Sales tax rate must protect consumers – ZRA

ZAMBIA Revenue Authority commissioner general Kingsley Chanda has said the rate at which the sales tax introduced by government will be implemented should protect consumers and promote local businesses.

Speaking at the post-budget discussion organized by the Zambia Institute for Policy Analysis Research (ZIPAR) in Lusaka last Friday, Chanda said the revenue body and government had six months in which to agree on a favorable rate for the sales tax that would replace the Value Added Tax (VAT) effective April next year.

“Now of course, I have heard here in the ZIPAR analysis where they are saying this is going backwards, it’s against the world trade and so on, we have 46 countries today that are using the sales tax, including the United States of America and some other countries where we even go to ask for donor support. So what is very important especially for us is to first understand the economic environment in which a particular tax can apply,” Chanda said. “Unfortunately, VAT has not worked for Zambia. We have six months in which we shall engage our stakeholders. The minister has indicated that she wishes to implement this tax in the next six months. There is no reason for government to want to stifle growth. The rate will be agreed; we need a rate that does not stifle production, but a rate that protects consumers.”

For VAT, everyone else in the value chain had been receiving refunds from ZRA, except the consumers, he lamented.

“One needs to look at VAT and the context in which it was introduced back from 1995. VAT is a consumption tax which is primarily to promote manufacturing and exports. Now let me look at the complexion of the Zambian economy, you will find that most of the things we produce in Zambia are not consumed in Zambia, especially minerals. We also have the issue of the cash economy where most of the transactions are done in cash, therefore, the paper trail is quite limited. What has happened overtime, especially some years especially in the early 2000, VAT as a tax became negative because the government started refunding more than it was collecting,” Chanda said. “These refunds were largely going to mining companies. As of today, the ZRA needs not less than K800 million (over $70 million) every single month to refund VAT. And most of that money goes to the mining industry.”

He said doing away with VAT was inevitable.

“You have a situation where the Treasury must have a budget to finance a tax. When in fact, a tax must finance the Treasury. When you have a situation like that, you don’t need experts, you don’t need rocket scientists to tell you that there is a problem. And when there is a problem, the most reasonable thing to do is to take a decision to reverse the negative impact of a particular tax,” said Chanda.

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