GOVERNMENT will undertake a comprehensive reform on tax policy to ease the tax burden on personal income taxpayers.
Currently, the first K800, 000 is exempt from Pay-As-You-Earn (PAYE).
Minister of Finance and National Planning Situmbeko Musokotwane assured the International Monetary Fund (IMF) that the 2011 fiscal policy will focus on creating space to facilitate spending on infrastructure and the social sector.
Dr Musokotwane said this in a Letter of Intent to the IMF dated June 3, 2011.
He said Government will continue to improve the performance of revenues by drawing on technical assistance from the co-operating partners and also conclude the auditing of the mining sector.
“In the medium term, the focus will remain on undertaking a comprehensive reform of the tax policy and administration to improve the performance of customs and excise taxes, to ease the revenue burden on personal income taxpayers,” he said.
Dr Musokotwane said domestic revenues are projected at 19.3 percent of gross domestic product (GDP) on account of strong economic growth and improved metal prices.
He said macroeconomic objectives in 2011 are to sustain the high levels of growth in the economy, lower inflation and strengthen the economy against external shocks by building up gross international reserves.
He said the increase in revenue will be driven by growth in income taxes, from 9.4 percent in 2010 to 10.1 percent of GDP on account of collections of mining taxes, including tax arrears.
Real GDP growth in 2011 has been revised upwards to 6.8 percent from an earlier projection of 6.4 percent driven by the mining, construction and transport, storage and communication sectors.
He said inflation is projected to close the year at seven percent while gross international reserves are projected to rise to at least US$2.4 billion, or 3.4 months of prospective imports.
He pointed out that recent development in both the global and domestic economy present downside risks.
“If oil prices remain high or continue rising, this has the potential to drive up inflationary pressures in oil importing countries and slow global growth.
On the domestic front, the recovery in private sector credit, from the sharp contraction during the global financial crisis, needs to remain consistent with underlying demand in the economy to avoid fuelling inflationary pressures,” he said.
Dr Musokotwane said expenditures are projected at 24.1 percent of GDP with 3.4 percent financed using foreign grants and loans.
He said wages will decline slightly to 7.9 percent of GDP from 8.1 percent while domestically financed expenditures or the social sectors and infrastructure development in the transport sector will increase to 50 percent of the budget compared to 35.7 percent in 2010.
He said the budget outlay for maize purchases will be K653 billion, a reduction of 46 percent in 2011 (about 0.6 percent of GDP) compared to 2010.
The overall fiscal deficit (including grants) has been projected to decrease to 2.9 percent of GDP from 3.1 percent recorded in 2010.
Dr Musokotwane said domestic financing will be limited at 1.3 percent of GDP, which is 1.5 percentage points below the outturn in 2010.
And Government intends to issue its sovereign bond in the second half of this year.
Dr Musokotwane said the bond issue will be used on infrastructure development, in particular roads and power projects.
“In this context, the government will carefully consider maturity and exchange rate risks, and the debt sustainability and cashflow implications,” he said.
Zambia was in March this year assigned a sovereign credit rating of B+ by Fitch and Standard and Poor’s Ratings.
Dr Musokotwane said Government intends to take appropriate measures for a successful bond issue, which include the procurement of legal and financial advisors, the use of collective action clauses and will consider phased issuance.
[Zambia Daily Mail]