CTPD welcomes lifting of 5-year tax holiday

CTPD says government’s decision to discontinue the five-year income tax holiday for companies will broaden Zambia’s revenue base.

And CTPD says research has revealed that about K1 billion of the country’s revenue is realised from incentives, such as provisions under the COMESA and SADC Trade protocols.

In a statement yesterday, Centre for Trade Policy and Development executive director Isaac Mwaipopo noted that the abolishment of the five-year income tax holiday could help increase and improve equity within the tax system by further reducing the burden on formal employees.

“The proposed scrapping off of the five year income tax breaks by the Minister of Finance beginning 2018 is a welcome move as it will enhance government’s ability to collect the much needed revenues for provision of public services. The finance Minister announced an ambitious K71.6 billion [2018] budget which requires aggressive efforts towards broadening the country’s tax base and the phasing out of tax incentives such as the tax break is one such measure. Abolishment of the 5-year income tax holiday can help to increase and improve equity within the tax system by further reducing the burden on formal employees,” Mwaipopo stated.

Mwaipopo stated that tax incentives were particularly an ineffective way of promoting investment in any country.

“Reports have shown that tax incentives are not a key driver for investment decisions in the country. Market access, political stability and other broad economic features are more important in attracting investments in a country like Zambia. Therefore, tax incentives are particularly an ineffective way of promoting investment. Tax incentives should be minimized and their applicability restricted to where there is proven benefit outweighing costs or else they could be an avenue upon which colossal loss of tax revenues could take place. CTPD would like to emphasize that decisions regarding tax incentives should be based on informed clear empirical data,”.

He observed that having too many tax incentives in the country had led to poor performance of tax collection.

“Numerous tax incentives have led to a poor performance of taxes collected through corporate income tax and led to over burdening of taxes from low to middle income earners who are the largest contributors to the tax base. According to a study done by the Jesuit Centre for theological reflections, it was estimated that close to K1 billion worthy of revenue is through various tax incentives among which includes provisions under COMESA trade protocol as well as the SADC Trade protocols,” stated Mwaipopo.

         

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