Zambia forgoes $200 million in tax revenue to cushion consumers from global fuel price shocks

By Lovemore Lubinda 

LUSAKA – Zambia is forgoing about US$200 million in tax revenue this year by providing relief on fuel taxes, a move government says is intended to shield households and businesses from volatile global oil prices.


The relief has been effected through reduced excise duty, adjustments to road levies and deferred VAT on petroleum products. Instead of passing the full import cost to consumers, Treasury is absorbing part of the increase.


Energy Regulation Board data shows that without the intervention, pump prices for petrol and diesel would have risen by an additional K2 to K3 per litre since the start of 2026, following spikes in global crude driven by OPEC production cuts and shipping disruptions.


Currently fuel pump prices with the cushion in effect are as follows: Petrol: K26.15→ K25.29/litre, Diesel: K28.11→ K26.86/litre, Kerosene: K28.32→ K27.02/litre and Jet fuel A-1: K30.27→ K28.71/litre.


“Government’s priority is to protect the cost of living,” a senior Treasury official said. “The $200 million we are forgoing is the cost of keeping transport, food and other essential goods affordable.”


Excise duty is an indirect tax applied to specific high-volume goods like petroleum, tobacco, or alcohol. By zero-rating VAT and suspending excise duty, the government legally removes those tax lines from imported fuel before it reaches the pump. This temporarily lowers the landed cost so that surging global oil prices don’t immediately hit local consumers and logistics firms.


How this impacts the economy
Fuel is an input cost for almost every sector in Zambia, from agriculture and public transit to manufacturing and retail supply chains. Keeping pump prices manageable prevents “imported inflation,” where high shipping and transport costs cause food, goods, and service prices to skyrocket across the board. 


Analysts say the relief has helped contain inflation and kept bus fares and food prices lower than they would have been. The mining, agriculture and transport sectors, which are heavy diesel users, have also benefited from lower operating costs.


Sacrificing $200 million in revenue is a significant decision for state coffers. However, government policy views this temporary tax holiday as a necessary economic shock absorber. 


Protecting business profit margins and household purchasing power during a crisis generates long-term economic stability that outweighs short-term tax losses. 


The $200 million revenue gap represents about 1.2% of projected domestic revenue for 2026. Economists warn that the foregone taxes will put pressure on the budget and on Zambia’s IMF Extended Credit Facility targets. Government may have to make up the shortfall through other tax measures, spending cuts, or additional borrowing.


This policy extension was formally enacted by the Cabinet through Statutory Instrument No. 56 of 2026 under the Customs and Excise Act and Statutory Instrument No. 61 of 2026 under the Value Added Tax Act. It extends the temporary tax holiday through September 30, 2026.


What it means for fuel prices now
Without this $200 million tax relief absorbing global volatility, August pump prices would be significantly higher. Instead, the Energy Regulation Board was able to reduce August fuel prices across the board, lowering petrol to K25.29 per litre and diesel to K26.86 per litre.


The decision few days before Zambia’s General Election on August 13, where the cost of living is a key campaign issue. President Hakainde Hichilema’s administration has faced criticism over high prices, and the fuel relief is seen as part of efforts to ease pressure on voters. Opposition parties have however argued that the relief is temporary and does not address structural problems in the fuel supply chain.


Officials say the relief will be reviewed monthly depending on international oil prices and fiscal space. If crude remains above $85 per barrel, maintaining the subsidy could become more expensive. For now, government is betting that protecting consumers today is worth the $200 million revenue sacrifice — but that bill will have to be settled in the 2027 budget. Kumusha