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TABLE 3: REVENUE EFFECT OF SADC CET ON ZIMBABWE (US$ MILLIONS) Product Category
Capital Goods Raw Materials
Intermediate Goods Finished Goods Total
(Source: Author's Own Calculations Based on SMART Simulations)
The total loss in revenue represents 11.77 percent of customs revenue collected in 2012 and 1.48 percent of total tax revenue collected in the same year. This therefore means that revenue loss caused by a SADC customs union is insignificant. Although this value is a small proportion of government revenue, it is significant given the increasing importance of customs revenue to the country. Table 4 below shows the five products with the highest revenue losses.
TABLE 4: LARGEST LOSS IN REVENUE BY PRODUCT (US$ MILLIONS) HS Code
87 85 84 24
Other Total
Product Description Motor Vehicles
Electrical Products
Central Heating Boilers Tobacco
Other Products not specified above (Source: Author's Own Calculations Based on SMART Simulations)
Motor vehicles reveal the largest loss in revenue if Zimbabwe joins SADC customs union with a 40.56 percent of total loss in revenue (see table 4). This is followed by electrical products and central heating boilers with revenue loss of US$9.535 million and US$6 million, respectively. In Zimbabwe, motor vehicles currently attract duty rates ranging between 60 and 80 percent. These rates are to be reduced to 0 percent and 25 percent respectively depending with the type of vehicle. Under the SADC nomenclature public transport vehicles, goods vehicles and ambulances are treated as capital goods which mean that they will attract a duty rate of 0 percent. Other vehicles are treated as finished goods and will attract a duty rate of 25 percent.
Consumer Welfare Effect
One of the main arguments in favour of free trade is that consumers will benefit from lower prices. Whether or not this will occur depends on the extent of trade creation as against trade diversion. For Zimbabwe we have already seen that the total trade creation surpass trade diversion which means that consumers will benefit from the implementation of the customs union. Although this arrangement will lead to the loss of government revenue and impact negatively on some producers, individual households will benefit from lower prices. This will mean that households will be in a position to increase consumption, and hence their welfare will also increase.
As shown in Table 5 below, SMART simulation results reveal that Zimbabwe will experience a gain in consumer welfare valued at US$7.091 million by implementing the SADC customs union. Makochekanwa (2012), estimating the implication of COMESA/SADC/EAC tripartite got related results of a welfare gain of US$14.4 million for Zimbabwe.
THE IMPACT OF A SADC CUSTOMS UNION ON ZIMBABWE 1006
Revenue Loss -33.359 -3.004 -2.346 -3.746
-42.455
Revenue Loss -17.219 -9.535 -6.123 -1.914 -7.664 42.455