Energy Forum Zambia has called on the Minister of Finance and his counterpart from Ministry of Energy to work on modalities which will help curb the loss of tax revenue which has continued to exist in the illegal fuel business in the country.
In a statement on his organization’s budget expectations, EFZ Chairperson Johnstone Chikwanda said the country has been losing huge sums of money through false declarations by fuel marketers who claim to be in transit to Congo DR then divert the commodity to within the country once they pass the boarder point.
Dr Chikwanda explained that the gravity of false transit fuel declarations cannot be underestimated especially in transit countries where fuel price taxation is relatively high such as Zambia and that evading such a huge tax burden results in abnormal profit margins for the perpetrators and partial loss of business for law abiding corporate entities.
“By virtue of its unique geographic location, Zambia is a major transit corridor for fuel from different countries destined for the Democratic Republic of Congo (DRC) whose population is estimated to be 72 million. Statistics indicate that the Eastern part of the DRC including Katanga Province consume almost the same volume of fuel as Zambia. The bulk of this volume is transported from Tanzania, Mozambique and South Africa. This situation has been like this for decades and is unlikely to change in the foreseeable future.
“The formal fuel business sub-sector co-exists with a booming informal fuel business sub-sector. Malfeasance fuel business include making false declaration to Zambia Revenue Authority (ZRA) border control that the fuel is “transit fuel” when in actual dimension it is meant for sale in Zambia. Once the fuel tanker is released at the border, the fuel is illegally diverted and off loaded in Zambia. This false declaration causes ZRA to lose tax revenue on that fuel parcel including 16% VAT, 25% import duty and other levies. In a nut shell, ZRA loses more than 40% tax revenue with each false transit fuel declaration.
“The gravity of false transit fuel declarations cannot be underestimated especially in transit countries where fuel price taxation is relatively high such as Zambia. Evading such a huge tax burden results in abnormal profit margins for the perpetrators and partial loss of business for law abiding corporate entities on account of uncompetitive price especially in the commercial sector. Reduced business for law abiding corporate entities lead to a further loss of tax revenue due to reduced corporate tax payout,” he explained.
He further explained that the challenge can be best understood if one examined the the volume of transit fuel declarations main entry points and compare it with the volume of fuel consumption in Katanga Province where it purported to be destined.
“To gain an understanding of the gigantic proportion of illegal fuel business in Zambia, one ought to examine the volume of transit fuel declarations at Zambia’s main points of entry and compare with the volume of fuel consumption in Katanga Province. The other form of malfeasance fuel business is the buying of kerosene which has little or no taxes and mixing it with diesel in ratios of up to 40% so that they can increase the volume of highly taxed diesel. When diesel is adulterated with kerosene by as high as 40%, ZRA loses tax revenue based because tax on diesel is higher than that on kerosene,” he said.
He said curbing the informal fuel business will not only assist with optimising revenue collections but that it would also help in ensuring that the country has safe fuel for motorists and protect the business interest of law abiding oil marketing companies.
“Because of the existence of a robust informal fuel sub-sector, many countries including South Africa, Tanzania, Kenya, Ghana, Brazil and the USA have very sophisticated mechanisms in place in order to forestall or reduce the malfeasance of fuel adulteration and diversion of untaxed transit fuel beyond the efforts of the revenue authorities in those countries.The informal fuel business sub-sector is so huge that curbing its existence can greatly assist with optimising revenue collections, safe fuel for motorists and protecting the business interests for law abiding oil marketing companies.
“To this end, the forum wishes to call upon the Minister of Finance to engage with his counterpart at the Ministry of Energy to examine various readily available instruments which can assist him to increase revenue collection from the fuel sub-sector for the 2017 National Budget and beyond. This booming informal fuel business in Zambia has been going on for a very long time and appears to have signed a permanent co-existence facility with the formal fuel business,” he said.