Centre for Trade Policy and Development (CTPD) Researcher Bright Chizonde says the proposed sales tax has the potential to increase prices of goods and services in the country.

And Chizonde has observed that government could have revised the Value-Added Tax (VAT) policy on the mining sector alone as opposed to affecting other parts of the economy by switching to sales tax.

Meanwhile, Kantanshi Independent member of parliament Anthony Mumba hopes that there will be more communication on the sales tax transition so that Zambians can prepare themselves.

Speaking when the duo featured on Radio Phoenix ‘Let The People Talk’ program, Friday, Chizonde first described to listeners what ‘Sales Tax’ was.

“Sales Tax is the amount calculated as a percentage that is added to the cost of a product or a service when purchased by a consumer at the retail location. What it means is that Sales Tax is imposed at a final point of sale of a commodity or a service. The supplier or the producer of a product adds on top of the cost of production, the Sales Tax itself and adds it to the price. When the consumer buys the commodity it means that the seller will have to withhold that portion that he added on top of the cost and remit it to ZRA,” he said.

Chizonde observed that Sales Tax had the potential to increase prices of goods and services, but added that the aspect depended on how the tax would be implemented.

“It is true that Sales Tax has the potential to increase the prices of goods and services, that is one of its disadvantages. It depends with the implementation. That is why a lot of stakeholders were asking for the guidelines of the implementation. Its important for government to give full information as people were saying, because they do not know how this Sales Tax will be implemented,” he said.

“You are buying sugar at K25, it means the sugar will not be at K25. Let’s say its 10 percent sales tax, it means that the K25, 10 percent will be about K2.50 [and] you add it on top of the K25. So it goes to K27.5, that is the price of the sugar now. It means that when you are coming as a consumer, you will see a higher price because the price that you are going to pay is now K27.5. When you pay the K27.5 the producer or the retailer who is selling the commodity is going to withhold the K2.5 and remit it to ZRA, that is how the sales tax works.”

And Chizonde observed that government could have just revised the VAT policy for the mining sector alone as opposed to moving to Sales Tax across the board.

“The best alternative would have been to just revise the VAT policy for the mining sector instead of affecting all the other sectors in the economy that have not had a bigger issue with the input VAT refunds. So we would have just revised the mining sector policy alone, compared to changing the whole tax policy,” he said.

Chizonde added that most stakeholders were shocked when the Minister of Finance Margaret Mwanakatwe announced that government was switching from VAT to Sales Tax, because they were mot consulted.

“Most stakeholders, even us CTPD, it was shocking to hear the minister saying that that they are going to switch from VAT to sales tax. This time around there was no hint to say government would switch from VAT to Sales Tax. In such a situation it means that they did not consult adequately, different stakeholders to ask them. There was need for different stakeholders to interrogate the issue before the minister comes up and says ‘this is our decision’,” he said.

Meanwhile, Chizonde said there was some significant mismanagement of finances on the part of government.

“This trend that we see now, government failing to pay salaries on time, removing meal allowances from students, these issues are indicators to say that in the future if we continue mismanaging our borrowing we will reach a level where we are in distress, failing completely to pay back our debts. So there is some significant mismanagement. If you look at the current situation that we are in as a country, we do not have the resources to just be spending and creating roads anywhere. We need to be very prudent in the way we use resources, especially the money that we are borrowing because we need to pay back,” he said.

And Mumba observed that studies had revealed that VAT actually provided better value for resource mobilisation.

“In any case, studies have revealed that VAT actually provides better value for resource mobilisation. That’s the argument that has been there. If the main reason has been the mining sector as the reason to move to sales tax which the Finance Minister says is simpler and straight forward, I think that for me, ZRA should have done their homework much better and looked at the challenge that has approached them because of the huge investment that is taking place in the sector. They should have gone deeper to try and analyse how best they can try and start collecting taxes from the mining sector. I believe that there could have been a way,” Mumba said.

However, when he was asked whether government could be trusted to get the tax transition correct, the law maker said he didn’t see the reason why not.

“Well I don’t see the reason why not. They were voted for in government so people trust them. Where do they get these taxes from anyway? They get them from the people. Even as you have been asking this question ‘why the new tax’? Its governments’ aspiration that they will double the revenue collection,” said Mumba.