Zambia needs change in tax culture: Is the Post tax probe equitable?

By Kalima Nkonde

Zambia’s current economic problems forced President Edgar Lungu to finally and reluctantly announce a variety of austerity measures meant to reduce government expenditure. On the revenue side, he directed Zambia Revenue Authority to put in place measures meant to counter tax evasion and tax avoidance to boost domestic revenue and consequently reduce Government budget deficit.

“I wish to send a timely warning that anyone not paying their fair share of taxes will be vigorously pursued while officers engaged in collusion with tax payers to defraud the Treasury will be discharged and prosecuted. I, therefore, direct the Commissioner General of Zambia Revenue Authority to strengthen tax compliance and ensure integrity and professionalism among Authority staff,” President Lungu said on November, 26, 2015 while addressing a press conference at State House.

President Lungu’s capitulation to announce austerity measures was driven in large measure by the calculus of self interest and political expediency of re- election. This was after seeing that the free failing kwacha and the run away inflation had become more of a threat to his goal than implementing austerity measures.

This is so because this writer and many others had been calling for such measures for a long time. And had they been announced much earlier, the kwacha would not have depreciated to the same extent it has. The other economic indicators would not have been as bad as they are now too! The delay in announcing the expenditure cutting measures as well as the revenue raising measures was due to the ill advised and now discredited economic populist policies especially the ambitious massive infrastructure projects which are largely responsible for the economic mess we are in!

It is a well known fact that there is a wide spread culture of non tax compliance in Zambia and the call by the President for every body to pay their fair share of tax should be welcomed

It is a well known fact that there is a wide spread culture of non tax compliance in Zambia and the call by the President for every body to pay their fair share of tax should be welcomed. However, the issue of non tax compliance should be looked at more holistically and with a helicopter view of the issue. The poor tax compliance culture concerns the entire Zambian society. There is need for a culture change towards the payment and use of taxes. The culture change should involve everyone including the Presidency, Government, Civil Society, Opposition Parties, ZRA, Parliament,Voters and Taxpayers.

The President should lead by example by ensuring that he spends tax payer’s money prudently and any businesses he is connected to directly or through relatives pay tax too! He should become more cost conscious and thrifty, which he does not appear to be now. He should take a leaf out of Tanzanian President’s book, Dr. John Pompe Joseph “Bulldozer” Magufuli whose crusade of cost saving measures is through action and disciplining erring officers rather than by mere talk!

The current huge presidential motorcade, the local and foreign trips, the huge and growing but unproductive bureaucracy including the housing of Private Public partnership(PPP), Road Development Agency at State house are examples where costs could be cut. It also gives the perception of promotion of corruption as the Presidency is being involved directly in economic activities with the private sector! Presidential action in the utilization of tax payer’s money can singularly go a long way to changing tax compliance culture in Zambia.

Currently, government officials find it easier to spend tax payer’s money than their own money as there are no consequences for misappropriation of public funds!

As far as Government is concerned, it should stop being wasteful and become more thrift in using Zambians’ tax kwachas. There should be restraint in the use of tax payers’ money. There have to be consequences for misuse of public funds by those in government ! The fiscal indiscipline and waste from successive governments is partly responsible for tax payers not complying with the payment of tax! Who would want to willingly pay his hard earned money as tax if they know that their money will not be used for social services and common good but it will instead be used to make politicians who were poor a few years ago, now live like dollar millionaires and enjoy life on behalf of tax payers! Who would want to pay tax if the tax will be spent on: buying Ministers, MPs , Civil servants expensive personal to holder luxury vehicles, free fuel, satellite phones, free air time, per diem or be used to charter executive jets for $300,000 and so on and so forth!

Currently, government officials find it easier to spend tax payer’s money than their own money as there are no consequences for misappropriation of public funds! The Zambian Government needs to start being more frugal in using tax payers money and follow examples of countries such as Botswana, UK, USA, Sweden, Norway etc. This will go a long way to the improvement in tax compliance.

The Zambian Civil Society and Opposition Parties have a major role to play with regard to change in tax culture. These organizations have to change by ensuring that they hold Government accountable on how it is using tax payer’s money on a continuous basis ! The Zambian civil society needs to do more by educating the public about the opportunity cost of government wasting tax payers’ money in terms social services foregone.

They also have to ensure that they highlight instances of government waste in the media and demonstrate how the funds could have been better utilized! How I wish there was an NGO specifically to deal with tax issues as well as monitoring how government is utilizing public funds, monitoring borrowing, government waste, carrying out comparative analysis of remuneration and benefits of our politicians and top government officials with our richer neighbours! And also carrying out other research on prudent fiscal management and publicizing the same! It will be a major deterrent to wasting tax payers’ money. The JCTR has been doing quite a good job on researching tax issues and cost of living issues but we need a secular and more aggressive NGO to complement them.

