• Hippo says VAT exemption raises production costs by trapping input tax
• CEO Tendai Masawi says the business is operating at about 75% capacity
• Industry engagements with Government on restoring zero rating have made little progress

Harare- Hippo Valley Estates is pressing Government to restore sugar to zero rated VAT status as the producer operates at about 75% capacity and looks for room to raise output, employment and productivity.

Chief Executive Tendai Masawi in an exclusive interview with Equity Axis said engagement with Government has continued through submissions to various ministries, although progress has remained slow. He said the sugar industry believes a return to zero rating would improve the economics of production and create room for higher utilisation of existing capacity.

“We believe the Second Republic will listen,” Masawi said. He added that Hippo is currently operating at about 75% capacity and that a more supportive tax treatment could allow the company to increase production, create employment and lift productivity.

Sugar currently carries VAT exempt status, which changes how producers treat taxes incurred on inputs. Under zero rating, producers can recover qualifying input VAT even though the final product carries VAT at zero percent. Under exemption, input VAT generally becomes part of the producer’s cost base because it cannot be recovered in the same way.

That cost transmission has become central to Hippo’s case for policy reform. Every additional input carrying unrecoverable VAT raises the cost of producing sugar, reducing the economics of expanding throughput and reinvesting in factory and agricultural operations.

Hippo has previously estimated the annual cost associated with the current VAT treatment at about US$7 million. The company has also raised concerns around outsourced services, where unrecoverable VAT increases the effective cost of contractors and other external inputs.

Masawi said the industry has submitted several papers to Government and has been invited by different ministries to continue presenting its case. He said the engagements have yet to produce the policy change producers had expected.

The tax issue comes at a time Hippo is trying to lift production after a delayed start to the 2026 crushing season. The company has been operating its mills at roughly 9,000 to 9,500 tonnes of cane a day and extended the season to recover part of the production shortfall created earlier in the year.

Higher factory utilisation carries a direct requirement for commercially viable cane, energy, labour and processing costs. A tax structure that adds unrecoverable VAT to those inputs increases the cost attached to every additional tonne processed.

Hippo’s argument therefore centres on capacity already sitting within the business. The company is not asking Government to create new milling infrastructure before production can rise. It is arguing that lower input tax costs would improve the economics of using more of the capacity already installed.

A move from the current 75% operating level towards fuller utilisation would increase the amount of cane processed through the mills and raise the volume of sugar available for domestic and export markets. Masawi linked that expansion to employment and productivity gains across the wider sugar value chain.

The policy also carries consequences beyond Hippo’s factory gates. Sugar production supports outgrowers, transporters, contractors, packaging suppliers and downstream industrial users. Higher utilisation at the mill increases demand across those linked activities, provided the additional tonnes can be produced and sold at commercially viable margins.

Domestic sugar demand has strengthened during 2026, with local sales taking a larger share of industry volumes. That gives Hippo a stronger internal market for additional production and increases the commercial value of removing costs that constrain factory utilisation.

Masawi said the industry will continue engaging Government despite limited progress so far. Hippo’s immediate case is now measurable through capacity utilisation, with the company operating at about three quarters of its potential and arguing that restoring zero rated VAT treatment would give producers more room to push output higher.

The policy decision therefore sits directly inside Hippo’s production economics. A return to zero rating would reduce the amount of input tax embedded in costs, improving the financial case for higher utilisation, reinvestment and employment across the sugar value chain.

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