Zambia will abolish Value Added Tax (VAT) and replace it with a non-refundable sales tax in April, Finance Minister Margaret Mwanakatwe said on Monday, a move likely to help the government boost revenue collection and bring down mounting debt.
Mwanakatwe said the Zambia Revenue Authority (ZRA) would finalise audits of all outstanding VAT refund claims and collect any unpaid taxes before making the change.
“Sales tax is coming on April 1. We do not have a manufacturing base. There is no value addition,” Mwanakatwe said at a post-budget meeting with business people.
In her budget speech on Friday, Mwanakatwe said Zambia will introduce new mining duties and increase royalties to help tackle debt.
The International Monetary Fund has put on hold talk about an aid package due to Zambia’s debt levels which it describes as unsustainable.
ZRA said in July it had paid out 4.2 billion kwacha ($338.7 million) in VAT refunds, including 2.5 billion kwacha to the mining companies in Africa’s second-largest copper producer.
Analyst Chibamba Kanyama of the Economics Association of Zambia said the introduction of sales tax would boost revenue collection.
“The major thing is that it will stop the refunds. The government will also collect more revenue because there will be less cheating as tax will be on the final product,” Kanyama said.
Zambia’s kwacha fell more than 2 percent on Monday to trade at 12.4750 per dollar at 1229 GMT as investors fretted over the nation’s debt and changes to the mining tax regime.
“Investors have not been rolling over because they are worried about the debt. It is also due to the impact of the planned changes to the mining tax regime,” Kanyama said.
Kanyama said investors were waiting to hear what was agreed with China on the planned restructuring of Zambia’s debt.
Mwanakatwe said the government remained committed to settling the verified VAT refund claims accumulated before changing the law.
Zambia has been withholding some money owed to mining companies in tax refunds because the correct documentation has not been provided.
Mwanakatwe also said a study to determine the cost of providing electricity by state-owned Zesco Ltd, which was due to be completed this year, would finish in April next year.
“We are currently procuring somebody from the UK to come and do the study. We have said it must be done by April,” she said.