Revisit double tax pacts, State told

WORKS on the construction of the Mufuchani Bridge across the Kafue River. PICTURE: MULWANDA LUPIYA

THE Centre for Trade Policy and Development (CTPD) has called on Government to revisit the double tax agreements (DTAs) signed with countries as some treaties have the potential to erode Zambia’s ability to generate revenue.
DTA is a contract signed between two countries or business entities to prevent the imposition of similar taxes on the same taxpayer with respect to the same income or capital.
Currently, Zambia has 21 DTA, primarily with developed countries which include Canada, Denmark, Finland, France, Germany, the Netherlands, India, Ireland, Italy and Japan.
Others are Norway, Romania, South Africa, Sweden, United Kingdom and Yugoslavia.
In the region, the pacts also involve that of Kenya, Mauritius, Tanzania, Uganda and Zimbabwe.
But CTPD acting executive director Isaac Mwaipopo said in an interview that although DTAs are signed with the expectation of attracting foreign direct investment (FDI), they sometimes lead to revenue loss, hence the need to consider relooking at the agreement.
“Net FDI flows between developed countries and developing countries [DC] are often largely unilateral in that the outward FDI flowing from the developed country to the DC far outweighs any inward FDI flows from the DC to the developed country.
“Although the negotiated reduction in withholding tax rates applies equally to both contracting states, DCs end up agreeing to a much greater reduction in potential tax revenue [and] sometimes not commensurate with the benefit derived from the FDI inflows, leading to net loss on the side of countries in that category,” Mr Mwaipopo said.
He also said some investors externalise profits, thereby robbing Zambia of much-needed revenue which could go towards local development.
Mr Mwaipopo said that if the economy has to grow, there is need to promote local investors whose business profits will remain in the country to foster growth.
He also said Government should embark on robust creation of a conducive environment for local businesses to thrive by providing them easy access to finance, to relook the DTAs and tax incentives to encourage local investment participation.

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