The Zambia Association of Manufacturers has warned that Sales Tax will slow down the country’s economic growth and encourage tax avoidance.

In a statement, Association president Roseta Chabala stated that the Sales Tax proposal as contained in next year’s national budget will hinder economic growth as it would increase the cost of doing business for private sector companies that are already struggling to cope in a challenging economic environment.

Government is set to re-introduce Sales Tax as proposed in the 2019 national budget from April 1 next year and replace Value Added Tax (VAT).

“Some of the measures in the (2019) budget broaden the tax base, which is welcome, but overall, they increase the burden of doing business, which is a cause for concern. The approach of increasing tax revenues through the implementation of the Sales Tax and revisions to other taxes, charges and fees will constrain growth, causing the private sector to further struggle in an already difficult business environment. In particular, we are concerned that the introduction of the Sales Tax will increase the cost of doing business and incentivise movement to the informal sector,” Chabala stated.

“The lack of a refund mechanism will increase input costs and make tax avoidance more attractive and straightforward. Manufacturers will experience higher input costs, making Zambian products less competitive and increasing prices for consumers: we estimate that the Sales Tax could increase the cost [of] agro-processing by 10 per cent, stifling a growing sector that adds value to domestic produce.”

And Chabala, who is also ZAMEFA managing director, called on government to address the country’s debt position through the creation of an enabling environment for businesses to drive the country’s growth.

“…This means: investing in the country’s business capacity through a commitment to protect pro-growth spending on economic diversification and skills training, and improving the business climate through dismantling government arrears and improving access to credit through empowerment schemes; promoting growth and investment through a commitment to not increasing the cost of doing business and the development of a stable tax and regulatory regime that works for Zambian businesses,” stated Chabala, who also advised government that the Industrial Development Cooperation’s (IDC) role should be scaled back to making strategic investments as opposed to competing with the private sector.