Currency, Premiums and IPEC Levies: A Note On Statutory Instrument 268 Of 2020 Allowing For The Collection Of Levies By IPEC In Foreign Currency

by Nobert M. Phiri | Nov 11, 2020 | 0 comments

Following the adoption of the multicurrency regime in 2009, Zimbabwe reverted to the exclusive use of the Zimbabwean dollar in 2019. This was done through various legislative instruments, particularly the Finance Act No.2 of 2019 and Statutory Instrument (S.I) 212 of 2019^[1]. S.I 212 of 2019 provides for exclusive use of the Zimbabwean dollar to settle all domestic transactions as well as penalties for non-compliance. It also provides exceptions for the use of foreign currency in certain transactions. In this write up, we review the Exchange Control regulations of 2020 and in particular the recently promulgated SI 268 of 2020 which now permits the Insurance and Pensions Commission (IPEC) to collect levies in foreign currency.

November 2020 has brought with it another amendment to the Exchange Control Regulations through the promulgation of Statutory Instrument 268 of 2020, Exchange Control (Exclusive Use of Zimbabwean Dollar for Domestic Transactions) (Amendment) Regulations, 2020 (No.3). These Regulations allow for the charging of levies in foreign currency on all businesses operating? in foreign currency. This law therefore empowers IPEC to claim levies from insurance companies and pension funds with services being undertaken in foreign currency.

Statutory Instrument 212 of 2019
SI 212 of 2019 provides for the exclusive use of the Zimbabwean currency to settle domestic transactions.

All new insurance policies were to be issued in local currency with the exception of international travel insurance, motor insurance for vehicles in transit, customs bond insurance, bank cash in transit and safari operators insurance.

Statutory Instrument 85 of 2020^{^[2]}
In terms of section 6 of SI 85 of 2020 (payment of goods and services using free funds), any person could use free funds for the purchase of goods and services in Zimbabwe. It must be highlighted that it remains that goods and services must be chargeable in local currency, and payment may be made in foreign currency using an official exchange rate on the date of payment.

This therefore means that, policyholders may pay their premiums or contributions in foreign currency at the official exchange rate, should they so choose The premiums and contributions must be chargeable in Zimbabwean currency. Insurers cannot therefore demand payment to be exclusively in foreign currency, but rather, provide an option to pay in foreign currency at the official exchange rate.

Statutory Instrument 185 of 2020
SI 85 of 2020 was followed by SI 185 of 2020 which sought to compel all providers of goods and services to implement dual pricing in both the local currency and foreign currency. This SI is an acceptance that the economy is effectively operating in one currency (local ZWL) and trading in another (USD).

This SI provides as below,
“…The Exchange Control (Exclusive Use of Zimbabwe Dollar
for Domestic Transactions) Regulations, 2019, published in Statutory
Instrument 212 of 2019 are amended by the insertion of the following

section after section 6—

“Dual pricing and displaying, quoting and offering of prices for goods and services

7. (1) Any person who provides goods or services in Zimbabwe
shall display, quote or offer the price for such goods or services in
both Zimbabwe dollar and foreign currency at the ruling exchange rate”

It is pertinent to note that S.I 185 of 2020, which added to the already confusing monetary regulatory regime does not purport to repeal S.I 212 of 2019. The Exchange Control regulations thus have laws on one side prohibiting the use of foreign currency whilst on the other allowing the use of free funds/foreign currency. S.I 212 of 2019 prohibits a buyer and a seller from transacting in foreign currency while S.I 85 of 2020 permits a buyer to transact in foreign currency. SI 185 of 2020 then takes it further by allowing dual pricing for goods and services in both local and foreign currency.

Statutory Instrument 268 of 2020
SI 268 of 2020 provides for the collection of levies by IPEC in foreign currency and provides as follows;
Section 4 of the Exchange Control (Exclusive Use of Zimbabwe
Dollar for Domestic Transactions) Regulations, 2019, published in
Statutory Instruments 212 of 2019, is amended in paragraph (b) by the
insertion, after subparagraph (vi), of the following subparagraph—

“(vii) charging of any levy payable in relation to insurance business conducted in foreign currency or pension and provident funds business whose contributions are made in foreign currency in terms of an enabling law or authorisation by the exchange authority;”.

What does this Statutory Instrument mean for the Insurance Industry?
This law presently only applies to existing Insurance businesses that are authorised in terms of SI 212 of 2019 or by the Exchange Control Authority to offer insurance products in foreign currency.

What does it mean for Insurance Companies receiving premiums in Foreign currency?
All insurance businesses who are not authorised in terms of the Exchange Control to provide goods and services in foreign currency and yet receive premiums in foreign currency ( free funds ) cannot be charged a levy in foreign currency. This is because the policy remains a domestic policy whose currency of contract is Zimbabwean dollars.

Can Insurance Companies now Underwrite business in Foreign Currency?
Presently the answer is NO. However the wording of this Statutory Instrument as per below is indicative that the exchange authority will shortly be broadening the scope of insurance and pension business in foreign currency;

“…. whose contributions are made in foreign currency in terms of an enabling law or authorisation by the exchange authority.”- (emphasis mine)

Analysis
The issue of currency remains the real issue of concern for the Insurance and Pensions industry. This has brought with it much anxiety and confusion with both the policyholders/insured and the Insurance companies finding themselves in difficult positions arising out of the uncertainty created by the conflicting regulations. The irony of this effect is not lost on the insurance industry, bearing in mind that the primary object of insurance is providing certainty and assurance to its customers. The monetary regime in Zimbabwe needs to be comprehensively dealt with so that it provides real value for consumers of insurance and pensions services while affording insurance companies and pension funds real investment which will result in economic growth.