Zimbabwe is plugging loopholes in the rebate scheme for clothing manufacturers. The country has lost huge amounts in tax revenue since some players in the garment making sector abuse the rebate facility. They use 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.

Although the rebate facility has assisted manufacturers to reduce production costs, making their apparel competitive on the export market, some beneficiaries of the scheme undermine tax revenue and distort both national and regional value chains and linkages through various malpractices. These include disposal of fabrics intended for value addition on the domestic market and transfer pricing.

Materials eligible for rebate are: manmade yarn and include denim, cotton sewing thread, woven fabrics of polyester staple fibers, chenille fabrics, tulles and other net fabrics. The rebate was devised in order to resuscitate the clothing value chain. It was initially granted on select imported fabrics for use in the manufacture of clothing for a period of one year. The facility, which is due to expire this year after benefiting more than 50 companies, has been renewed over the years after taking into account developments in the textile and clothing industry.