In an analysis of the proposed Goods and Services Tax (GST), the ZTP, a Centre for Trade Policy and Development (CTPD) research unit, warned that Zambians will be subjected to worse economic hardships owing to the devastating consequences the GST will have on eroding household incomes, triggered by its inflationary effects.
“Sales Tax promises to clear the accumulated VAT refund bill, but comes with its own limitations, such as the cascading effect which leads to inflation, the reduction in taxable transactions due to higher prices, and the fall in employment and revenue due to the cutting-off of distributors, among others. It follows, therefore, that the introduction of Sales Tax will ultimately increase the economic hardships of the Zambian people,” the ZTP stated.
“An increase in inflation due to higher prices of goods and services would make it more expensive to access basic necessities, such as food and clothing. Loss of employment through the cut-off of distributors and wholesalers would increase unemployment and poverty. Sales Tax introduction will result in revenue losses since VAT is more efficient and would, therefore, not increase government tax revenue.”
The ZTP also argued that the mounting VAT refunds, a key reason why government seeks to replace the tax system, could be resolved if government had greater fiscal discipline.
“As of January, 2019, Zambia had a VAT refund bill of K17.9 billion accumulated over the past decade. VAT has been the best-performing tax and continues to increase its contribution to tax revenue. The problem regarding accumulated VAT refunds is administrative in nature and requires government fiscal discipline, not a change of the tax system,” noted ZTP.
Industry experts have consistently warned that government’s attempt to implement Sales Tax next month in its current form will trigger huge job losses along the supply chain owing to the threatening cascading effect of applying tax-on-tax, possibly forcing out distributors and rendering them obsolete.