In other countries, taxation is a major election campaign issue by political parties. It is not apparent in Zambia! One wonders, why?

In other countries, taxation is a major election campaign issue by political parties. It is not apparent in Zambia! One wonders, why? The educated guess is that, may be Opposition Parties would want to maintain the status quo. In view of politics being an industry in Zambia and a means to getting rich quickly without working hard but just talking, telling lies here and there, Opposition Parties may be motivated to remain mute about the use of tax payer’s money because they also would want to go and benefit from the gravy train once they are in power!

It is vitally important that Opposition Parties change their culture towards tax issues and how tax payer’s money is utilized. They have to find innovative ways of making tax as a campaign issue by carving out simple messages that voters will understand. They could , for example, target the working class voters, who are currently bearing most of the tax burden in Zambia. Working people pay much more tax in terms of PAYE than companies! In the 2016 budget, workers are expected to pay K7.9 billion or 55% of total income tax whereas companies will only pay K3.2 billion or 40%.The difference in the contribution to government revenue between companies and workers is massive! It should not be so! There is clearly massive tax evasion and avoidance by companies through all sorts of schemes whereas workers have no means of doing that as their tax is deducted at source!

Working people pay much more tax in terms of PAYE than companies!..The difference in the contribution to government revenue between companies and workers is massive!

Zambian Voters and tax payers also need to change their mindsets and be conscious that the money that Government officials or politicians use is their money and it is should not be wasted. The issues of big government resulting in high government expenditure should be a concern to them! Voters need to be educated and made aware that whatever development comes to their areas is from their money -Tax payers’ money- and not from the Politicians’ pockets! Voters should just tell politicians : “ Zindalama za Nyoko!” And it is not a favour for any administration to boast about bringing development to any area in Zambia! It is an obligation by any government, period!

The Zambia Revenue Authority (ZRA) does require change of culture in a number of respects especially with regard to professionalism and integrity. There is a culture of harassing tax payers unnecessarily when a more courteous and cooperative attitude is required. Professional tax administration requires that the Tax payer and the Tax collector cooperate and negotiate payment terms where the former owes tax. The principle in tax administration is that : you do not kill the goose that lays the golden egg. Tax payers have to be nurtured and it is foolish to rush closing a tax payer’s business for example, because you are going to lose tax revenue forever. There is also a perception by the public that ZRA officers are corrupt and they collude with tax payers especially foreigners to evade tax. The organisation needs to change this perception and culture if indeed it exists.

Government should let ZRA operate professionally and independently and also adequately fund it like the SARS in South Africa, Inland Revenue in the UK, Internal Revenue service in the USA , BURs in Botswana and many other revenue services to maximize revenue collection. The problem we have in Zambia is the politicization of institutions that are supposed to be independent to nurture our democracy and development. Institutions such as the ZRA, the Civil service, Police, Armed forces, Judiciary, the Press and now Religion are all politicized and are dysfunctional. These institutions are supposed to be professional and independent.

They are supposed to outlive any administration. We should have some continuity by retaining competent people and maintaining institutional memory thereby facilitate programme implementation. There is just too much turnover of key staff in key institutions resulting in paralysis, mediocrity and the economic mess we are seeing today ! Our Country will never progress if politicians are going to continue interfering with institutions that are supposed to be independent and bedrocks of a functioning democracy.
The change in culture by stakeholders mentioned above may take sometime – with change in approach and having visionary leaders. As a nation, the immediate issue as per President Lungu’s directive, is that government needs to raise domestic revenue to plug the huge budget deficit which is largely responsible for our economic problems. One would like to believe that the ZRA raids on the Post Newspaper are a follow up to the Presidential directive for tax collection and was hopefully not meant to be discriminatory!

The majority of Zambians do not really know the actual facts regarding the Post Newspaper’s tax issues. All the same, what is in the public domain is that there has been a tax collection issue where the paper owes the ZRA money in form of tax arrears just like many tax payers including multinationals like the Mines. The normal international practice is that the tax payer and the Revenue authorities are supposed to negotiate a payment plan, taking into account the tax payer’s cashflow. It appears for some reason, the two parties could not agree and they went to Court so that the Courts could decide on the issue.

While the collection issue was being decided on by the Courts, Zambia Revenue Authority, on 7th December, 2015, came up with a new tax case. The new case was a tax investigation or a tax audit. This occurs where any Revenue Authority suspects that the tax payer is evading tax. The cases of tax audits are normally a result of a whistle blower reporting a tax payer to a Revenue authority for suspected tax evasion. In some cases, it occurs where the Authority itself suspects that an individual is living beyond their means or a company is not declaring enough tax commensurate to its operations or apparent profitability and cashflow.

