Finance Minister Dr Bwalya Ng’andu has justified that government moved to maintain Value Added Tax – VAT instead of Sales Tax comes after inherit problems that were discovered around sales tax which include cascading effects, negative impact on GDP growth and job losses through elimination of intermediaries in the supply change.
However, some economists and financial analysts have raised concern questioning why Zambians should be asked to ensure austerity while the copper mining houses are allowed to draw huge VAT refunds, amounts that could even pay off the country debt without international borrowing.
ZRA Commissioner General Kingsley Chanda in May 2019 revealed that VAT refunds had increased from K 774 million per month to K1.4 billion (about US$108 million) a month, meaning that VAT refunds annually would reach in excess of US$715 million to US$1.3 billion. The first Euro bond due for repayment is US$750 million.
The newly appointed Finance Minister had last week during the presentation of the 2020 National National Budget announced government’s plans to maintain VAT and instead, introduce administrative measures to strengthen its enforcement and efficiency, which some analyst doubt would yield much due to the highly complex and financially powerful mine owners,
In the 2019 budget address by former Finance Minister Migrate Mwanakatwe, government proposed to abolish VAT and replace it with Sales tax, which was meant to stem the massive VAT refunds mostly by mining companies. However, the mines threatened to cut off the middlemen which led the the proposed sales tax implementation to be widely rejected by the business community who mostly are mere traders in the copper industry value chain.
Speaking at the Post Budget analysis at Lusaka’s government complex on 27 September 2019, Dr Ng’andu said a wide analysis on Sales Tax was conducted and that various stakeholders highlighted problems which could have risen in the implementing Sales tax hence its decision to maintain VAT.
“The debate that took place around VAT/Sales tax was quite interactive and I came out with this horrible feeling such that I had no idea of what was right or wrong because I was completely lost, but with the continued discussions we finally concluded with my ministry that we will maintain VAT and address challenges that surrounded it,” he said.
He added, maybe the problem was not with changing the VAT policy but examine the VAT regime hence possibly fix its administrative challenges which could have at one point found their way in the implementation of Sales tax.
H said there is need to deal the with the frauds and lubricating that surrounded VAT which has proved to be the best and most exercised system across the globe adding that shunning from its problems wouldn’t have had made a different if the country moved to Sales tax.
He has since pledged government’s commitment in collaboration with the Zambia Revenue Authority – ZRA to ensure administrative measures are put in place to stop the VAT scums that was taking place.
During the Minister’s 2020 budget presentation, he heighted some measures to be in place which include, making it mandatory to use Electronic Fiscal Devices – EFD for VAT and other tax types and facilitate accreditation and Virtual EFD software suppliers and vendors.
Some stakeholders have however lamented the drop of sales tax saying that the mining houses are too powerful and rebuff VAT audits which reduce the incidences of huge refunds. Sales tax was suggested because the mining houses have been claiming huge VAT refunds and ZRA has over the years failed to stem these refunds.
