Tuesday, June 18, 2024

Zambia to introduce sales tax next year to boost revenues


ZRA Headquarters
ZRA Headquarters

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.


    • VAT is charged ultimately on the consumer. The people who buy and use the products. If you are a reseller, you can claim for refunds on any VAT you paid while acquiring stock. Further, you will charge your customers VAT and remit that to ZRA.

      In simple math this is: VAT payable = VAT collected – VAT paid on stock.

      The only hiccup here is that all VAT must be returned before you receive a refund. So in essence, you are loaning the government some of your money.

      Sales tax is slightly different. If product is for resell, you may buy it sans sales tax but when you sell it, you will collect sales tax and it will be remitted. No refunds, no claims. It’s cleaner and easier to manage. Less work for ZRA, more time to check on compliance.

    • Usually clueless governments who don’t know how to invest and make money in the country resort to raising revenue by taxing their citizens to death. That’s what’s happening in Zambia. Zambians will be taxed to death, instead of giving them a tax break. And overtaxing people who are already struggling is bad for the economy. Because if people do not have enough money to spend, they’ll stop spending. And if they do, businesses get affected as they have less and less customers to buy their goods. And when that happens, businesses begin to close down, because they’re not making any profit. And the more businesses close down, the less the tax revenue from businesses become. Eventually the economy tanks. I’m not an economist, but that’s just common sense.

  1. I like the way this woman is working. Mama Maggie please one other thing you must do is cease the purchasing of all brand new luxury Suvs by Govt depts and even parastatals, as well as cut down on allowances and salaries to all senior govt officers including MPs. They are costing us the tax payer and even the donors too much. Doesn’t make sense to be spending millions on something as useless as a latest Hilux when our towns are ravaged with potholes and not even dustbins to collect litter.

  2. ” We do not have a manufacturing base, there is no value addition. ” Well put. There is no manufacturing here. Just look at the VAT refund issues that exist with ZRA- let alone the administration. This is a good move.

    • Do you realize that when Government boosts revenue it means that it is collecting more from you the tax payer?

      What revenue to government is an expense to you. So, less money in your pocket.

    • It’s very unclear why this decision was taken. Basically the minister is saying is that there is no need for manufacturers to be incentivised through VAT refunds on their inputs? Is the increased revenue required to service already contracted debt instead of new programmes or infrastructure? The collection of more taxes falls on the citizens. I am surprised some people are celebrating this.

  3. “We do not have a manufacturing base” … this is a sad reflection of our nation.
    Lets invest in manufacturing…lets produce instead of being predominantly consumers!!

  4. Its one thing to talk about “increasing revenues”, while no measures are mention about cutting expenditure. Government money is being wasted through buying brand new vehicles everyday, which are abused. Money goes missing, as we are hearing everyday

  5. If by manufacturing industry you mean Value Addition, then we do have that.
    World economics no longer favors small countries esp. Sub-Saharan Africa to having huge manufacturing industries.
    Value Addition is there, e.g. Steel manufacturers add value to the scrap they buy and recycle, welders buy the steel and create door/window frames – this is value addition/manufacturing. Same goes for carpenters they buy wood and make assortments of furniture. All these are examples of manufacturing at a *small scale. Now because most of them are small scale they tend to be registered on turnover tax and not VAT as it should be.
    The taxman hasn’t educated the small manufacturers over which tax form is best suited for them. VAT is a form of sales tax. I suggest we keep VAT, because at the end of the…

    • Cont’d
      I suggest we keep VAT, because at the end of the day it plays a vital role in out GDP.
      Just to mention, govt. will be the biggest beneficiary of sales tax simply because with sales tax there will be so much double taxation occurring.
      I’m just a regular guy running a business, I might be wrong. Sales tax increase the tax base this I know.

    • Dokowe, My gut sense is that you are right. I believe VAT to be a fairer system because value addition may occur over a supply chain, which may involve a number of business. Sales tax amounts to double taxation leaving very little for the development of the manufacturing or the agro-business industries in Zambia. Let us say you buy raw beef (step 1) to make sausages that you sell to Shoprite (Step 2) and Shoprite sells the sausages on to its customers (step 3) GRZ will have collected taxes at all these stages. The consumer pays all these taxes in the end. Inflationary and the money is wasted on foreign trips and GX-Rs.

  6. the final consumer will pay heavily – eg . a farmer produces a chicken at K10.00 and decides to sell it at K15.00 to the retailer, shoprite meaning he will have a profit of K5.00. Meanwhile he will have to sell the chicken at K k17.00 after adding further K2.00 as sales tax. shoprite will also decide to sell it at a k5.00 profit margin (k23.00) but will add an extra say k3.00 as sales tax, meaning that the final consumer would pay the sales tax of K5.00 (k2 +k3)

  7. Do we really need someone from the UK to come and tell us the cost of production and distribution of our very own electricity supplied by our Zambian owned company?

  8. Sales tax should have been restricted to mining companies that directly export base metals thus unable to create any backward and/or forward linkages to our economy .Infact,the deployment of electronic fiscal devices proposed in the 2019 national budget(point 35) that will be distributed to capture business transactions in real-time must begin with the mines to ensure that the volumes declared at the mines correspond with the volumes leaving the country at the borders.These other small and medium size manufacturing industries must continue paying taxes via the VAT system as they have been compliant.The problem is maybe with the taxman but for the mines,its a resounding NO VAT.

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