A Social Economist Kelvin Chisanga cites the scrapping off 25% excise duty to make it free rate on fuel as a necessary measure, and the Government’s suspension of excise duty on key commodity such as petroleum, is a good strategic move to moderate security of supply of the commodity which makes a long-lasting solution on the energy subsector in the local economy.
Mr Chisanga explained that the zero rating of excise duty on fuel (thus petrol and diesel) has been subjected to some temporal policy changes throughout the fiscal year of 2022, as this has been the only policy instrument that really enjoyed three month extensions in this particular current running year, and obviously this policy instruments was basically necessitated by many factors that could dive to itemize further.
He said that the background to suspending of the excise duty was first introduced in February of 2021 with a main objective to cushion the impact of global fuel pricing dynamics that was exceedingly characterized by some dramatic effects of price changes that occurred during and after COVID-19 pandemic.
“The zero-rating has been suspended many times in the current budget of 2022 and was then lastly reinstated temporarily in September 2022 for the period up to end of December 2022 to help buffer economic challenges that could have come through with this particular last quarter which is usually considered as a dry-spell period due to less productive activities,” he explained
Mr Chisanga stated that this particular announcement makes the zero-rating to assume as a permanent feature in statute for the coming financial year, so that the government does not have to make some temporary announcements every quarter to inform and give guide on petroleum subsector, adding that it is largely taken as a key administrative component in nature to maintain on the status quo, of course going by the looks of things so as to trigger predictability in business and investment until further notice.
However, the policy aim is mainly to continue cushioning on pricing effects so that economic players are well-guided against the global shocks and rising demands of fuel prices due to the ongoing Russia-Ukraine war.
“However, on one hand, as a going concern the government has to also balance up on the demands for generating revenue from fiscal policy processes with the need of meeting up social sector demands which has remains on expansion as well. Meanwhile, businesses on the other side have to reduce the cost of running their operations with a deep sense of focused in prospective and projection especially with the aspect fuel which runs as a serious cost centre on business activities. So, in essence or by an average estimation in view, excise duty is currently valued slightly about K4 or thereabout per litre of the pump price, so it is very much important to state that it will be a huge saving to the consumer profile which also includes the scale players in the domestic market,” he disclosed
He noted that it is also cognizant to say that the cost of petroleum in Zambia is standing relatively expensive as compared to the region market except Malawi and Zimbabwe, so by nature Zambia is standing at a very comparative disadvantage with this subsector owing the country’s position in the market (land-linked location).
“Secondly we have few or lack of oil reserves to guarantee security of supply, no matter going forward we will have a proper projection which shall be availed to the Ministry of Energy,” he said
Mr Chisanga said that with the turn of things, this is a good model to marshal with strongly, as any such moves trying to reduce the consumer burden, are basically welcome ideas, as such tactical plans will help make the economy command competitively and advance on the much needed growth. But as usual certainly it has to be an act of balancing especially between many demanding factors particularly on the public expenditure as the revenue side remains challenging, and this poses with a serious risk to meet up with expectation in the economy.
“By policy implication, we will be avoiding pump prices from reaching K30/litre which is the true cost-effective value,” Mr Chisanga said