could continue if the South African rand, which has plunged almost 50 percent between 2014 and 2016, continues to fall.

ZEPARU contends that the domestic economy was likely to remain mired in negative inflation growth if consumer confidence remains low, leading to weak aggregate demand.

Further, deflation pressures could persist if the overly strong dollar keeps appreciating against currencies of Zimbabwe’s major trading partners, which include South Africa.

“Need for policy induced economic stimuli to fight deflation, measures to fight corruption and curbing of smuggling are critical,” the economic research think tank said.

Food prices had been in gradual decline over the past couple of years owing to the strengthening of the dollar and or the relative weakening of other major global currencies.