Impact of Sales Tax Changes on Zambia's Economy
Explore the likely impact of proposed sales tax changes on Zambia's economy, including considerations about VAT refunds, the role of mines, potential effects on consumers, and challenges in implementation.
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Presentation Transcript
Likely impact of sales tax on the economy Chenai Mukumba, CUTS
Impact of Sales Tax A few questions: VAT is the single biggest tax source for the Government Changing this at a time of fiscal constraint seems high risk at best If VAT is raising revenue, and revenue is forecast to increase by 15% in the 2019 Budget, what s not working? If the answer is VAT refunds to the mines, is this really a solution. The mines are important, but less than 15% [Check] of Zambia s economy. Are we tearing up something that works for 80% of the economy just to solve one challenge with VAT, that could be resolved with some changes to regulation?
Impact of Sales Tax A few questions: How much VAT do mines pay? This is not published in the Budget or MTEF Why is the answer to not close loopholes through regulation -- not overhaul a major tax in Zambia? If mines are net VAT contributors, how is the sales tax going to maintain this revenue? Mines export copper for sales the end sale point is outside of Zambia (and so theoretically outside of Zambia s tax regime) How will we charge sales tax on these sales?
Impact on Consumers Sales tax is a tax on the final sale, but this can be hard to measure, especially in an informal economy if registered for VAT reclaim the tax they paid if they can prove they charged VAT when selling the products Without careful management this will lead to price increases that could hit consumers at a time when inflation is already pushing the boundaries of the MOF targets VAT gets round this through a system of refunds, but it is complicated. There are ways round this for sales tax for example given wholesalers exemption from sales tax, if the people they sell to are sales tax registered, but this leads to compliance issues and complication
At what cost to consumers? Is seven months sufficient time to undertake sufficient stakeholder consultation and overhaul the system? Changing the tax code halfway through the tax year is highly risky and will need systems to dual run Given the loopholes that exist within sales tax how will the Government accurately implement the tax system
