THE Zambia Revenue Authority (ZRA) is Government’s lead agency in domestic resource mobilisation.
With the country’s narrative as one of the fast-growing economies in sub-Saharan Africa, donors are reducing their contribution of aid to the treasury.
This is because donors have realised and, genuinely so, the country’s huge potential to raise enough resources internally to meet the national budget.
Donors’ reduction of budgetary support is evidence that our country is on a path to economic prosperity.
Given the relative reduction in donor funding towards the budget, the role of fiscal policy plays a significant role in supporting the country’s capital and recurrent expenditure now and in future.
Fiscal policy generally represents Government’s position in ensuring taxation responds to its own needs and that of industry and households; it is much more robust, stable and predictable.
It is against this backdrop that we applaud efforts by the ZRA in upping its game in ensuring there is comprehensive tax collection in 2019 by widening the tax base, which in itself is a result of Government policy, as well as ensuring compliance.
Because of transparency challenges in the past, the government treasury did not manage to collect taxes above 17 percent of gross domestic product, and this is far below a global average of nearly 20 percent.
Economist Chibamba Kanyama says his interactions with ZRA lately reveal that the country has a highly competent and focused management team not afraid to make the tough call.
“They are able to make tough decisions without undue influences from various players. They are highly motivated and determined to apply all various Acts governing taxation in Zambia. We have lately witnessed full enforcement of the tax law on smugglers of various products in Zambia and this action alone has helped sustain local producers who have for a long time failed to expand their operations due to competitive pressures exerted by smuggled products,” Mr Kanyama says.
He says the amnesty that was extended to the industry equally generated incomes for the treasury and this initiative unlocked resources that would otherwise have been lost.
Mr Kanyama says the recent rating by Fitch downgraded Zambia’s outlook to B largely because Government revised its deficit projections from about 3.5 percent of GDP to 5.1 percent of GDP in 2021.
“My conviction is that with the planned rebasing of the economy and heightened ZRA efforts towards tax compliance, Zambia is able to increase tax collections to about 19.5 percent of GDP, and should this be the case, our deficit projections in the next two years can be far below five percent of GDP,” he says.
Mr Kanyama says more tax collections imply a reduction in the fiscal deficit, a build-up on national reserves, sustained debt repayments, unlocking of investment opportunities and less dependence on donor finance.
“In addition, when Government lowers its deficits due to high tax revenue, its appetite to borrow from the local market through government securities will significantly reduce, opening up resources from banks to increase private sector lending. Zambia is currently experiencing high unemployment levels due to under-investment in the private sector that has been overshadowed or crowded out by Government borrowing and an inconsistent tax policy,” Mr Kanyama says.
While ZRA is targeting to raise K51.8 billion in 2019 from K41.1 billion this year, the tax authority still has some major issues as it manages the transition from Value Added Tax to Sales Tax.
Most businesses are not very sure what impact this will create towards revenue collections and this uncertainty may be a huge risk to Government coffers in 2019.
Despite this, we hope that this is a policy that translates into high tax collections and productivity in industry.
Apart from the transition from Value Added Tax to Sales Tax, the other issue has to do with the revised mining taxes.
Mr Kanyama foresees protracted negotiations on this issue as the mining companies appear determined not to comply.
Zambians want mining companies to contribute more to the Zambian economy. How they respond to this new tax policy is critical in ensuring the country does not swim in murky waters.
Overall, we are more than confident ZRA will achieve the K52 billion target in 2019 and even exceed it.