Ministry of Finance has reiterated that the depreciation of the Kwacha against convertible currencies has negatively affected the operational costs of the players in the petroleum value chain.
In a statement issued to Money FM News, Ministry Secretary to the Treasury Fredson Yamba said this led to Oil Marketing Companies that are importing petroleum products to land the products in the country at a higher cost than the Energy Regulation Board (ERB) set wholesale price.
“Further, the cost of doing business in the downstream value chain has gone up,” he said.
Mr. Yamba explained that government as such considered various options to keep the fuel price unchanged while reducing the cost of doing business for players in the petroleum value chain to ensure sufficient supply of the commodity.
“After evaluation of the options available, a consideration to Zero-rate the supply of fuel in addition to the existing relief on import duty was reached,” he noted
He has since stated that the zero- rating of fuel is expected to stabilize the pump price in the medium term.
The Secretary to the Treasury explained that Zambia’s petroleum requirements are met through importation of petroleum feedstock and refined petroleum products.
He said the Petroleum feedstock which account for about 43 percent of the national consumption is imported via the TAZAMA pipeline from Dar-e-salaam in Tanzania to INDENI Petroleum Refinery in Ndola through the Government engaged suppliers.
Mr. Yamba further revealed that the finished petroleum products which “account for about 57 percent of the National consumption” are imported predominantly via road and to a lesser extent via rail through the Government engaged Bulk Suppliers of petroleum products.
On 31st December 2020, the Ministry issued Statutory Instrument No. 125 of 2020, the Value Added Tax (Zero- Rating) (Amendment) Order, to include diesel and petrol on the zero-rating schedule of the Value Added Tax Act.”
“The overarching objective of the Instrument is to cushion the potential pump price increase due to the worsening fuel pricing variables,” the Ministry of Finance said.
The Ministry of Finance stated that the depreciation of the Kwacha against the major convertible currencies augmented by the increase in the world fuel prices, necessitated an imperative need to mitigate the potential upward pump price adjustment by removing the VAT from the fuel supply chain.