When war broke out between Russia and Ukraine a lot of governments were forced to go into overdrive as fuel and energy prices spiraling out of control. Zambia was one of the countries that responded by scrapping Value Added Tax and Excise Duty on fuel. Now that prices have come down a bit it seems Zambia will be reinstating both VAT and Excise Duty on fuel. This means that Zambians might experience a jump in fuel prices.
Below is a memo from the Zambia Ministry of Finance and Planning to the Director General of the Zambian Energy Regulation Board (Zambia’s equivalent of ZERA). The memo informs the Director General of the impending reinstatement of excise duty and VAT on fuel.
A rise in fuel prices will be inflationary
Zambia has managed to bring its inflation rate from 21% in October 2021 to the current 9.9% in August 2022. They even managed to shrug off the inflationary pressures brought about by the war in Ukraine back in February and March and actually saw a decrease in inflation. Part of that is thanks to urgent measures introduced in the wake of the war. While Zimbabwe folded its hands and waited until the economy was in full tailspin mode to intervene Zambia was more proactive. Like Zimbabwe, Zambia is landlocked and relies heavily on fuel to transport both goods and people.
Transport is an integral part of the economy and removing VAT and Excise duty will possibly be inflationary. However, unlike in Zimbabwe where businesses are relying on fuel for everything including powering expensive generators to power through extensive 16-hour load-shedding, Zambia actually has a power surplus. They are producing about 1 00MW more than they need/rather can use.
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