ZRA wanted to do an audit of the Post Newspaper’s tax affairs for the last five years from 2010.The normal practice would have been for ZRA to camp at the Post Newspaper and carry out investigations on site for even as long as two months! They, however, wanted to take all the equipment and thereby paralyze the operations of the tax payer! This is what raises eye brows from independent observers. There was also some strange coincidence in that the investigation followed on the heels of the revelation by the paper of the Deputy Finance Minister’s alleged affair with a female journalist.

ZRA happens to fall under the Ministry of Finance! It is the attempt to collect publishing equipment from the newspaper’s premises and the coincidence of the revelations of the alleged affair, that make independent observers smell a rat and a big rat too like the late singer Clarence Carter would put it.

The Post newspaper is alleging that the incessant tax probes on them amounts to political persecution whose objective is to close the paper because of its “hostile” editorial policy towards the PF administration. Although it is difficult for an outsider to agree with the Post in the absence of evidence, some circumstantial facts can give credence to their claim.

The whole episode begs the following questions : Why did ZRA go with other government agencies including ZICTA, armed police when they have nothing to do with tax issues? Why did they want to get The Post’s equipment to their offices instead of working at the paper’s premises as is normal practice? How did they expect the Post to continue its operations and pay them more tax since when such audits can go on for as long as six months? Is it the most cost effective way of spending the tax payer’s money by ZRA by allocating so many resources following up a minnow of a tax payer when there are bigger fish from whom they can collect more revenue?

Needless to say that some of the tax problems the Post is facing may have been self inflicted as they ignored paying tax on time when “user friendly” Administrations were in charge resulting in them accumulating massive tax arrears. It is also alleged that the Post owner had exhibited a cocky and arrogant attitude towards the tax Authorities when the paper was in “power” through its proxies.

It may, therefore, appear that it was pay back time by ZRA officials! Nevertheless, this is an indigenously Zambian owned company employing over 1,500 Zambians with 12,000 dependents at 8 dependents per employee. ZRA should not punish these innocent Zambians lose their jobs because of a quarrel with the Owner by the powers that be !

The Post should be treated just like any other tax payer owing tax arrears and it should not be specifically targeted for tax investigation!

As one who has operated and still operate companies in a foreign African country and given the discrimination we face, I am very passionate about supporting Zambian owned companies without necessarily condoning lawlessness. Zambia is one of the few countries where foreign investors are hero worshipped and treated like eggs to the detriment of local investors. The country will not develop with foreign investors only.

I hope we have learnt lessons from the mine retrenchments , Anglo American, British Airways, Royal Dutch pull outs etc on how foreigners can drop us like a bad habit once they see no gain! The Government’s mandate is to create jobs and not destroy them! The ruling party may also need votes and they should not antagonize potential voters by closing companies whose owners are not favourable to them!

The Post should be treated just like any other tax payer owing tax arrears and it should not be specifically targeted for tax investigation! There are a lot of high risk tax evasion targets like foreign nationals with businesses in Zambia. Some of the foreign nationals come from countries where the tax evasion culture is endemic and it includes Lebanese, Chinese, Indians, and Greeks etc. These may be partly responsible for the kwacha depreciation as they remit savings from tax evasion to their foreign accounts to mitigate against Zambia’s country risk! Are they being targeted by ZRA? They can collect hundreds of millions of kwacha from these foreign owned businesses through back duty.

If indeed, the ZRA is being used by the PF Administration to fix the Post Newspaper so that it closes, as the paper alleges, they are well advised to dump this strategy

If indeed, the ZRA is being used by the PF Administration to fix the Post Newspaper so that it closes, as the paper alleges, they are well advised to dump this strategy because it may also be used against them when they are not in power. It is a double edged sword and they will be setting a bad precedent! I presume, most of the ministers, deputy ministers, and senior civil servants have businesses and must have benefited from the massive infrastructure projects directly or through proxies. They may not even be paying the requisite tax at the moment themselves! As a person with some understanding of tax legislation in other countries that I have lived in, it is not smart politics for those in power to use tax legislation as a weapon to fix political opponents. Tax legislation, if applied to the letter, can be punitive, brutal and a death nail to one ‘s business or economic life.

In conclusion, the Zambia Revenue Authority is within its rights as per tax legislation to collect revenue from all tax payers including the Post Newspaper. It is also within its rights to carry out tax investigation on any tax payer they suspect is evading tax as provided by the law. However, they should do it professionally because tax administration principles are based on fairness and equity. Politics should never ever interfere in tax administration matters as the two operate in different worlds. There are provisions in tax legislation for punitive penalties and interest payments for erring tax payers which is sufficient punishment for non compliance ; Closure of any tax payer’s business is dumb tax administration practice!