THE Zambia Revenue Authority (ZRA) has noted a continued low tax compliance among entities and individuals since the outbreak of COVID-19.

In response to a press query, ZRA Acting Corporate Communications Manager Oliver Nzala said in order to enhance service delivery in view of physical limitations during COVID-19 pandemic, the Authority had continued to leverage on modernisation of its main tax administration systems through automation.

“The international lockdowns and COVID-19 restrictions slowed down global economic activity while hampering the free movement of goods and people, thereby raising the cost of doing business. This negatively affected both imports and exports. In 2020, the failure to meet the target revenue under trade taxes was partly attributed to the negative effects of the COVID-19 pandemic. The total revenue collected amounted to K16, 844.3 million resulting into a deficit of K1, 417.2 million or 7.8 percent of the target of K18, 261.5 million. However, in 2021, due to the relaxed COVID-19 regulations around the globe and also due to stability in work arrangements that were put in place to prevent disruptions in operations, the Authority exceeded the set target for trade taxes amounting to K17,709.5 million by K1,670.5 million or 9.4 percent,” Nzala said.

“The Authority has noted a continued pattern of low compliance among business entities and individuals on various tax types further exacerbated by the suspension of automatic charging of penalties and interest which is one of the measures, implemented in good faith to cushion businesses from the impact of COVID-19. The return filing compliance rates by tax type at the end of the first quarter of 2022 is as tabulated: Gaming and Betting 85%, Insurance Premium Levy 84%, Local Excise 82%, Value Added Tax 69%, Tourism Levy 66%, PAYE 55%, Mineral Royalty 45% and Turnover Tax 41%. In order to enhance service delivery with physical limitations under COVID-19, the Authority has continued to leverage on modernization of its main tax administration systems through automation with the aim of improving operational efficiency, reducing the cost of tax compliance and encouraging voluntary compliance through readily accessible platforms. These automated systems minimize disruptions to the process of collecting revenue and also minimize the risk of revenue leakages, regardless of the pandemic.”

Nzala said COVID-19 negatively affected revenue collection, especially in 2020.

“In general terms, the COVID-19 pandemic negatively affected revenue collections by ZRA especially in 2020 when the Authority posted a deficit of K1,372.4 million or 2.3 percent below the annual target. Revenue mobilization efforts in all three broad categories (namely direct taxes, indirect taxes and trade based taxes) were hampered by the effects of the pandemic as follows: Direct Taxes: These are taxes mainly levied on income earned by businesses or individuals, for example, Company Income Tax, Pay As You Earn (PAYE), Mineral Royalty and Turnover Tax. The disruptions in the business environment as a result of various restrictions that were put in place to minimize the spread of the COVID-19 virus led to slowdown or close down of businesses. This generally resulted in reduced profitability of business and retrenchment of employees, which negatively affected collections of direct taxes, especially company income, PAYE and Turnover Tax,” he said.

“The most affected sectors due to the pandemic restrictions and lockdowns were the Tourism, Wholesale and Retail Trade, Manufacturing and Construction sectors. This meant that income declared and consequently the taxes paid by businesses in these sectors were significantly reduced. Indirect taxes: These are mostly comprised of Value Added Tax (VAT) and Excise taxes on goods and services. These taxes are commonly referred to as consumption taxes because the tax is mostly levied on sales realized by businesses and also on import of items that attract the taxes. Due to slowdown in business activity and layoff of workers on account of the COVID-19 lockdowns, consumption in the economy generally reduced and the tax collected from consumption taxes also reduced.”

Nzala said the various tax reliefs that were given by the Ministry of Finance and National Planning during the COVID-19 outbreak resulted in ZRA foregoing the revenue that would have been collected.

“There was also a noticeable shift in consumption patterns from large organized businesses that are registered for taxes, to small convenient stores that may not be registered for taxes. Further, some manufacturing businesses such as those that are involved in brewing of clear beers diversified from manufacturing taxable goods, biased towards manufacturing of tax-free disinfectants. Trade based taxes: Trade based taxes mainly comprise customs duties, VAT and fees imposed on imported and exported goods. The lockdowns or economic restrictions in most parts of the world disrupted the global supply chains, which constricted global economic growth. This meant that there was no free movement of goods and passengers across international borders, especially in 2020. Even when there was a window for movement of cargo, the cumbersome COVID-19 restrictions such as quarantine requirements for travelers including drivers, discouraged cross border transactions, thereby dampening the performance of trade taxes in our land linked country, Zambia,” he said.

“Further, the Ministry of Finance and National Planning implemented various tax relief measures in order to cushion the business community and consumers from the adverse impacts of the COVID-19 pandemic. The implementation of these measures meant that ZRA had to forego the revenue that would have been otherwise collected. Revenue loss as a result of tax concessions due to COVID-19; Suspension of Customs Duty on petrol and diesel, Suspension of Customs Duty and VAT on specified medical supplies, VAT Zero Rating on petrol and diesel, Suspension of Export Duty on precious stones, suspension of Export Duty on Precious Metals, suspension of Excise Duty on petrol and diesel, Suspension of Excise duty on Ethanol, Suspension of Customs Duty on Copper ores and concentrates of Heading 2603, Suspension of Export Duty on Hides & Skins, VAT Zero Rating on Full Body Sanitization Equipment, Suspension of penalties and interest. In addition to reduced revenues, the Authority also faced a number of challenges in daily operations.”

When asked whether the pandemic still had an effect on imports and exports, Nzala responded in the affirmative but added that at a much-reduced rate.

“The negative effects of COVID-19 have continued, albeit at a much-reduced rate. The country has evolved over time and appropriate measures have been put in place to minimise disruptions in operations. It must be noted, however, that most of the tax revenue measures the government put in place in response to the pandemic are still in force. The measures were put in place to sustain business operations in some industries that were adversely affected while other measures targeted consumers. For example, the suspension of customs duties and zero rating of fuel was enforced at the height of the COVID-19 pandemic and these measures are still in force to date. However, as indicated, the levels of compliance have generally remained low,” he said.

When asked what measures the Authority put in place to avoid low tax compliance, Nzala said it had approved the Corporate Strategic Plan for 2022 to 2024 anchored on the theme ‘Better Taxpayer Service, Optimized Revenues”.

“To enhance overall compliance and domestic revenue mobilization, the governing board of the ZRA in April 2022 approved an ambitious Corporate Strategic Plan for 2022 to 2024 anchored on the theme ‘Better Taxpayer Service, Optimized Revenues” with the following four strategic pillars: Tax Compliance: Key Result Area – Enhanced revenue collection, Customer Focus & Collaboration: Key Result Area – Satisfied and knowledgeable taxpayers, Process Efficiency: Key Result Area – Simplified, efficient and reliable business systems, Right People: Key Result Area – Committed, competent and high performing workforce,” said Nzala.

“Some of the key strategic interventions aimed at enhancing compliance that the Authority has embarked on include: Agency Model: The Authority currently only has offices at the borders and for inland taxes, at the Provincial Headquarters. Therefore, most of the districts have no ZRA presence despite the high levels of business activity. To expand the tax base, the Authority will be working with Councils on a commission basis to drive compliance on specific tax types. So far, 33 contracts have been signed with Councils and are under implementation. Ecosystem Integration: One of the fundamental weaknesses in the current tax administration systems in Zambia as compared to those in developed economies is that ZRA operates in a silo which is detached from the processes of taxable transactions in the ecosystem.”