A Lusaka based Finance Expert has charged that the proposed Goods and Sales Tax is total trash and a disaster to the consumers.
The Bill has proposed a 9% Local Sales Tax and 16 % on Imports which will replace the 16% Value-Added Tax currently used on 1st July.
Chilombo Mulenga has since advised President Edgar Lungu not to assent to the Bill which passed First Reading last Tuesday.
Mr Mulenga said the proposed Bill will cripple the entire Zambian economy.
“Having studied the GST Bill, my advice to President Lungu is veto this bill and subject it to further Expert analysis. Constitute a technical team of Tax Experts and Business Experts to make appropriate adjustments to the current VAT regime to resolve the issues of VAT refunds which have called for the intended repeal of the VAT Act,” Mr Mulenga wrote on his Facebook page.
“This GST Bill demonstrates that Hon. Mwanakatwe is not conversant with taxation system and the wider ramifications of the GST on the economy. Hon. Mwanakatwe is on record for having misled Parliament and she cannot be relied upon over her proposed GST Bill. This Bill is a disaster to the economy and needs to be subjected to an in-depth Expert analysis before it is enacted into law.”
He added, “It appears this country is being subjected to wrong diagnosis for our economic challenges.”
Mr Mulenga said the danger of wrong economic diagnosis is that the solutions devised based on wrong diagnosis cannot solve the problems, but can in fact inflict more problems on the economy.
“Is the influx of cadres in key government institutions and SOE the reason for poor economic diagnosis and inappropriate policy decisions? I fear for this country,” he lamented.
Mr Mulenga stated that the huge backlog of VAT refunds is not a result of a flaw in the VAT regime but that it is because of poor fiscal management and therefore GST is not a solution.
He said, “GST, in its draft form, will inflict more problems on our economy.”
Mr Mulenga said GST is total trash and a disaster to the consumers and a recipe for double taxation and cost build up which will be slammed on the consumers.
“With VAT, tax was fixed at 16% which final consumers would pay, regardless of the value chain processes. With GST, the longer the value chain, the more the cost build up to be occasioned by sales based tax. At each level of the value chain, a tax at 9%, will be levied on the supplier,” he said.
“So if there are say 3 intermediaries before final consumer, with a proposed tax rate of 9%, roughly we could be talking about close to 30% tax build up which will be passed on to final consumers. This is for locally manufactured goods. For imports, 16% will be imposed as border tax and then upon sale by retailers another 16% could be imposed making total tax to 35% to be passed on to consumers.”
He said, “The GST exposes us the vulnerable consumers as all the cost of tax build up will be passed on to us the consumers. VAT limited the tax to consumers at 16% in any case, but the GST casts the net wide open and consumers will pay the tax depending on the numbers of hands the goods exchange from manufacturers or importers to consumers as each party will pay tax upon sale of the goods.”
“Ultimately the final consumer will bear the total tax build up because all parties before the consumer will factor tax in the cost of their sales. This tax is not carefully thought out and drafted. Total crap.”
Mr Mulenga added, “In section 16 of the proposed GST Act, they talk about exemptions. When you carefully analyze s16, you can see that the drafter of this bill are lacking an in-depth understanding of what they are trying to achieve. For example, they attempt to exempt INPUTS. look at this… GST is a tax to be paid by a taxable supplier, so whatever a supplier sells cannot be his input, it is an output to him. So how does he get an exemption?”
“This is totally screwed up and exposes the ignorance of the drafters of this bill. Also they want to exempt some supplies to certain privileged individuals… This would only make sense if the payer of tax is the buyer as in the case of VAT. This also shows the drafters were thinking in terms of VAT, they did not fully understand sales tax they want to introduce,” he said.
How can he trash it when he is part of it? Not sure if they are governing, from all angles looks like they are running businesses.
PARLIAMENT HELP US
If Trade kings buys K10 sugar from Nakambala to make sweets & sells to a Kamwala Wholesaler, who in turn sells the sweets to a local shop which in turn sells to a Kantemba which sells to the final consumer, Total tax will be over 50%.
PF00Lish Govt has run out of ideas to tax Zambians.
They’re busy now introducing new passports at K1800.
Yaba, ati Finance Expert!!! Mulenga writes and I quote “… For imports, 16% will be imposed as border tax and then upon sale by retailers another 16% could be imposed making total tax to 35% to be passed on to consumers.” End of quote.
