Finance Minister Dr Bwalya Ng’andu has announced that government has decided to abandon the Goods and Services Tax (GST) and maintain Value Added Tax (VAT) next year following widespread rejection from several key stakeholders.
Announcing an unprecedented K106 billion 2020 budget, half of which is expected to be financed by direct taxes, Dr Ng’andu eventually yielded to widespread public pressure and dropped the much-disliked Sales Tax, which was originally projected to take effect January 1, 2020.
Private sector businesses, among other stakeholders, who included the mines, had consistently rejected the rejected the GST from being implemented on account of its cascading effects and potential to lead to huge job losses.
“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 told Parliament, Friday.
“In this regard, I intend to introduce the following administrative measures to strengthen enforcement and efficiency of VAT: Upgrade the Taxonline system for domestic taxes and interface it with customs system to ensure that all claims of refund for import VAT paid to Customs Services during import of goods are validated through systems based controls against data in the customs system; make it mandatory to use Electronic Fiscal Devices (EFD) for VAT and other tax types and facilitate accreditation of additional EFD distributors and Virtual EFD software suppliers and vendors; make it mandatory to capture and electronically transmit to ZRA the Taxpayer Identification Number and Name of both the buyer and seller of goods and services in all Business to Business and Business to Government transactions…”
But while the controversial Sales Tax was been dropped, Dr Ng’andu maintained the 2019 mining fiscal regime to apply for the 2020 fiscal year, which had raised mineral royalties by 1.5 percentage points across all levels of the sliding scale.
And to finance next year’s budget, government proposed that K72 billion will be derived from total domestic revenues of which total tax revenues amounting to K53.8 billion are expected to support next year’s budget, which will constitute around 50.7 per cent of the national budget.
“Sir, government proposes to spend K106.0 billion in 2020, representing 32.4 percent of GDP. Of this amount, K72.0 billion, representing 22.0 percent of GDP will come from domestic revenues, while the balance will be raised through domestic and external financing,” he added.
Meanwhile, Dr Ng’andu, in his maiden budget presentation, reaffirmed government’s resolve to protect public resources as they will enforce all the provisions of the Public Finance Management Act No. 1 of 2018.
2 Responses
Exemplary leadership. Congratulations. It does not mean removing distortions from VAT will be easy. It means that distortions in the VAT are the ones that must be removed and the VAT itself. As a matter of principle, the originator of that Sale Tax idea must move to a different office. The dream did not come true. Impunity is tempting but it is costly. An academic paper would be fine but public service is a different ball game. There is dire need to retract any controversial policy measures and to focus on implementation of consensus based policies. The stock exchange will respond instantaneously. The backbone of inflation will be broken immediately. Investor confidence will be boosted instantly.
It means that distortions in the VAT are the ones that must be removed and NOT the VAT itself.