Economist Chibamba Kanyama says government must avoid announcing dates for the implementation of the disputed Sales Tax until the framework is foolproof.
Last Friday, Minister of Finance Margaret Mwanakatwe told Parliament in a ministerial statement that Sales Tax would only be implemented on the first of September, 2019, following continued consultation with relevant stakeholders. This was the third time government was postponing its implementation.
But in an interview, Kanyama said it was clear that government needed more than six months to perfect the Sales Tax framework.
“The experience so far shows that we need another period exceeding six months to perfect the sales tax framework, from the point of regulation to end point players such as retailers who need time to customize the sales tax system into their networks. The date for effecting sales tax should only be announced at the time government and all government agents are ready to go and they leave time having breathing space for polishing up any eventual gaps. It is clear the market is very apprehensive about the sales tax regime and these anxieties have been exacerbated by what seems to be uncertainty in the process,” Kanyama said.
“Government should not put itself under pressure regarding the introduction of Sales Tax. The most important thing is to ensure the framework regulating the goods and sales tax is foolproof because any miscalculation or oversight might be costly to government and even the economic players in the long run.”
He warned of the repercussions of a faulty Sales Tax framework.
“Sales tax can be a two edged sword. On one hand significantly boasting government revenues and help us come out the current economic challenges and at the same time, create a sustainable and beneficial tax regime promoting investment in the economy. It can also be an economic relief to households who currently bear the brunt of Value Added Tax net payments as they cannot be refunded. However, if we have a forced start to sales tax, reversing it once it kicks in can have detrimental impacts, lowering government revenues, reducing private sector investments and growth and also be a burden to consumers,” Kanyama warned.
He said the uncertainty surrounding Sales Tax implementation was an enemy to economic growth.
“Given that government is already receiving submissions for the 2020 budget to be announced sometime in October, it makes economic logic that the public contributions to the budget are within the final Sales Tax framework. We should, therefore, be targeting 1st January as the period for introducing Sales Tax. In any case, the 2019 budget has already accounted for the VAT revenues and this is the target Zambia Revenue Authority should be targeting. Like I said in December last year, introducing a new tax regime in the course of a budget year is extremely risky to all economic agents and government itself. The worst enemy to economic growth is an environment of uncertainty. Due to uncertainty on the commencement of Sales Tax, many companies have not been able to manage operations strategically. We have also had cases where some companies front-loaded their purchases, imports in particular, flooded their warehouses ahead of July 1 and the net effect was unstable exchange rate and a possible drop on government revenues from import duties at some point,” said Kanyama.