Economists have warned that the Treasury’s recent increase in fuel levies could push up pump prices and cascade through the economy, raising costs for businesses and households.
The Strategic Reserve Levy on diesel has risen to US$0.12 per litre from US$0.05, a 140% increase. The levy on petrol has gone up to US$0.523 per litre from US$0.413. Both changes took effect on 2 June.
Economist Vince Muswere told Business Times the increase could trigger widespread price adjustments across the economy.
“Any increase in fuel prices leads to a knock-on effect since fuel is at the centre of all economic activity,” Muswere said.
“Businesses pass on the fuel price increase to customers in every economic sector. Consumers are generally facing an increasing cost of living, and any fuel price increase is unwelcome.”
Economist Eddie Cross questioned the rationale behind the move, saying the policy lacked a clear economic justification.
“I cannot see any justification for this measure. We do not hold strategic fuel stocks. These are taxes in a real sense and in present circumstances unjustified,” said Cross.
Economist Enock Rukarwa argued that Zimbabwe’s fuel pricing structure is increasingly uncompetitive compared with regional peers because of heavy taxes, levies and margins built into pump prices.
“When you look at the cost build-up on fuel, taxes and levies remain relatively elevated compared to our regional peers,” Rukarwa said.
“At current levels, the government should review taxes and levies downwards. We cannot have a situation where about 40% of the fuel price consists of taxes and levies while another significant portion is made up of margins accruing to various players along the value chain.”
He said the authorities should undertake a comprehensive review of the tax structure and address inefficiencies in the fuel supply chain to lower costs.
Economists say fuel price increases have long acted as a powerful inflationary trigger because they affect virtually every stage of economic activity.
Higher transport and logistics costs push up production and distribution costs, forcing businesses to raise prices to protect margins.
As inflation accelerates, consumers spend a larger share of their incomes on necessities, cutting discretionary spending and weakening domestic demand.
Leave a Reply Cancel reply