Finance Minister Margaret Mwanakatwe has told the business community in Zambia not to expect VAT refunds owed to them to run their businesses.

And Mwanakatwe has revealed that exports will be exempted from Sales Tax in order to make them competitive and earn the country much-needed foreign exchange.

Mining companies, among several Zambian exporters, are still collectively owed well over US $600 million in unpaid VAT refunds, a situation which had continued to affect their working capital.

But speaking during a highly-charged Sales Tax consultative meeting in Lusaka, Friday, where she explained the various components of the new tax, Mwanakatwe told off the business community in the country not to expect VAT refunds owed to them to run their businesses.

She was reacting to a series of questions from stakeholders gathered at a packed auditorium at Intercontinental Hotel who challenged her on government’s lack of accountability with VAT system as one key motivating factor, which triggered the sudden change in tax policy.

“You cannot rely on VAT refunds to fund your business! You can’t! How do you rely on VAT refunds to fund your business? How? I don’t understand, and that’s why we have a challenge. Companies that rely on VAT refunds from government to fund your business…I don’t have that money, I don’t! To refund you? To run your business? I don’t!” Mwanakatwe exclaimed.

“So, those exploration companies must come here with a business plan that has credibility, but to fund their businesses out of exploration into business? Don’t rely on government to give you refunds to fund your business, I am sorry! We won’t do it.”

She, however, assured those still owed VAT refunds that government would settle the liabilities in due course.

“As a business community, you may be wondering what will happen to your legitimate outstanding VAT claims after the implementation of Sales Tax. I want to assure you that will government pay off all outstanding legitimate VAT refunds. Reconciliations will be undertaken to close off VAT and a plan will be put in place of how to liquidate the legitimate refunds,” Mwanakatwe explained.

She insisted that government prioritised business entities who added value to the country’s economy.

“We want well-meaning businesspeople that are producing, manufacturing. We want to support those businesses that are value-adding; this is why you saw us go from 35 per cent to 15 per cent Corporate Tax on those businesses that are in the mining sector and adding value. Don’t come to me to ask for refunds to run your business, I’m sorry, I won’t do it! But I will support you if you are value-adding,” she insisted.

She explained that the Sales Tax, due to be formally implemented on July 1, 2019, was a “hybrid” tax system.

“…That’s why I am saying this tax is a hybrid; the old Sales Tax didn’t have that. I don’t want the cascading effect; the cascading effect will bring inflation. I want to reduce that as much as possible. And I want to support your businesses, especially if you are value-adding. So, help me, think with me, to make sure that that exemption (list) is robust and supports your businesses,” she explained.

And she disclosed that exports would be exempted from Sales Tax in order to make them competitive and earn the country foreign exchange.

“In order to support local industry, a differentiated Sales Tax rate has been adopted at 16 per cent on imported finished products and nine per cent on locally-manufactured products. Furthermore, exports will be exempt from the Sales Tax in order to make them competitive and earn the country foreign exchange,” announced Mwanakatwe.

“In order to address the effects of cascading associated with Sales Tax, exemptions have been provided on capital goods, basic foods items, and essential goods and services in the health, education and water sectors.”