Zanaco warns of double-digit inflation on Sales Tax implementation

The Goods and Services Tax (GST) is likely to negatively affect Zambia’s annual rate of inflation and push it to double-digits, averaging between 10 and 14 per cent following implementation, according to Zanaco Plc.

Zanaco Plc’s head of economic research Dr Patrick Chileshe said that the country’s annual rate of inflation will sharply rise into double-digits following its imminent implementation from next Monday.

He also warned that Zambia’s economic growth will equally be affected in view of the uncertainty that the Sales Tax will create once government implements it from April 1, 2019.

Sales Tax is set to replace VAT from next Monday for the first time since it was scrapped by the MMD regime back in 1995.

“I think government has delayed in communicating with stakeholders and have a consultative process. I feel this is going to affect the implementation process, and that could actually have negative implications on the economy. The mechanism of Sales Tax is that you are not paid back the refunds in the process so it’s sticky. What is going to happen is that, we might see prices of goods and services, generally, increasing by far much greater than the rate at which the GST will be implemented because of the cascading effect,” Dr Chileshe told journalists following Zanaco’s Q1 economic review at Taj Pamodzi Hotel in Lusaka, Tuesday.

“Because of that, we might see inflation rising to around 10 to 14 per cent because of the cascading effect.”

Asked whether he may be privy of the expected GST rate, he said speculation in the private sector remained rife.

“At the moment, it is a whole lot of rumours running around! I have heard numbers of five per cent, you tax everything, meaning that there are no exemptions. I have heard numbers of 10 per cent; I have heard a number from certain individuals that the GST will be at 10 per cent exempting food and taxing everything else. But either way, whether you bring it at five per cent taxing everything; you bring it at 10 per cent taxing everything, inflation is going to go up!” he replied.

And data availed in Dr. Chileshe’s detailed presentation revealed that Zanaco have forecast Zambia’s annual rate of inflation to spike the moment GST kicks in next week.

“In 2019, without the implementation of the GST, we expect inflation to remain within single digits. But with the introduction of the GST, we are expecting inflation to be in double-digits for the rest of this year into 2020,” said Dr Chileshe, who added that the GST’s implementation also represented a downside risk on Zambia’s economic growth.

“We have quite a number of risks that is going to affect growth in 2019. And some of these include the fiscal challenges that are ongoing, especially with respect to debt service obligations; what we have seen is that government’s debt service obligations have been increasing and that is essentially having a negative effect on aggregate demand on the demand for goods and services in the economy, and that is going to dampen economic growth.”

Finance Minister Margaret Mwanakatwe, however, has insisted that government will press ahead to implement the controversial GST from next Monday in a bid to avoid processing VAT refunds.

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