What Mulenga is missing here is the fact that an import is only taxed as an import at entry. So, the 16% would apply there but once it is resold, then it is no longer taxed at 16% but at the local sales tax rate in this case 9%. That’s just one error and there are more!!!
So, what this so called expert is showing is more ignorance on his part which actually defeats his purposes. Overall, some of the most successful capitalist economies thrive on sales tax (USA a good example) because it adds value to goods and services.
I recommend the expert…
Continued …
I recommend and submit to the fact that the so called expert needs to study more before he tries to punch holes into the GST Bill. Also, for goodness sake never denigrate those you need to listen to you if you want your actions taken. Mulenga’s language is so condescending, a dog wouldn’t listen to him.
What makes it even worse, he is not offering real solutions and talking about asking for expert advise without identifying them is just bull … just yapping like Gay Gay.
Epo mpelele
BRM
The expert sounds angry. Was he a beneficiary take VAT returns which he now fears will no longer be the case with sales tax?
Mr Finance Expert …please when you are writing an article dont go in guns blazing like an opposition cadre making a beeline for the Finance Minister as no one will listen to you…first compare and critically analyse the two consumer taxes VAT and Sales Taxes.
Here is a piece from the internet by an anonymous contributor
The Value Added Tax (VAT) and Sales Tax both are consumer tax, which means that both have to be paid after purchase of a product. VAT is an indirect tax while sales tax is a direct tax. At the different stages of goods production and services VAT is levied. The VAT is applicable for both the import goods and local products. Sales tax is paid by end consumers on their consumption. The sales tax is transferred to the government at the final stage by the seller. Until the final sale is made to the customer Tax jurisdictions do not receive.
VAT & SALES TAX
As compared to VAT, sales tax is imposed on the retail sale of goods. Sales tax is imposed on the total value of goods and services purchased. At the time of purchase of services and products sales tax is imposed. The consumer knows how…
The consumer knows how much they are going to pay as sales tax, because it is easily calculated. Sales tax depends upon states, cities or local municipalities and what types of merchandise or services.
Strict rules are there to be followed in sales tax. It is easy to collect and have high compliance rate. Sales tax evasion is very high.
Another Online Contributor:
The difference between VAT and general sales tax:
A sales tax and VAT are both a type of consumption tax. For a layman, there is no difference between the sales tax and the VAT. Some may also think that there is no difference between the working of both taxes. However, there is some key difference between both taxes. The sales tax is the one that is imposed on the customers only at the final stage. VAT, on the other hand, is imposed on each and every step of production. Moreover, VAT is also applied on the imports of services and goods to ensure and maintain a proper working of tax.
The preference is given to VAT instead of other sales taxes because, in VAT, the business owners or the companies act as the tax collector for the government. It is a more…
. It is a more sophisticated form of tax.
With my limited knowledge on this topic, I understand they are both consumer taxes. But one is easier to administer, police and implement than the other. For a country like ours, sales tax suits our situation better. Sales tax has no hidden burdens upon the Govt…..it is more of a ‘WHAT YOU GET, IS WHAT YOU HAVE FOR SPENDING’ kind of tax….no more spending money that does not belong.
I also feel that VAT kind of encourages businesses/corporations to import unnecessarily knowing that consumer taxes (VAT) will be claimed when those goods come into Zambia. Now, with ENTRY/IMPORT SALES TAX, it sort of encourages manufacturers to produce those goods within if they want to avoid the 16 percent import tax which makes their products too expensive and unattractive to the Zambian consumer…
Continue….
market. And that’s how you avoid importing things like cereal from S/Africa which can be made locally and creat jobs in the process.
Certainly, there are things that can be exempt from such a tax…..things such as machinery (means of production,) medical instruments, and medicines.
Am also sensing this Bill as a disaster, looks like its business or now government wants more income because its broke.
The statement is laced with deep political connotations, its hard to objectively consider this gentleman’s perspectives
The issue at hand is why the PF government decided to scrap VAT for the sales tax.
Under the VAT system, the PF were spending the VAT input paid by importers(mostly mines and manufacturers) before the tax payers filed their monthly VAT returns.
THE PF WERE ACTUALLY SPENDING MONEY WHICH DID NOT BELONG TO THEM .THIS LEAD TO HUGE DEBTS IN UNPAID VAT RETURNS.
The VAT system is just okay. Its only that the PF decided to spend the money on party cadres and paying back nkongole.
