A ZiCA Perspective @ Q4
It is with constant concern that the Zambia Institute of Standard Chartered Accountants ZICA body raises matters that have fallen on the deaf ear, or rather, have had the ‘tortoise race’ to amendment or operationalization.
At the 4th Quarter Media briefing held at ZiCA’s head office on the morning of 18th December 2018, President Jason Kazilimani in his report addressed the following;
- The status of the Auditor General’s Office
- The VAT system
- Debt Management and current Debt Stock
- Government Social Protection Programmes
- Corporate Governance in some Public Corporations
- Public Financial Management
- Individuals not in good standing with the Accountants Acts 2008
The status of the Auditor General’s Office
This matter has been stressed overtime by ZiCA as it notes that matters still remain unattended to. It is a concern across the board as the Auditor General’s office is a cardinal governance institution, which should not be left unoccupied for a long time as it has been.
As it stands, the Public Audit Act of 2016 and the State Audit Commission Act of 2016 has not been operationalized till today while a substantive AG is requisite. ZiCA believes and appeals to the authorities to proceed and appoint an AG as a matter of urgency.
No feedback has be gotten concerning this matter from appointing authorities exacerbating anxiety in a cardinal profession.
The VAT system
ZiCA brings to attention the proposed refit of the Value Added Tax system with the replacement of the Sales Tax system as announced by the Minister of Finance in the 2019 budget speech to Parliament in September 2018 needs more research and consultation.
It was and is a ‘white elephant’ of its huge fiscal shift nature to most economic players as the measure requires wide consultation and adequate preparation for both the taxpayer and administrators. It is understood that the move is aimed at enhancing domestic revenue mobilisation, improving revenue contribution to the Treasury and minimising revenue leakages.
Like Value Added Tax (VAT), Sales Tax is a consumption tax imposed on the sale of goods and services levied at the point of purchase from the consumer. However, it is noted that unlike VAT, which is deductible by the seller, Sales tax is non-refundable.
The huge VAT refunds accruing to the mines is evidently contributing to the liquidity challenges of the mining companies, however, the question still remains, whether the proposed Sales Tax system is the right remedy to the perceived revenue leakage. It is vital to take account of how the system will actualize with minimal disruption in business and the economy. It is without a doubt that accountants far and wide understand the anatomy of tax implementation and the proverbial consequences if not implemented correctly as intended benefits may not be realised.
The lack of information of the road-map to implementation of this system may lead to investor anxiety and uncertainty in corporate planning, budgeting and forecasting. The fears are at most with the mines ( biggest tax corporate contributor) who are prone to scale down operations at the sight of any macro environmental changes that may hurt their bottom line. That is why ZiCA believes there is need for further consultation and thorough research. Jason proposes that the system should not be rushed; nevertheless the Minister of Finance should take careful studies of the rates to be applied, period of transition and the framework for the Sales Tax System. This should be coupled with a support system and well planned administrative system prior to the introduction of the Sales Tax system. Prudence is demanded in the implementation.
Debt Management and Current Debt Stock
It is noted from the 2019 budget address to Parliament that Governments external debt, as of end of June 2018 was US$9.4 Billion from US$8.7 billion as at the end of December 2017. Additionally, the stock of domestic debt in the form of Government securities amounted to K51.9 billion as at the end of June 2018 from K48.4 billion as at the end of December 2017.
Debt is important as a source of finance for development towards improvement of infrastructure.. However, it needs to be prudently managed. The rapid accumulation of debt in the last eight years has put the country to be classified as ‘at high risk of debt distress’ by the World Bank and IMF. The rating agencies have also downgraded the country’s debt stock over the last 4 quarters. If not properly managed, the debt burden will constrain economic progress.
ZiCA President notes that in light of unconfirmed reboot of IMF discussions, he would like to see some traction. However, due to lack of substantial information on what kinds of discussions or negotiations are being carried out, not much can be highlighted.
In the spirit to see an equivalent increase in the productive assets of the economy to assist in the repayment of interest obligations, ZiCA welcomes the Finance Minister’s announcement that the Government is in the process of instituting Public Investment Management Reforms to establish a comprehensive system for the appraisal of projects in order to ensure value for money. It is in hoped that the new approach will closely link investment and responsible borrowing.
“We want to see growth in the carrying value of the Sinking Fund, which was established to facilitate repayment of the Eurobond.” Jason expresses.
Government Social Protection Programmes
Social protection is key to social and economic setting of any country as this involves the protection of our poor, disabled, children and women headed households as well as the elderly. Despite the increased allocation of funds in the 2019 budget, there is still a concern in the continued poor delivery of the programme as indicated in the recent Auditor General’s report.
It’s to this regard that ZiCA advises Government that the programme would only attain its objectives of alleviating poverty especially in the rural areas if the mechanisms employed to redistribute the income were those that encouraged efficiency, effectiveness, transparency integrity and at the top of it all, accountability.
Government will do well on this score to introduce a standard delivery or implementation manual of all similar social protect programmes, including devising methods of measuring the performance of the programme in meeting the intended objectives.
Corporate Governance in State Owned Enterprises
Lapses or failure of Corporate Governance in some State Owned Enterprises have created a serious problem. This in fact is the instance where managers as agents have pursued short-term interests at the expense of the Public long term interest. In other instances, some public entities have operated without Boards in place for many years. Jason stresses that in the eyes of the law; there shall always be a functional Board of Directors at all state owned enterprises every time. It raises a question of who supervises Management and protects the Public interest in such as at the least 11 Water Utility Companies that operated without Boards for a long time. ZiCA president urges appointing authorities to ensure that all public companies operate with fully constituted independent Boards of Directors.
Public Sector Financial Management
It is within the last quarter of the year that ZiCA notes that the Government through the Civil Service Commission dismissed 12 accounting and operations staff who were involved in misappropriation of public funds.
Members of the public have the right to complain and make demands for accountability. While appreciating the difficult task the public sector accountants play (who are the largest concentration of accountants in Zambia) we expect them to work in accordance with the international code of ethics for professional accountants.
As much the dismissal of the accountants emanating from these scandals is welcomed, Jason explains that there is need for the recovery of the stolen funds and the need for controlling officers to create a control environment to send early warning to detect any variation from expected behaviour.
Employment of Accounting Personnel contrary to the Accountants Act 2008
Lastly, within the matters of concern, the rising trend in which some employers are commissioning unregistered accountants is actually and at most a concern for the profession as it is a classic example of abrogating the law. The law provides that there is no one to be employed as an accountant if not in good standing with the provisions of section 2 of the Accountant Act of 2008 for it is unlawful!
ZiCA strongly urges all employers to comply with the Accountants Act and employ only Accountants in good standing.
Furthermore, as the year concludes, both the private and public sector with efforts from the Government, will steadily progress the race to social and economic development desired by all Zambian in the light of proper governance and values to be adhered to.