Economies across the world depend on resources collected from both direct taxes (personal income tax and Company tax) and indirect taxes (value added tax-VAT, excise and customs duties) to finance government activities. My colleagues in the UPND administration and my fellow Zambians, what you need to know and understand is that we need taxes. We must stop depending on donor funding that comes with its own colonial conditions which makes it difficult for us to see the results of those acquired loans due to pressure which comes with the conditions!
Colleagues in the UPND government and Zambians from all walks of life let me tell you that no government in the world can be sustained without mechanisms for generating domestic revenue. Taxes are therefore a major way for countries to raise revenue to meet social and developmental needs of the people. Taxes also assist in the redistribution of wealth or income and can also be used to encourage or discourage certain activities.
Taxes therefore help in reducing the gap between the rich and the poor. Taxes play a critical role in encouraging economic growth, reducing disparity between the rich and the poor, and reducing poverty.
Tax revenue is currently the only reliable and sustainable source of government revenue. While other sources exist i.e debt, aid and remittances, they are not reliable as they are unpredictable and can thus be unsustainable. Debt (both external and domestic) has a cost to future generated resources as it attracts interest and can lead to indebtedness if not regulated in a transparent, accountable and participatory manner.
Taxes contribute up 70% of the National Budget. The Zambian tax system offers a wide base and alternative sources of revenue and therefore has the potential to contribute even more than is currently the case and hence fill the gap by debt and aid. This can therefore, reduce dependency on external financing which is dependent on the global economic performance and thus unpredictable and unsustainable. Tax administration thus needs to be supported to keep it abreast with the growth of the economy and ensure equity and efficiency in resource mobilization.
Taxation as a source of government revenue in Zambia is reported to have performed well upto target in the last few months, as at the end of December 2022, domestic revenues had performed poorly within the target for the year and it was expected to even over perform this year 2023, but with the wrangles surrounding KCM, it’s impossible for ZRA to meet its target in collecting tax in the mines.
Now my concern is the performance of the mining sector taxes has not been impressive. Up until now, tax system has only managed to capture, effectively tax revenue from the formal sector while the informal sector remains minimally taxed, this keeps tax distribution heavily skewed towards direct taxes placing a disproportionate burden on formal sector workers.
Our learned colleagues in the UPND government and my fellow countrymen and women, ZRA must enhance its taxpayer education and taxpayer services to improve tax compliance and ensure efficiency in tax revenue collection.
Colleagues in the UPND and my fellow countrymen and women, collection of informal sector tax revenue must be contracted to institutions that have some legitimacy and control, such as councils for base tax and Road Transport and Safety Agency (RTSA) for presumptive tax. Local councils, if given authority to collect this tax will assist to eliminate the problem of high cost of collection problem as the council has established structures in most of these markets.
ZRA should tax the informal sector through their associations. Association Taxation is not a new phenomenon, it has been used with great success in Ghana and it has helped them a lot as a result of this innovative scheme.
Mining revenue despite being on an upward trend, as a proportion of total collected, is relatively low.
Zambia’s economy is still very dependent on the mining sector, the mining sector is large and specialised and as such, mining operations are very complex and provide challenges in taxation by ZRA. It is because of the complexity that ZRA established a Mining Tax Unit to ensure sufficient and adequate understanding of the mining operations and hence ensure efficient and effective taxation of the mining sector. This capacity, however, is not adequate in ensuring that the mines contribute effectively and efficiently to the tax base. The capacity of ZRA should also include auditing of the mines to ensure the financial records reflect the true position of their operational costs and profits.
ZRA has up to now failed to tax the mines efficiently and effectively because of the limited capacity in understanding the mining operations. This has resulted in the failure of the variable Profit Tax currently in place to capture tax revenue in view of the high copper prices.
This makes the windfall tax an appropriate tax measure in ensuring that Zambia benefits from its God given Copper, especially during periods of high copper prices through tax revenue which is vital in poverty reduction and developmental programmes. The windfall tax is meant to capture significant tax revenue during high mineral price periods, hence this time is more opportune than ever to introduce it. The windfall tax is effected at graduated levels only when the mining company’s revenue becomes twice the cost of production.
The Mining tax in Zambia needs to be revisited and reintroduce the mining windfall tax. The current PAYE payments in the mines are relatively high but the distribution of income of mining staff is very unequal as there are a number of employees who are comparatively well paid, while a large number earn substantially less and are below the PAYE threshold.
What is worse is that there is no sufficient evidence to prove the real value of the tax exemptions to the increase in Foreign Direct Investment (FDI) that Zambia is witnessing. While tax incentives to foreign investors have potential to promote investment, they tend to deprive the government of essential resources for delivering to the public, social services promised in the 8th National Development Plan.
And there is need to be a move towards enforcing a regime that will tax other allied minerals in copper concentrates. Small-Scale mining must be made integral to mining policy formulation and tax administration.
In conclusion, I, therefore, recommend that the UPND government needs to improve its tax administration and performance in order to ensure increased domestic resource mobilization to support social expenditure and developmental programmes. This is because tax revenue is the most reliable and sustainable means of government revenue compared to aid and loans. The taxation system should thus be adequate, efficient and equitable in contributing to domestic revenue needed in meeting the needs of the poor that voted for the UPND and promote social justice to all.
I have spoken my mind,
God bless Mother Zambia
Yours in the spirit of One Zambia, One Nation,
Fidelis Solomon Ngoma
About the author of the article, he is an international Policy and Governance Expert and for contributions you can email or call,