For Zimbabwe, fuel marking cannot come soon enough as smuggling spirals out of control

For Zimbabwe, fuel marking cannot come soon enough as smuggling spirals out of control

By Plaxedes Sibanda, HARARE, July 31 (The Source) – Zimbabwe’s energy regulator will go ahead with plans to introduce mandatory fuel marking which it says will curb rampant fuel smuggling which is prejudicing the country of an estimated $1 billion annually in unpaid taxes.

The programme was set to start in January this year but with no legal framework support, it will now take off at the beginning of next year.

According to the Zimbabwe National Statistics (Zimstat) the country imports 1,5 billion litres of  fuel and lubricants at an estimated cost of $1,3 billion annually but Zimbabwe Revenue Authority chairperson, Willia Bonyongwe suggested recently that the cost of smuggled fuel was much more, costing the State over $1 billion in undeclared levies.

A recent survey analysing fuel usage and consumption patterns in Zimbabwe by an independent research firm Authentix noted that based on official fuel consumption and vehicle ownership statistics, noted that Zimbabwe’s vehicle to fuel ratio was nearly five-fold below that of neighbouring countries.

The research shows that an individual vehicle in Zimbabwe uses an average of 801 litres per year while neighbouring countries like Namibia, Mozambique, Zambia, Tanzania and Botswana have consumptions levels of 4,660 litres, 4,832 litres , 3,537 litres, 3,519 litres and 3,537 litres per vehicle respectively.

This suggests that fuel imports into the southern African country are massively under declared.

“This significant difference cannot, in our view, be explained by variations in topography, road conditions, or driver behaviour. Based on this analysis of the data, illicit untaxed fuel is entering the market to service consumers who, knowingly or otherwise, are prepared to purchase such fuel,” reads the report.

“Given the significant price differential between fuel retail prices in the neighbouring countries, the strong suspicion is that the lower cost or transit fuel is being illicitly sourced and sold untaxed within Zimbabwe, undermining the Government’s collection of excise tax and VAT revenues. Based on average vehicle fuel consumption volumes in the comparative neighboring countries, this report concludes that significant excise tax and VAT revenues are lost to Zimbabwe.”

Using 2013 figures, Zimbabwe had nearly 1,7 million registered vehicles, nearly three times more than Tanzania at about 600,000 but its fuel ration is less than a third.

“It is relatively clear that there is another economy in fuel trade that is running parallel to the existing formal downstream industry,” noted Authentix.

Fuel comes into Zimbabwe mainly through two streams, the Beira pipeline from Mozambique and via rail and road. Both diesel and petrol are charged taxies and levies amounting to 0,50 cents and 0,63 cents respectively. These include duty, ZINARA road levy, carbon tax, debt redemption and strategic reserve levy.

Speaking on SpotFM’s Morning Grill this week, Zimbabwe Energy Regulatory Authority (ZERA) chief executive Gloria Magombo said some of the fuel exempted from paying duty was finding its way to the market, prejudicing government of revenue and creating unfair competition. Jet A1 and fuel imported for projects which would have been granted national status are exempted from duty.

Magombo said the fuel marking programme, which was expected start in January this year, had been delayed pending approval of the required statutory instrument but now had gone to tender.

Paraffin was also non-dutiable until recently when authorities introduced duty of 0,40 cents per litre following an increase in fuel adulteration where traders blend paraffin with fuel. According to finance minister Patrick Chinamasa in the 2017 national budget, paraffin was “being used by unscrupulous traders for blending with diesel, in order to achieve higher profit margins, thereby prejudicing revenue to the fiscus and causing mechanical damage to motor vehicle engines.”

Authentix said by “deploying a covert fuel marking technology in all fuels, the Government gains a detailed view of actual fuel flows within the country, and highlights illicit fuel practices, providing the Government with actionable intelligence for enforcement purposes.”

Magombo said the marking involved testing the quality and quantity of fuel at source and at the distribution point to ensure compatibility. The programme would increase accountability in the fuel delivery chain and maintain quality from source.

“We did request for proposals for the fuel marking company because most of the work has been done…We have finished development of the relevant regulations and terms of reference for us to go to tender for procurement,” said Magombo.

“We are using the last five months of the year are to finalize procurement and mobilization for the the program to start effectively at the beginning of next year.”  

Ghana introduced fuel marking programme in 2014 which saw fuel adulteration go down by 78 percent in the following year.