Eight Civil Society Organisations have opposed the proposed introduction of Sales Tax to replace the value added tax, arguing that Sales Tax has dangerous consequences on the livelihoods of people and the country’s economy.
The civil societies include the Non-Governmental Coordinating Council (NGOCC), Civil Society for Poverty Reduction (CSPR), Jesuit Centre for Theological Reflection (JCTR), Centre for Trade Police and Development (CTPD), Support Older People in Zambia, Consumer Unity and Trust Society (CUTS), Zambia Council for Social Development (ZCSD) and Action Aid Zambia.
In a statement on behalf of other CSOs, Consumer Unity and Trust Society (CUTS) international communications officer Njavwa Simukoko, said the CSOs were opposed to the implementation of the Sales Tax as it would lead to high cost of goods and services, and that it would also lead to job losses.
“We as civil society organisations are concerned about the negative impact that the implementation of Sales Tax will have on our economy and citizens particularly women, children and other vulnerable groups. If implemented the proposed Sales Tax, which involves tax imposed at every stage of the supply chain, will result in a steep rise in the cost of goods and services and ultimately result in higher poverty levels. Given the higher probability of Sales Tax increasing citizens’ tax burden, there is need for a fairer and more progressive tax system within the existing gender and age inequalities,” Simukoko said.
“We are of the view that government should address the existing limitations with the VAT system instead of replacing it with Sales tax. However, should the government insist on proceeding to enact the bill, to extend the time period for implementation up until sometime after the current Medium-Term Expenditure Framework (MTEF) planning period which will help coordinate sales tax with the existing government policy.”
The Civil Societies stated that the introduction of the sales tax will lead to increase in prices of goods and services.
“The proposed sales tax will be imposed at every stage of the supply chain. This means that from importation, manufacturing, production, distribution, wholesale and retail point of supply a tax will be paid to the government. We are concerned that this taxation across the value chain will make goods and services more expensive for consumers,”
“At every stage of the value chain there will be a 9 per cent tax levied on the supplier and the longer the supply chain will be the more costly these goods will be for final consumers. For imported goods the rate will be 16 per cent. This will increase the price of goods across the spectrum: for example, the additional tax burden on soap could be up to K1.14, which could be passed on to consumers while the additional tax burden on a mobile phone priced at K2699 could be up to K543.04, which would see a price increase of K271.52 if just 50 per cent of the cost was passed onto consumers. This tax will thereby increase the cost of living for ordinary Zambians who are already burdened with high living expenses in the country. Currently, the Basic Needs Basket for a family of five is at ZMW 5,519 which is way above the average income of most poor households.”
The CSOs further challenged government to explain how the tax rate was decided.
“If goods and services are too costly for ordinary citizens, this slows down the rate of economic activity and has negative implications for businesses which will be at loss if their products are no longer affordable for consumers. When economic activity is low due to less consumer spending, firms reduce their workforce and unemployment rises. If businesses are no longer making sustainable profits this forces them to close down which is a blow to the Zambian economy as the private sector is instrumental to economic growth. As the government prepares to implement the sales tax, we would like them to clarify on the following: What projections have been made on the impact on growth, inflation, unemployment, poverty, trade and revenue? How have the tax rates been decided and what is the objective and expected impact of setting the tax at these levels? How have the exempted goods been chosen? How will the exemption regime mitigate the risk to businesses with a smaller voice, as well as the risk of corruption?” Simukoko asked.
“We are also concerned about the implications that the tax will have on Zambian businesses along the value chain and in different sectors of the economy. Firstly, the Sales Tax will increase the costs of production for domestic manufacturers by increasing the purchase price of locally sourced and imported raw materials and semi-finished products for locally-produced commodities. Secondly, the cascading effect of Sales Tax will incentivise large manufacturers and retailers to sell or buy goods directly from each other, which cuts out wholesalers and distributors from the value chain, which will damage the many SMEs that make up the sector and create jobs. This effect can be encapsulated by the fact that domestically produced goods selling into supermarkets could face a higher tax burden of up to 36 per cent than goods imported directly by the store at 25 per cent. The effect of the sales tax will disadvantage Zambian firms, particularly SMEs, at home and when exporting.”
They asked government further delay the implementation of the proposed Sales Tax regime.
“Given the serious risk of the proposed Sales Tax to inflation, jobs and government revenue, we urge the government to delay implementation so that measures can be put in place which ensure the burden on consumers and businesses is minimised. We are of the view that the proposed rates of 9 per cent and 16 per cent should be lowered to 5 per cent as this is charged at multiple points of the supply chain and the cascading effects will result in sharp price increases for final consumers,” argued Simukoko.
“While it is important to mobilise domestic resources as part of the government’s fiscal consolidation programme, we do not believe the sales tax in its proposed form will achieve this aim and will in fact be harmful. We therefore call on Government to consult with civil society and businesses and demonstrate how the proposed change to the tax regime will protect citizens as consumers, workers and business owners.”