[By Kennedy Nakoonje Munyandi]
In his first address to the National Assembly delivered on 10 September 2021, H.E. President Hakainde Hichilema outlined “the broad policy direction” of his new government’s five-year term. This policy direction was set out under five thematic areas, one of which was “economic transformation and job creation”.
Without having to look into the crystal ball, we can now tell with a high degree of certainty what tax changes the new government is likely to implement. I discuss below the new government’s economic transformation activities that will have a tax implication. These tax changes may not all be made in the 2022 national budget, whose preparation was already started by the former PF Government, but are highly likely to be made in 2023 and beyond.
Tax administration: The President announced that his “administration will implement tax and revenue administration reforms to facilitate a predictable tax environment and enhance revenue collection at all levels of government”. Further, he announced that the new government “will broaden the tax base for revenue collection and lower the individual tax burden”.
It must be stated that these pronouncements are consistent with the UPND Manifesto. What is not clear is how this will be done. Tax base broadening can mean different things to different people. At times, the term is taken to mean reducing the tax-deductible items so that applicable tax rates are on a “broader base”. At other times, broadening the tax base is taken to mean increasing the number of taxpayers by either registering new ones or increasing compliance. It is feasible that the new government might want to do both of these things.
Agriculture: The President spent sometime to discuss the important role that agriculture plays in ensuring food security and job creation, as well as discussing the massive growth potential that the sector still has. The new government’s agricultural transformation activities include plans to “promote and increase livestock production” through “stocking and restocking, artificial insemination as well as enhanced disease surveillance and control”; to “facilitate research in animal breeding, disease prevention and nutrition”; to “support the construction and rehabilitation of livestock infrastructure such as laboratories, service centres and breeding centres across the country; and to “promote production of fingerlings as well as establishment of hatcheries in the country to facilitate the growth of the aquaculture industry”.
Activities such as artificial insemination animal breeding, disease prevention, construction and rehabilitation of livestock infrastructure will involve provision of services to the sector by experts.
In my previous article, I discussed how the income tax law has over the years narrowed down the definition of the term ‘farming’ by excluding service provision. Further, I argued that going by the current definition it is unlikely that activities such as animal or fish breeding would constitute farming. To qualify to be an animal or a fish farmer under the income tax law, you will be rearing animal or fish. What this means is that these business activities, which are very vital in enhancing the agricultural sector, would not qualify for tax incentives offered to the sector. It is my anticipation therefore that the new government might want to revisit the current definition of farming in the income tax law.
Mining: There will be changes to the mining tax regime. The President was specific on this matter. He stated that in order to “ensure predictable and sustained investment in the sector, government, in consultation with stakeholders, will review the mining tax policy framework. This is aimed at introducing a stable mining tax regime necessary to increase investment in the sector”. He has bemoaned the issue of “inconsistent fiscal policy” existing in the sector.
Although these planned changes by themselves bring about uncertainty, it is hoped that once made the changes will endure and indeed bring about tax stability to the sector. In one of my earlier articles, I had discussed the issue of inconsistence in fiscal policies and I am glad therefore that the matter is receiving attention at the highest level. It must be pointed out, however, that the UPND Manifesto did not seem to indicate that the party would revise the mining tax regime once in power. In that sense, the planned changes come as a surprise.
Tourism: The President highlighted the many challenges that the sector has been faced with. He promised, among other things, that his “government will prioritise tourism as one of the key sectors for restoring economic growth, creating jobs and reducing poverty”, noting that the “potential of the tourism sector has, however, not been fully exploited. The sector is characterised by fewer foreign visitors, shorter length-of-stay and a low number of domestic tourists. In the recent past, the sector has been severely affected by the COVID-19 pandemic. To reposition the sector amid the COVID-19 pandemic, our administration will put in place a robust programme to facilitate a quick recovery of the sector”. I will not be surprised if the government’s revival plan for the sector would include (additional) incentives, in both direct and indirect taxes.
International tax policy: The President did not provide a glimpse of what the new administration’s international tax policy will be. Therefore, it might be safe to assume that there will be no changes to the current policy. This is rather surprising considering the numerous global developments in this area, the need to modernise our tax laws and aligning the same to the new Constitution.
In conclusion, my assessment is that the new government is likely to be more receptive to stakeholder input. In this regard, perhaps what will equally shape the tax policy of the New Dawn government will be what we the tax professionals and other stakeholders suggest and put forward to government. We do have a great opportunity to improve and move to our tax system to a fairer, adequate, simple, and transparent one.
The Author is the proprietor of Munyandi InterTax Advisory Xervices (MiTAX), an international and domestic tax law specialist firm. Contact: email@example.com, WhatsApp +260 76 203 1514, or Facebook MiTAX2021.