ESTHER MSETEKA, Lusaka
THE Centre for Trade Policy and Development (CTPD) has called on Government to rethink its approach towards investments, as tax incentives are not the major pre-requisite in attracting foreign direct investments (FDIs).
CTPD acting executive director Isaac Mwaipopo said serious consideration should be given to review the modalities of awarding tax incentives, especially to foreign companies.
Mr Mwaipopo said if this has to continue, then the monitoring and evaluation functions of the Zambia Development Agency should be strengthened and incentives should be based on favourable cost-benefit analyses.
“Tax incentives have been used by the Zambian government to attract foreign investments especially in the mining sector, which is the country’s most important export sector,” he said.
But many studies indicate that investment decisions are not motivated by availability of tax incentives but by other factors such as availability of a market, raw materials and skilled labour force.
“There is need to actually realise that tax incentives are a cost to Government as they do not only impose an administrative cost but also greatly contribute to loss of taxes through foregone tax revenues. The general assumption is that constant inflow of FDIs leads to economic growth and poverty reduction,” he said.
Mr Mwaipopo said this development approach needs serious rethinking, especially for a country like Zambia, which despite attracting huge volumes of FDI in the recent past, poverty levels still remain stubbornly high.
CTPD advises that Government should balance between trying to attract FDIs and ensuring that local private sector investments are actually championed and promoted.
“CTPD also notes from studies conducted on tax incentives that there are no mechanisms to monitor, document, evaluate and review implementation of the tax incentives to ensure compliance by firms to the agreed terms for timely redress,” Mr Mwaipopo said.