All transactions taking place at the tobacco floors will be exempted from the 2 percent electronic transfer tax as Government moves in to safeguard farmers’ earnings, according to Finance and Economic Development Minister Professor Mthuli Ncube.
Prof Ncube said yesterday the move was meant to ensure farmers “ultimately get maximum benefits” from their produce.
Industry players had raised red flag over the 2 percent tax amid fears that the merchants were likely to collude and lower prices to shield themselves from “losses” that would have arisen from the tax.
Tobacco is Zimbabwe’s largest single foreign currency earner and output reached an all-time high of 253 million kilogramme last year.
Production is, however, expected to be lower this year after the crop in most parts of the country was affected by poor rains.
Tobacco merchants and auction floor operators, through the Tobacco Industry and Marketing Board had requested the Government to scrap the 2 percent tax, arguing it will seriously hurt their margins.
The Government introduced the 2 percent
tax in October last year to partly address the budget deficit and support key national capital projects.
“All the transactions taking place at the auction floors will be exempted from the 2 percent tax and the ultimate reason is to ensure farmers benefit most,” said the Minister.
Zimbabwe Farmers’ Union executive director Paul Zakaria said the scrapping of the 2 percent tax on tobacco-related transactions was a milestone which would smoothen the marketing season.
“That’s a huge relief on part of the farmer,” Zakaria said.
“It was going to (be a) bad season. It’s high time we understand that farmers are (in) business and want returns.”
Some of the transactions that are exempted from the 2 percent tax include transfer of funds between an individual’s mobile wallets and or bank accounts, transfer of funds from mobile money trust funds for the purchase of electricity, transfer of funds to mining houses by the Minerals and Marketing Corporation of Zimbabwe (MMCZ) as well as transfer of money to producers or sellers of gold by Fidelity Printers and Refiners.
Tobacco industry players had argued that their operations were similar to that of the MMCZ and Fidelity Printers and Refiners. As such, they also wanted to be exempted from the tax. They had also warned that additional costs arising from the 2 percent tax might result in deliberate lowering of prices by the tobacco merchants.
“People were panicking,” said one merchant who spoke on condition on anonymity.
“This is why only three out of 31 buyers participated during the first two days of the season.”
Resultantly, the average price was low; an average of US$2,07 per kilogramme as farmers held on to their crop in protest of low prices.
At the Tobacco Sales Floor, about 92 percent of tobacco farmers who had delivered their produce boycotted sales. Zimbabwe’s tobacco selling season opened on a low on Wednesday amid confusion over foreign currency retention thresholds. This was after the Reserve Bank made a u-turn on earlier decision to allow farmers to retain 50 percent of their earning in hard currency.
Early this week, the central bank issued a statement, stating that tobacco farmers would retain half of their earnings in foreign currency with the remainder being credited into their accounts at a premium above the prevailing US dollar exchange rate.
The RBZ had indicated that small-scale farmers would be allowed to keep their retained earnings for an indefinite period while large-scale growers would have 180 days to utilise their money, thereafter it will be offloaded onto the market at the prevailing exchange rate. Initially, the Reserve Bank had pegged the retention threshold for farmers at 30 percent, but later raised it following farmers’ outcry.
In a sudden turn, the RBZ said farmers will now receive 100 percent of their earnings in RTGS dollars, after deducting all costs. The farmers will have to, if they require the foreign currency, buy back the 50 percent component using the date exchange rate and their forex will be credited in the local FCA Accounts, the central bank said.
Recently, Government said it was realising at least RTGS$80 million monthly from the 2 percent tax.