PF scrapped it as they dont have the know-how or the patience to collect VAT …they just spend but dont want to pay back VAT….prudent MMD never had issues with VAT all PF had to do is up their game even ask for technical assistance the likes of Denmark, Norway and Sweden but this is asking too much from a reckless govt.
We already told that this piece of legislation will be disastrous iif rushed. Even 9% is far way too high for GST. It is common sense that that govt can earn higher revenues ( at least in the longer term) by charging lower taxes ( Arthur Laffer). Thank you Mr Mulenga for naming it all….there is a limit to the employment of cadres in some of these functions
How old is this expert? Before 1995 we didn’t have VAT, what’s your comment? Since inception VAT has always underperformed, does it make sense to continue with a system that isn’t yielding desired results? Some expats are just expats because they speak good English after steins of Jemasoni
What are the desired results. Why has VAT refunds only become a problem during the PF regime. Most of the goods we supply and consume in Zambia are imported and this means If I pay 16% at the boarder which I will not recover, I will pass on to the customer plus the tax on my sales. WE are in maningi trouble!
@bululu
Excellent point.
The refund backlog dates back to Mwanawasa time, in fact it was LPM who canceled the infamous development agreements. Later he threatened to close some mines. Today the mines are claiming $730M out of the $1BN they have paid so far, does that make sense to you? Mines want to buy electricity at a price lower than the cost of production, they have resisted toll fees, they have resisted mineral royalties, they have done everything to resist paying tax yet they declare dividends every year in parent countries. So get your facts right before you comment, some of us have dealt with these chaps. Why should a technician from South Africa be getting $15, 000 per month as salary while his Zambian counterpart get K15,000? GGuys think!
VAT has failed because Government overspends
@6.3 Ayatollah, while I agree with you on a number issues you have raised, I wish to correct you that you have money of them mixed up! That is why some of us insist that WE NEED LEADERSHIP DEPTH IN BOTH WISDOM AND INTELLECT!! What the PF has been doing is reacting to situations WITHOUT A HOLISTIC APPROACH. If they were holistic some of the issues you have mentioned like pay gaps between Zambia and foreign ” experts” would have long been dealt with!!
@Zambiaiours, the problem with PF is that they don’t want to consult. I don’t know why they rushed these Bills, like the National Dialogue Bill. They sat until late at night, soon they will come back to ask for amendments. The UPND doesn’t point out issues, all they say is NO. Zambia is in crisis because the PF have failed and have to be kicked out, but HH and UPND are not ready to govern so we stuck! So the only solutions is for us the unpolluted to join politics. I get surprised how people can even follow Kambwili
Makes sense….desperation for more income by PF will lead to the consumers being taxed out to the point of having no money for anything to drive the economy….
WHY ARE WE NOT HAVING STAKE HOLDERS MEETINGS TO THRASH OUT ISSUES?
Its too late the lazy reckless dancing President is about to sign it as he has no experts in State House just surrounded by drunkards like Kz and Freedom…moreover the man is ever running away from State House to have time to read anything.
Look you take a 33 page document to members of parliament who failed to see the danger upon themselves on the grade twelve clause and expect them to understand in, most opposition members of parliament are mentally current enough to decipher and understand that bill, PF members of parliament are mostly parrots who just accent to things without analysis, that is why we should wipe them out during the 2021 elections
I AM NOT A TAX EXPERT, BUT THIS PIECE HAS SOME PINTS OF BITTERNESS, AND POLITICAL, PULL-HIM-DOWN UNDERTONES. EXPERTS DON’T DISRESPECT OTHERS. BUT THEY ADVISE. IN FACT QUIETLY. WE EXPECT AN EXPERT TO BELONG TO A RECOGNISED BODY OF ECONOMISTS OR BANKERS OR THAT KIND THROUGH WHICH THEIR EXPERT OPINIONS ARE THEN CHANNELLED TO RELEVANT ORGANS.
The Arrogance of PF numbers in our parliament today will cost this nation big time! Remember that voting for a Wrong Bill doesn’t make it right suddenly. We have very few MPs currently who are analytical but the partisan forces tend to override all common sense when it comes to voting. Even the opposition UPND is just like PF because they don’t allow MPs to make independent voting!
When a party is ripe for destruction, they become deaf! I doubt they will listen to expert advice because they think they know it all! Brace for impact fellow Zambians! Akasaka Nakatulika!
This Tax expert is clueles, the bill was approved by the president when he chaired the cabinet meeting that sent that bill to parliament, this is not US politics where congress passes bills without white house approval; in short you are too late mr Expert on your bitter politically motivated advice.
