Cigarettes manufacturer: ZIMRA is losing US$2 million annually due to tax leakages

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By Alois Vinga

LEADING cigarette manufacturer, British American Tobacco (BAT) on Monday said the Zimbabwe Revenue Authority (ZIMRA) is losing around US$2 million annually due to leakages in the country’s taxation system.

BAT said the long-term effects are that law abiding companies are exposed to unfair competition by smugglers.

The company’s acting managing director  Stephen Nyabadza told an analysts briefing Monday that the new taxation method is exposing government to high losses while pushing companies to the edge.

“We estimate that government is losing at least US$2 million annually due to products being sold in the market without paying the appropriate duties and this is seen because they sell their products at prices below the sector’s minimum tax on the product.

“The recently incepted Ad Valorem tax policy initiated by government bases calculations on prices declared by the manufacturer. What is worrying is that we are moving from a more clear and efficient Specific Tax System where you just pay tax basing on the number of cigarettes where we were paying $25 per one thousand cigarettes,” Nyabadza said.

Nyabadza said that BAT discovered the tax under declarations after noticing that a lot of these products are being sold in the informal market, at prices pegged far below the sector’s minimum tax bands.

He pointed out that the most countries in the region have since abandoned that taxation system because it gives unscrupulous manufacturers room to under declare taxes and give illicit products a chance to enter the markets.

Meanwhile, in the six months to June 2019, BAT reported a 48% increase in revenue to $9.6 million which was mainly as a result of swelling prices in the economy.

The company reported that the growth in revenue was driven by inflationary pressures price increases targeted at containing an increase in costs. The leading cigarette manufacturer in Zimbabwe said the growth in revenue countered a decline in volumes which were negatively impacted by shrinking consumer disposable incomes.

Volumes on aggregate eased by 20% with the company’s premium brand Dunhill easing by 87% while the duo of value for money brands Everest and Madison realised a combined decline of 21%. The Ascot brand, which is at the bottom of the pyramid eased 5%.

The company said that shortages of foreign currency and electricity choked the efficiency and overall production capacity for those in the manufacturing sector.