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VAT refunds saga: Lessons for the government

Broadening the tax base for a country such as Zambia requires the leadership and concerned citizens alike to think outside the box
A FLURRY of commentaries, responses, national debate and despair followed the announcement by some mining companies of their plans to lay off workers and halt important projects in response to government’s failure to give the value added tax (VAT) refunds.
This article joins this debate not with the purpose of heaping disparagement on those who came up with the policy or to examine the legality of Rule number 18, but to unravel some of the lessons that can be drawn from the current debacle.
I feel the current ‘crisis’ presents the government with the opportunity to rethink its tax regime, to think of how to broaden its tax base and ultimately critically examine the alleged economic benefits being accrued from mining companies.
Again this is the time for constructive debate involving all patriotic citizens, civil society, policy-makers, researchers and experts to pool their efforts together in exploring ways in which our country can meaningfully benefit from its natural resources.
Firstly, it is worth noting that the impression being given by the mining companies is that the extraction sector is better managed when it is in the hands of the private sector.
This was done through presenting a synopsis of how the mining sector evolved over time.
While it could be true that the mining sector performed well under a scenario where the private sector enjoys the majority shareholding, it remains indisputable that natural resources should benefit the local people.
The manner in which the mining companies reacted to the issue of unpaid VAT refunds brings to the fore issues of patriotism, which can be defined as zealous love for one’s country.
Therefore, when mining companies are threatening to lay off workers and halting some projects and expansion plans, it clearly shows that they do not treat this country as their home.
They could have called for dialogue with the government instead of trying to create public despondency and tarnish the image of the country whose investment climate remains commendable.
However, this is only to say there is still room for the mining companies to seek resolve to the issue amicably and not to say the government is always right.
Secondly, the current situation should be welcomed by policy-makers, think tanks, and all stakeholders the same way a physician would welcome a patient suffering from a chronic disease.
In the case of government’s failure to pay what is due to the mining companies there is inadequate revenue and probably lack of transparency on VAT refund claims.
If the government had money, surely it would have given these companies their monies considering that it is the government that came up with such a law.
While some argue that previous ministers of Finance have been paying the money to the mines, the debate should go beyond this fact and examine the current tax regime and possibly suggest ways in which the government can deal with loopholes with the ultimate aim of improving transparency and accountability.
Broadening the tax base for a country such as Zambia requires the leadership and concerned citizens alike to think outside the box.
One such idea that might seem to others as weird is to speed up the construction of toll gates.
Considering the fact that Zambia is a transit country linking many countries in southern and central Africa, more income can be made through introduction of toll gates.
While toll fees are normally meant for repairing and maintaining the roads, various sectors can actually benefit from them.
For example, the government can decide to charge the toll fees in foreign currency for all trucks and vehicles passing through Zambia.
Such a strategy will go beyond increasing the tax base as it will also enhance efforts to stabilise the Kwacha.
More importantly, the government will reallocate the money usually budgeted for roads to other sectors such as agriculture.
It can be noted that the current issues surrounding the VAT refunds have exposed how the mining companies have become so powerful compared to the State.
Therefore, a multi-pronged approach is needed for the government to examine benefits accruing from natural resources and how to enhance accountability and transparency.
There could be some gains from the current stand-off.
The author is a lecturer in International Relations and Development at Mulungushi University, Kabwe.

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