ECONOMIST Professor Oliver Saasa says he does not expect any major changes in the 2022 budget because it was drafted under PF’s supervision.
And Prof Saasa has advised government to find ways of taxing the informal sector by learning best practices from other countries.
In an interview, Prof Saasa observed that rather than some final reengineering and tinkering, the 2022 budget was prepared under PF supervision.
“I am not so sure how much consultation the new government has had but you remember this budget they are announcing, much of it, apart from the reengineering and tinkering, it was actually prepared by technocrats but under the leadership of the previous government. So I do not expect to see change, major change on the tax profile for something that they really just had to play around, having been done by other people, the previous government,” he said.
Prof Saasa, however, said he expected the Finance Minister to raise the PAYE threshold to appease civil servants who were currently affected by the debt swap.
“…because now they have suspended, they have talked about suspension of putting it on ice, my suspicion is that they will find ways of appeasement which is essentially political, more than financial. Find ways of saying ‘sorry guys, the other government didn’t do a proper job but here you are, let’s adjust the threshold probably to K4,300 or K5,000’. So that is the possibility,” he said.
“When you look at the financial gain from that, it’s not substantial to the employees and the net loss to the Zambian government side is not so substantial because you are really talking about not a significant size of employees that benefit from it. If you look at the labour force, the labour force right now is hovering towards eight to 10 million and those in formal sector employment are much more and those within the employment segment. But [those] who are in the informal sector are much bigger than those who can benefit from these adjustments.”
Prof Saasa advised government to do away with the debt swap and pay civil servants what was owed to them.
“Usually it’s a political move rather than a fiscal one because you have to have the people along with you. They might do that too probably because you see what that debt swap meant to the workers. The previous government makes a promise of something that’s so weird that they never even thought through, it was a political gimmick and then they just realized that if they had consulted earlier, they would have seen how illogical the whole thing is. Where you have a government that owes workers but prefers to pay other people than its workers. You want to appear as if you are caring for them but you are not giving them the money that is due to them to use it to pay what they owe at a different level. Where there was contractual issues and financial lending by financial institutions, commercial banks or micro, negotiations that happened are very bilateral between the institution and the individual, the payment levels,” Prof Saasa said.
“So that really was a weird way of trying to handle a situation where the workers needed some relief but of course we must talk about how much we owe them and I think at the end of the day, that’s how it should have been. So now that they have decided to follow it, my hope is actually that they will reject it completely and forget about it and look at better ways of handling the plight of the workers.”
And Prof Saasa observed that it was currently tricky to capture more into the tax net due to issues of compliance.
“So these are really talking about perhaps the new government looking at much broader ways of not only appeasing and compensating those that are working through tax measures but perhaps how you can best broaden the tax, this revenue issue. Now for me, this is something that is also a little bit trickier. But when you broaden the tax base, you are actually capturing in the tax net, those that are presently not paying tax, not only in terms of compliance. And there are many who are not tax compliant who are supposed to pay tax but are not, but also those in the informal sector who are really fully captured because of the nature of their business and the ease of capturing them. So, government really has to think through this more strategically,” said Prof Saasa.
“I think there is value in broadening the tax net so that government gets a little bit more revenue from more people at two different categories; firstly ensuring tax compliance, make sure that all of us pay tax, and secondly broadening the tax base to the informal sector. They have to come skillfully, they can learn best practices from other countries, how you skillfully tax those who are not in formal sector employment but actually are consuming resources through government service provisions.”