In Zimbabwe’s ongoing effort to balance fiscal revenue with the need for affordable living, Statutory Instrument (SI) 248 of 2023 stands as a pivotal piece of legislation. Published on December 29, 2023, this SI introduced significant amendments to the Value Added Tax (VAT) framework, moving several essential goods from “Zero-Rated” status to “Exempt” status.
1. Overview and Effective Date
Statutory Instrument 248 of 2023, officially titled the Value Added Tax (General) (Amendment) Regulations, 2023 (No. 64), was enacted by the Minister of Finance, Economic Development, and Investment Promotion.
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Effective Date: January 1, 2024.
The primary objective was to overhaul the First Schedule of the principal VAT regulations, effectively redefining which goods and services are spared from the standard 15% VAT rate.
2. List of Goods and Services Under Exemption
Under SI 248 of 2023, the following items were listed as exempt from VAT. It is important to note the distinction: while “Zero-Rated” goods allow businesses to claim back VAT on production costs (input tax), “Exempt” goods do not.
Essential Basic Commodities
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Maize Meal & Grains: Including maize, wheat, and certain flours (maize flour in bulk or small packs).
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Bread: All standard loaves of bread.
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Milk & Dairy: Fresh milk and certain dairy products.
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Sugar: Raw and refined sugar.
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Cooking Oil: Including soya bean, sunflower, and cottonseed oils.
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Salt: All common salt types.
Agricultural and Industrial Inputs
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Agricultural Machinery: Tractors, planters, and harvesters (specified by commodity codes).
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Animal Feed & Remedies: Stock lick, poultry feed, and livestock medicines.
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Pesticides & Fertilizers: Specifically those used for plant growth and crop protection.
Utilities and Services
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Water: Domestic water supplied through pipes.
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Electricity: Supply of electricity for domestic use.
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Local Authority Rates: Charges levied by city councils and local boards.
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Tobacco: Unmanufactured tobacco and tobacco sold on auction floors.
3. Impact Analysis: Business and Industry
The shift from zero-rating to exemption has created a ripple effect across the Zimbabwean economy.
A. Impact on Manufacturers and Retailers
The most significant “hidden” impact is the inability to claim input tax. Previously, manufacturers of bread or cooking oil could claim back the VAT they paid on electricity, packaging, and fuel. Under SI 248, they can no longer do this.
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Cost Absorption: To maintain margins, many businesses have been forced to absorb these “unclaimable” VAT costs as an overhead.
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Price Pressure: Industry experts, including the Confederation of Zimbabwe Industries (CZI), estimated that this change added a 2% to 3% cost burden to production. This often translates to slight price increases for the end consumer, despite the “exempt” label.
B. Impact on the Informal Sector
Because exempt goods carry a baked-in cost (due to the lost input tax), registered formal businesses may find it harder to compete with informal traders who do not comply with VAT regulations. This has led to concerns regarding “unfair competition” in the retail space.
C. Impact on the Agriculture Sector
The exemption of agricultural machinery is a double-edged sword. While it keeps the sticker price of a tractor lower by removing the 15% VAT, large-scale commercial farmers who are VAT-registered can no longer claim the input tax on these massive capital investments, potentially slowing down mechanization efforts.
Absolutely. To understand the gravity of the shift introduced by SI 248 of 2023, one must look at the technical “behind-the-scenes” change in tax accounting. While “Zero-Rated” and “Exempt” both mean the consumer pays 0% VAT at the till, they are worlds apart for a business’s bottom line.
4. Comparison of Tax Treatment (Before vs. After SI 248)
| Category | Zero-Rated (Before SI 248) | Exempt (After SI 248) |
| VAT charged to Consumer | 0% | 0% |
| Input Tax Reclaimable? | Yes (Businesses get refunds for VAT paid on inputs like fuel, power, and packaging) | No (Businesses must absorb VAT paid on production inputs as a cost) |
| Registration Requirement | Business must register if they meet the turnover threshold | Business cannot register/claim if they only sell exempt goods |
| Impact on Retail Price | Lower (Cost of production is lower due to tax refunds) | Higher (Businesses often increase prices to cover “lost” input tax) |
5. Analysis: Why This Matters for Industry
The move from zero-rating to exemption is essentially a cost-transfer mechanism from the government to the producer.
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The “Hidden” Tax: When a bakery buys electricity or plastic packaging, they pay 15% VAT. Previously, they would get this money back from ZIMRA. Now, under SI 248, that 15% becomes a permanent cost of production. To keep the business viable, the bakery must either cut profits or raise the price of a “tax-free” loaf of bread.
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Cash Flow Strain: For manufacturers of large-scale basics (like cooking oil or sugar), the inability to claim input tax on multi-million dollar machinery or massive utility bills creates a significant cash flow “leak.”
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The Export Disadvantage: In VAT law, if a product is “Exempt” locally, it cannot be “Zero-Rated” for export in the same way. This can make Zimbabwean manufactured basics less competitive in regional markets like the SADC, as the “hidden” VAT cost is baked into the export price.
6. Summary of Affected Goods
As a reminder, the primary goods moved into this “Exempt” category include:
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Basic Foods: Bread, milk, sugar, cooking oil, salt, and maize meal.
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Medicines: Most pharmaceutical products and allied substances.
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Agro-Inputs: Animal feed, fertilizers, and specific agricultural machinery.
7. Conclusion
SI 248 of 2023 represents a strategic move by the government to protect the fiscus from massive VAT refund claims while attempting to keep basic goods affordable. However, for the business community, the “Exempt” status is more expensive than “Zero-Rated,” leading to a delicate balancing act between price stability and industrial viability.
