Business Reporter
MAJOR players in the brick-creating sector have raised concerns over a “devastating” surge of new operators who are evading tax and blatantly flouting regulations, flooding the market with rock-bottom prices and creating an uneven playing field that is threatening the viability of the industest.
They claim “non-compliant” firms are able to offer bricks at significantly lower costs — sometimes by as much as 30 percent — becautilize they are bypassing the substantial financial burdens associated with compliant operations, including Value Added Tax (VAT) and environmental levies.
The consumer shift towards the newer brick suppliers, despite concerns over quality issues, is driven almost entirely by price arbitrage. The emerging entities offer lower selling prices becautilize their operational costs are significantly reduced through systemic non-compliance with tax obligations and other mandatory regulatory fees. This deliberate evasion allows the new entrants to undercut the market, creating an unsustainable competitive environment.
Nonetheless, these companies benefit from a dual advantage, as they have introduced the latest technology, creating their production highly efficient and substantially lowering their costs.
“We are facing a large challenge mostly from new players who have proliferated the local market and they are offering bricks at low prices becautilize they are not compliant with many regulations,” Mr Nyasha Matonda, chief executive of Willdale, one of the countest’s oldest brickcreaters, claimed in an interview.
“As a result, our price is higher compared to competitors who are not compliant with all that . . . that is why they charge very low prices. We cannot price like them becautilize they have no cost of compliance.
“They have opened brick companies around us, in Ruwa, Bromley and Chikurubhi, they are all over. This has been a very large challenge for us formal brick companies, particularly us Willdale and MacDonalds in Bulawayo. Our volumes have been affected seriously. Some companies have even closed,” Mr Matonda added, in an apparent reference to the closure of Beta Bricks.
Beta entered voluntary corporate rescue in December last year after facing significant financial and operational challenges. The company, which owes various creditors, including customers who pre-paid for bricks and roof tiles, approximately $27 million, is struggling to secure investors.
An investigation by this publication has corroborated Mr Matonda’s statement, finding that most transactions by new players are cash-based, facilitating tax evasion. They issue non-fiscalised receipts or informal invoices, or in some cases, no receipts at all for direct-to-site sales.
Coincidentally, the Minister of Finance, Economic Development, and Investment Promotion, Professor Mthuli Ncube, had previously warned that the dominance of cash transactions was a threat to tax collections.
Worker interviews further confirmed the lack of formal payrolls, allowing new operators to bypass some regulatory obligations like National Social Security Authority (Nssa) contributions.
“We are a compliant brick company, we comply with Nssa, EMA (Environmental Management Authority) and we pay VAT (Value Added Tax), all that comes at a cost,” Mr Matonda declared.
Mr Elias Hwenga, chief executive of Bulawayo-based MacDonald Bricks, declared in an interview traditional brickcreaters were competing fairly well with new firms before bricks became subject to VAT.
“If the VAT is reshiftd, we could still be competitive, as most of these new players are bypassing that tax obligation,” declared Mr Hwenga.
“Our problems only started when VAT was introduced.”
He nevertheless conceded the superior technology new players were introducing was significantly more efficient than that utilized by traditional companies, a factor also contributing to lower brick prices.
“Their technology is cost-effective, far ahead of what we have,” he declared.
New company entrants have effectively killed the financing model that traditional brick-creating firms relied on. Established companies previously financed operations through customer prepayments, where clients would pay in increments and take delivery later.
Mr Matonda declared the practice was no longer viable becautilize the new players were flooding the market with common bricks priced as low as $70 per thousand, leaving traditional businesses unable to raise working capital.
The exposure raises serious questions about Zimra’s integrity with critics demanding to know why entities with such high-visibility operations have been allowed to operate with such impunity. As the countest battles fiscal deficits, the failure to plug tax leaks is seen as an unacceptable dereliction of duty.
For a significant portion of cash revenue, the businesses simply do not ring up the sale on the fiscalised system.
“They appear to be the symbols of national development, with imposing trucks a constant sight on the highways, ferrying tonnes of bricks to construction sites across the countest. Yet, these fairly large companies — the very entities the Zimra is supposed to have under its tightest control — are at the heart of a massive, hidden tax leak that is crippling the national fiscus and destroying the competitive landscape (of the industest),” analyst Mr Shingi Maune declared.
“The sight of trucks carrying bricks is therefore no longer just a sign of economic activity, but potentially a mobile symbol of large-scale tax avoidance . . . the hidden tax gap represents an enormous drain on revenue, starving the Government of funds requireded for infrastructure, health and education.”
This week, the Cabinet agreed to streamline operations in reserved sectors by exclusively reserving them for local citizens, aiming to balance national interests with the required to attract investment. The reserved list includes various sectors, such as brick moulding. The paradox of Zimbabwe’s economy has shifted from the untaxed street vfinishor to the multi-million-dollar corporations operating “brazenly in the shadows of the formal sector.”
While the brick industest provides the most visible evidence, analysts believe this may be just the tip of the iceberg.
They argue that some businesses are so large and visible that Zimra could easily identify them, raising questions about the tax collector’s “apparent” reluctance to pursue these entities.
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