Some players in the garment-making sector are allegedly
skimming the Government of billions of dollars in potential tax revenue and
suffocating downstream textile industries by abusing a special clothing
manufacturers’ rebate (CMR) designed to protect domestic apparel producers from
external competition.
A month-long investigation into the conduct of some industry
players showed that after benefiting from the rebate on imported fabrics, some
clothing manufacturers were using transfer pricing, under-invoicing and
incorrect declarations to evade local taxes while taking advantage of
preferential trade agreements to realise huge profits in regional markets.
This comes at a time when the Government has adopted zero
tolerance to corruption, arrested and started prosecuting high-profile people.
It also comes at a time when Government has created a
special anti-corruption unit in the president’s office and reconstituted the
Zimbabwe Anti-Corruption Commission (ZACC).
Documents seen by The Herald show that in one glaring case,
one of the country’s major garment manufacturing companies (name withheld) with
factories in Southerton, Harare and Belmont, Bulawayo, made work suits at an
average cost of $9 per unit which were surprisingly exported to South Africa
for a paltry $6.
Further investigations revealed that the “exported” work
suits had simply been moved to a sister company in South Africa which later
sold each unit for R250 (about $150 at the official interbank exchange rate)
after being accompanied by Sadc and Comesa certificates which exempted the
Zimbabwean entity from paying duties for exports into the South African market.
With the National Employment Council (NEC) for Clothing
Industry agreeing to pay a minimum monthly wage of $237 beginning April this
year compared to the R3 500 ($2,124) awarded to South African workers in
January, the company realised super profits after benefiting from the very
cheap local labour and duty exemptions in Zimbabwe and South Africa.
So low were the local wages that the company was able to
pay a monthly salary for a Grade A tailor and remain with $50 change after
selling only two work suits in South Africa.
“While there is absolutely nothing wrong with local
companies exporting goods and making huge profits, it becomes worrying when the
companies deny the Government its dues by evading tax.
“When a company purports to export a product at a price
below the manufacturing cost, something doesn’t add up and suspicion must be
raised.
“The Government needs to investigate who the companies are
exporting to, because it has become clear that some of them are engaging in
transfer pricing and exporting to their companies domiciled in other
countries,” said a source close to the investigation.
“What is unfortunate is that some of the companies
benefitting from statutory instruments are constantly hiking prices and
compromising the popularity of the very Government that sought to bail them
out.”
Over 50 companies are enjoying protection under Statutory
Instrument 32 of 2015 cited as Customs and Excise (Clothing Manufacturer)
Rebate Regulations.
The clothing manufacturers’ rebate (CMR) was introduced
after stakeholders lobbied the Ministry of Finance and the Ministry of Industry
and Commerce to prop up the struggling industry and allows apparel makers to
import fabrics from man-made yarn, duty free.
Materials eligible for the rebate include denim, cotton
sewing thread, woven fabrics of polyester staple fibres, chenille fabrics,
tulles and other net fabrics.
The fabrics are kept in bonded warehouses from where they
are withdrawn under the supervision of the Zimbabwe Revenue Authority (Zimra)
as and when they are required for use.
However, 100 percent cotton fabrics are not covered under
this rebate as they are produced locally.
Indications are that some players in the industry have been
importing material that is locally available and later producing garments for
the international market, a development that is threatening to destroy
downstream players such as cotton farmers, ginners, spinners and weavers.
Some of the locally produced fabrics that are being
imported include cloths for protective clothing and T-shirts.
Three years ago Zimspin, a local producer of fabric, had
plenty of stocks but ended up selling the material at a loss for $1 instead of
$2,95 owing to a glut of cheap imports.
An industry analyst said the country had over the years
continued watching huge textile companies such as David Whitehead and Cone
Textiles going under because of serious viability challenges adding that there
was need for a relook into policies governing the industry.
It was out of greed that some players in the clothing
industry were continuing to push for the extension of the rebate instead of
working hard to help the local textile industry overcome the challenge of cheap
imported fabric.
Zimbabwe Textile Manufacturer’s Association (ZTMA)
president Mr Admire Masenda said they were not aware of any companies abusing
the CMR but said authorities should come down hard on anyone breaching laws and
regulations.
“By introducing the CMR, the intention of the Government
was to help local clothing manufacturers to be competitive in the region. We
have not received reports on anyone abusing the rebate but it is possible for
some to be involved in such things as under-invoicing and false declarations,”
said Mr Masenda.
He said imported fabrics such as polyester and poly cotton
were cheaper than 100 percent cotton enabling local garment makers to make
cheaper and competitive products for the export market.
Zimbabwe Clothing Manufacturers association chairman Mr
Jeremy Youmans said it was possible for some companies to abuse the CMR by
selling imported fabrics on the local market instead of making them into
garments.
“I am not aware of any malpractices but if there is anyone
abusing the CMR, we will certainly report them to Zimra,” said Mr Youmans.
Cotton Company of Zimbabwe managing director Mr Pious
Manamike said the government needed to tighten controls to ensure that there
was no abuse of any facilities by industry players.
Asked whether it would be prudent for the government to
review the CMR in the wake of its alleged abuse Mr Manamike said: “For now the
textile industry is not yet fully functional. We have to get the industry up
and running before we start talking about restricting imports.
“This can create shortages and we move from one problem to
another. What the authorities would rather do is to deal with specific
companies found to be in breach of laws.
Another industry player Mr Kingston Mhako, whose company
Kingsport specialises in corporate wear and custom made apparel, opined that
the government could remove the statutory instrument in question to ensure that
importers paid the right duties and then give incentives to exporters upon
presentation of the necessary documents showing that all transactions were
above board.
“We can have a situation where exporters apply for a duty
drawback from Zimra who will then refund any duties after being satisfied that
imported materials were subsequently exported,’ said Mr Mhako.
Duty drawback is the refund, reduction or waiver in whole
or in part of customs duties assessed or collected upon importation of an
article or materials which are later exported.
James Doward of Glendale Spinners declined to comment on
the issue. Herald
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