How did the tax system before VAT work? I think it was also some kind of Sales Tax tefyo? Could someone give us a comparative analysis between the operation of that tax system before VAT and this one that is coming after VAT? Are they the same? Oh – and my friend is also asking if the same person who approved the tax system with his cabinet can actually veto it? Just asking for a friend this last one.
Google the two taxes, you will have all the info that you need. That is what JJ did above
Kalok – Yes this is how it can assist the lay men in parliament and the general public. Do an analysis and make a comparative statement to show the benefits of one form of tax over another. But otherwise it was just an advise that was taken from the economics association of Zambia cadre Lubinda Habazoka without giving it much thought.
Tax Expert?
Gentlemen it is very common knowledge at play here.
1) Government is running away from tax refund which means no tax shall be refunded – True
2) Imports will be charged at 16% – True
3) Local sales shall be charged at 9% – True
Now here is a scenario – I import some of my inputs for local manufacture at 16%, then I make a product by way of value addition where I have to charge 9% (total 25%).
Company B buys my product where I have charged 25% for his input to produce product X, when he makes product X he has spent by way of value addition and he charges his 9% (total 35%), so when does it end?
Those of us who aren’t registered for VAT pay duty and import VAT which we don’t claim back yet we manage to break even. Why should the big boys always want to have it easy. In some countries people go to prison for failure to pay tax
@Ayatollah
Actually the PF govt should go o prison for failing to pay back VAT returns
Independent: You are now just exposing yourself as a VAT REFUND beneficially
Right or wrong, question is where was this gentleman when the tax was being proposed or discussed? Why wait when it is about to be consented to?
Ba Ndanje Khakis ,even if comrade @samlindo personally addressed the PF MP’s or cabinet,their individual and collective dullness would not allow them to grasp the valid points raised.
“THEY CALL IT ARROGANCE OF NUMBERS”
Speculations. Some experts like speculating. We have not even tried it, its already wrong because it is being introduced by may be the people you dont like. Sad.
Ba Ndanje Khakis ,even if comrade @samlindo personally addressed the PF MP’s or cabinet,their individual and collective dullness would not allow them to grasp the valid points raised.
“THEY CALL IT ARROGANCE OF NUMBERS”
Missing the point again. What I mean is that nobody said anything about this tax. How long has it been discussed? Be fair in your comments. Conversely if this tax was proposed by HH at one of his press conferences you’re going to support it.
IF IT WAS PROPOSED BY HH THE SAME “EXPERT” COULD HAVE BEEN THERE PROPOUNDING HOW GOOD IT WILL BE. SO DULL SOME EXPERTS CAN BE. MAY BE HE THINKS IT IS MEANT TO BLOCK HH FROM STANDING IN 2021…..THESE UPND CADRES, KATWISHI MWANDI. HE SHOULD ALSO LEARN TO USE HIS CORRECT TONGA NAMES, NOT MASQUAREDING.
Regional solutions could help. In the EU, the regional solution is VAT. In the South Africa region, the solution is VAT. In India, the solution is VAT. In Japan, the solution is VAT. As for USA, the Sales Tax regime must be approached with a bit of prudent. The USA is interesting but economic fundamentals are radically different. The stakeholders must revisit the planned Sales Tax. The fear of disruption is calling for consultations. Consultations must not be rushed.
A company imports raw materials at $5 000 to make one ton of a value added product. they pay an import tax of 16% or $800 equivalent which brings the cost to $5 800. they sell the product to a farmer who is charged an extra 9% or $450 equivalent as sales tax. 5000+800+450=$6250 + profit. the problem comes when you want to sell the product whose price is fixed on the international market @ $6400. then you foot tax bills yourself and make a loss of $150 per tone of that product.
Please give an example of product that is fixed on the International market!!
actually $-562 loss
We had sales tax before. It only works when it’s taxed at the source by either the manufacturer or importer not throughout the value chain. Once you do that goods become more expensive the more they change hands.
6.5 Zam???? I don’t know when you were born but I want to correct your impression on the disparity between Zambian and expatriate wages. It’s not PF made. I repeat it’s not a PF problem. We have had this since mining started in Zambia. At one point during the Kaunda the demand for equal job equal pay call appeared to have been implemented but only to discover that expatriates were still getting their REAL pay in their countries. Expatriate pay was handled differently in order that we didn’t know what they were getting. You always spoil a case by politicizing issues. Don’t repeat such lies.