The Zambia Association of Manufacturers (ZAM) says the Zambia Revenue Authority’s decision to start implementing the Digital Tax Stamp (DTS) to enhance tax compliance on all excisable products has the potential to increase the cost of doing business.
In a statement, ZAM vice-president Chipego Zulu stated that although the DTS was the solution to tackle smuggling, viewing DTS solely as a tax revenue growth scheme was erroneous as it would likely result in increased costs of doing business for legitimate manufacturers in the excisable sectors.
The ZRA is expected to implement the DTS this year, which is based on enhanced features that include the ability to electronically track and trace products throughout the supply chain, from the manufacturer to the retailer.
“The ZRA has announced its intention to start implementing a DTS solution to enhance tax compliance on all excisable products, thereby, joining countries such as Uganda and Mozambique in pursuing this option to curb illicit trade and enhance revenue collection. Whereas ZAM remains supportive of measures to enhance tax revenue collection and revenue assurance by the ZRA, the Association does have a number of concerns with regard to the implementation of the proposed solution. It is worth noting that the DTS solution is most effective where smuggling, counterfeit products, tax leakages and under-declaration of production or sales volume is rife by registered industry players,” Zulu stated.
“For this reason, it is imperative to note that it may not be ideal to treat all companies producing excisable products the same in view of variability in tax compliance and the nature of illicit trade in their respective sectors. It is our submission that the Authority channel resources towards promoting voluntary compliance, instituting cheaper effective enforcement controls and targeting specific sectors within the economy, where there is proven evidence that smuggling, counterfeit products, tax leakages and under-declaration of operational volumes exist. Viewing the Digital Tax Stamp solution solely as a tax revenue growth initiative, therefore, is erroneous, as a poorly designed solution would likely result in increased costs of doing business/production for legitimate manufacturers in excisable sectors. Higher costs will in the medium to long-term translate into reduced revenue collection for ZRA as a result of products in these sectors becoming uncompetitive on the market.”
She urged the ZRA to undertake a comprehensive consultative process with affected private sector companies to determine how the DTS solution would be implemented.
“Our recommendations are that; firstly, a comprehensive consultative process be undertaken with the affected private sector companies to determine the manner in which the DTS solution will be implemented and ensure that adequate sector specific input is gathered and considered in the design and execution of the same. In short, the Regulatory Impact Assessment (RIA) process must be transparent and fully assess the overall cost and/or benefit of this solution to the ZRA and to industry. This will enable the Authority to design and adopt a solution that is fit for purpose and does not unintentionally become more burdensome for legitimate manufacturers to implement and comply with, whilst simultaneously promoting illicit businesses to thrive,” Zulu added.
“Countries such as Botswana are currently undertaking comprehensive consultative processes between the solution providers, the revenue authority and some of the industry players prior to the implementation of proposed digital solutions. This process is cardinal as it allows for meaningful consideration of industry concerns at a sector specific level.”
She recommended that the ZRA should adopt cost-effective alternatives before the DTS’ implementation.
“Secondly, it is imperative that the ZRA undertake an independent due diligence assessment of the DTS solution in those countries in which it has been implemented. For example, countries such as Mozambique, South Africa, Kenya, Tanzania, Uganda and Ghana are in the process of implementing similar solutions, albeit amidst high operational and cost challenges to both the revenue authorities and industry. Further, ZAM has observed that the reported Track and Trace system that forms the crux of the proposed DTS solution does not currently exist anywhere in the rest of Africa,” Zulu stated.
“In the same vein, cheaper and more cost-effective methods can be determined jointly with the private sector through dialogue under the recently launched multi-sectoral Anti-Illicit Trade Committee (AIT Committee), which seeks to draw on the dual strengths of industry know-how from the private sector and the enforcement capabilities and capacities of law enforcement agencies, such as the Zambia Revenue Authority, Drug Enforcement Commission, and Zambia Police, among others, to curb illicit trade across a broad spectrum of products, including excisable products.”
She further advised ZRA to continue promoting voluntary compliance for organisations that were fully tax complaint.
“ZAM remains open to further engagements with the ZRA on this matter towards the development of a workable solution that meets the shared growth aspirations of the Authority and industry in developing Zambia into a prosperous middle-income country through enhanced tax compliance anchored in the predictable and sustainable long-term growth and development of industry,” stated Zulu.