Finance Minister Dr Bwalya Ng’andu has disclosed that his decision to discard the Goods and Services Tax (GST) proposed by his predecessor Margaret Mwanakatwe was because he felt he “did not own it”.
And the minister says the GST would have led to job losses a year before the 2021 general elections and wondered if the government would want that to happen.
Meanwhile, Dr Ngandu says government is reviewing projects and loans for possible cancellation or postponement depending on the legal ramifications.
The minister last Friday presented his maiden budget for 2020 that focuses on spending up to K106 billion.
During the budget presentation, Dr Ng’andu announced the government’s decision not to implement the proposed GST commonly referred to as sales tax following widespread rejection from several key stakeholders, among them the mines.
He said the government would maintain the Value Added Tax (VAT).
“Mr Speaker, in the 2019 Budget Address, Government proposed to abolish Value Added Tax and replace it with Sales Tax. Following the pronouncement, a number of concerns were raised by various stakeholders, which included the cascading effect, negative impact on GDP growth and job losses through elimination of intermediaries in the supply chain. As a listening Government, we decided to carry out countrywide stakeholder consultations. Sir, based on the outcomes of the consultations, Government has decided to maintain the Value Added Tax, but address the compliance and administrative challenges,” Dr Ng’andu said on Friday.
And Speaking when he graced the Zambia Institute of Chartered Accountants (ZICA), Economics Association of Zambia (EAZ) and Zambia Association of Chambers of Commerce and Industry (ZACCI) organized post budget analysis dinner, Friday, the minister said sales tax had too many inherent problems, hence the decision to maintain and improve the VAT.
“If you are Minister of Finance, you know that if you are going to implement any tax regime, one of your allies are the people from the Ministry of Commerce and I was told they didn’t support it and that kind of made me a little worried. Sso I thought that maybe we should have a meeting amongst ourselves in the Ministry of Finance so that we can have an understanding of what the issues are about sales tax and the discussions culminated into a very serious analysis of the issues and I came out with this horrible feeling that I had no idea what was right, whether it was sales tax or VAT. I was completely lost but you see, if you are Minister of Finance and going to go to Cabinet and present a tax regime, you will have to own it and at that point, I didn’t feel that I owned it. So we decided to continue with the discussions and we involved literally everybody. Most people in this room will bear witness and testify that they were part of the process of discussing the sales tax, and I think in the end, the feeling was that sales tax had inherent problems with it which included the cascading effect we just talked about this afternoon,” Dr Ng’andu admitted.
He said implementing the proposed sales tax would have put a huge strain on businesses and ultimately result in job losses.
“And also initially, if you remember, the tax rate was supposed to be nine per cent, now if you have this cascading effect and imagine the distribution chain, which is three or four points; at the end of that chain, the amount of tax you would have required to pay will be quite huge. And businessmen and rational human beings that they are, the tendency would be to cut that chain, but cutting the chain is simply a fancy way of saying jobs will be lost. Now this is where the politician in me comes in, and I am thinking, if jobs are lost, a year before elections, would you have time to recover? Is that what you want to do? So in the end, it was agreed that maybe the problem wasn’t one of changing the policy but one of examining how we manage the VAT regime itself and that it is possible to fix VAT,” Dr Ng’andu explained.
“And also furthermore, if you don’t fix VAT, the same administrative challenges that you face now will also find their way in the implementation of sales tax. So for example, if the problem is that there is cheating, there are frauds, there is duplication of payments and so on as a problem with VAT and you can’t catch the guys who are doing it, what about sales tax? The problem will still continue, so on that basis, and given the fact that we believe that we got unanimous verdict from business people that maybe we should stay where we are, we have stayed where we are.”
He added that VAT is the most exercised tax system in the world but urged the Zambia Revenue Authority to help stop the hemorrhaging that has been taking place with the VAT regime.
“We did not say it is the best system in the world as far as tax is concerned but as you all know, VAT is probably the most exercised tax system around the globe and I think it’s for a good reason. But there is no perfect taxation system, there is none, except one where you don’t pay tax. For now, we have put that to rest so I hope that with the measures that I announced, and with my colleague here [Deputy Secretary to the Cabinet Christopher Mvunga] and his staff, they will work on ensuring that the administrative measures that we need to put on place to stop the VAT hemorrhaging that was taking place will come to an end,” Dr Ng’andu said.
Meanwhile, Dr Ng’andu said the government would review all projects and loans before making a decision to cancel them to avoid legal implications.
“I can make a decision that this loan is quashed but there could be legal ramifications and consequences arising from that decision and those would probably even result in a situation where we end up paying much more than if we allowed the project to see itself to its end. So, for every project, for every loan that we have contracted, our staff in the ministry have been examining in detail for the legal implications so that we can isolate those that we can cancel or postpone without carrying a debt obligation that will result in us losing more money because that will not make sense to do that. So I am hoping that maybe within the next two to three weeks, we will take to cabinet, a list of these projects for approval. So for those of you who don’t believe that we are serious and that sometimes we do sound like broken records, I hope that when that happens, you will understand that there is a level of seriousness,” said Dr Ng’andu.