Zimbabwe govt defends fuel taxes

THE Government has defended Zimbabwe's fuel tax regime, describing fuel as one of its most effective tools for collecting revenue from the vast informal economy, despite persistent complaints over high pump prices.

Finance, Economic Development and Investment Promotion Ministry permanent secretary George Guvamatanga said fuel taxes allowed Government to reach a broad section of the population, including people operating outside the formal tax system.

"Fuel is a fiscal instrument. We actually use it as an instrument to collect taxes from everyone," Guvamatanga said during a post-2026 Mid-Term Budget and Economic Review breakfast meeting.

He said fuel was particularly effective because virtually everyone depended on transport.

"Whichever way you travel, you cannot walk from Kambuzuma to town," he said.

"One way or another, you will get into a bus, a kombi or drive your own vehicle. That is where we are able to capture everyone."

Guvamatanga said individuals could avoid direct taxation by remaining outside the formal economy, but they could not completely avoid the costs associated with transport and fuel.

His comments come amid renewed scrutiny of Zimbabwe's fuel prices, which have remained comparatively high in the region.

Zimbabwe experienced sharp increases in petrol and diesel prices following the escalation of conflict involving the United States and Israel against Iran, which disrupted global energy markets and pushed international fuel prices higher.

Diesel and petrol prices rose from US$1.52 and US$1.56 per litre respectively to US$1.77 and US$1.71 before climbing to US$2.05 and US$2.17 on March 18.

By April 2, diesel and petrol had reached peaks of US$2.11 and US$2.23 per litre respectively as tensions in the Middle East intensified.

Prices subsequently eased, with diesel and petrol falling to US$2.09 and US$2.08 on May 5.

Government temporarily deferred some fuel-related taxes to cushion consumers, but Treasury later disclosed that the measure cost more than US$74 million in revenue during the first half of the year.

The tax relief helped bring prices down to US$1.99 for diesel and US$1.98 for petrol on June 19, before further declines to US$1.87 and US$1.93 respectively on July 8.

Renewed tensions involving the United States and Iran later pushed prices back up to approximately US$1.95 for diesel and US$1.96 for petrol.

Zimbabwe has remained among the Southern African Development Community countries with the highest pump prices, with structural costs adding to the impact of international oil prices.

Government has attributed part of the difference to Zimbabwe's relatively high free-on-board (FOB) costs, describing the country as a "price taker".

The FOB component accounts for about 67% of the diesel price and 50.3% of the petrol price.

The country's relatively high ethanol blending ratio also adds to petrol costs, alongside various levies.

Guvamatanga said the Government was increasingly looking for points where informal economic activity inevitably intersects with the formal economy so that revenue could be collected.

The informal sector is a major component of Zimbabwe's economy.

Previous Reserve Bank of Zimbabwe research cited by Government estimates that the informal economy generates more than US$14 billion in annual revenue and holds about US$2.5 billion in cash at any given time.

"Our next policy direction is to identify those areas where the informal economy inevitably formalises and ensure that government is able to collect revenue from those activities," Guvamatanga said.

He said telecommunications was another important avenue for reaching the wider population.

Government collects several levies from airtime and data services, including a health levy intended to support healthcare financing.

"You need a mobile device, you need data and airtime. We therefore capture revenue through ICT as well because people cannot disconnect themselves from the digital economy," he said.

Guvamatanga also defended the controversial Intermediated Money Transfer Tax (IMTT), saying previous reductions in the tax had not necessarily resulted in lower prices for consumers.

He said businesses sometimes maintained existing prices even after their tax burden had been reduced.

"Our studies indicate that IMTT has already been fully embedded in the pricing framework of the economy," he said.

"The question is whether industry would remove it from their prices if the government abolishes it."

The comments are likely to fuel debate over the extent to which taxes are ultimately passed on to consumers through the prices of goods and services.

Despite Government's reliance on fuel as a fiscal instrument, Confederation of Zimbabwe Industries (CZI) chief economist Cornelius Dube said collections from fuel-related taxes declined during the first half of the year.

He said excise duty collections from fuel fell by about 4% compared with the corresponding period in 2025, while fuel levy collections declined by approximately 3.7%.

"The government took a knock in terms of fuel tax collections," Dube said.

However, he noted that overall tax revenue increased by about 30% compared with the same period last year, reflecting stronger mobilisation from other tax heads.

Dube said industry would expect improved revenue collection to translate into better public service delivery, reduced fiscal pressures and more efficient Government spending.

The fuel tax debate therefore highlights a difficult policy balance for Treasury: while high fuel taxes provide a relatively efficient way of capturing revenue from a largely informal economy, they also increase transport and business costs in an economy already under pressure from high operating expenses.

Government's challenge will be to maintain revenue mobilisation without placing excessive pressure on households and businesses through taxes embedded in the cost of everyday economic activity.