With barely a week and half to go before Zambia’s Finance Minister presents the 2020 National Budget to parliament, Zambia Chamber of Mines has gone on the offensive and issued a strong signal against adoption of the General Sales Tax (GST).
The implementation of the replacement to Value Added Tax (VAT) has been deferred 3 times in 2019 with the last deferment indicating that implementation could be in 2020. However, a closer look at the reasons for the deferment indicates that migration to GST was more complex than initially envisioned with numerous stakeholders having their say regarding the introduction of a new tax regime.
One stakeholder that has had the loudest voice opposed to the introduction of GST is the Zambia Chamber of Mines. The association believes that Sales Tax would increase the cost of operations across various industries’ value chain.
According to a report that was recently presented in September 2019 by the association’s President, Goodwell Mateyo aptly titled “A Tax Too Far – The Economic Impact of Zambia’s Proposed Sales Tax”, the following were highlighted as key impact areas:
- Sales Tax increases the cost of operations for each supplier in the value chain because the Sales Tax cannot be reclaimed/credited;
- The compounded increase results from the “tax on tax” effect at each intermediate stage of the value chain, which shows how the effect is worse the more transactions there are in a supply chain. The inevitable business incentive will be to shorten the supply chain, wherever possible.
- In the given example, the cost for Mine Companies across their value chains would increase by 37.82% compared to the VAT regime.
As opposed to only offering critique against its implementation, the association also makes recommendations of how the current challenges being experienced with the VAT regime can be resolved. The first step they propose is changing the approach to VAT refunds. This would require a policy change which would include offsetting VAT refunds against other tax liabilities, exempting the mining sector imports from VAT and allowing them to defer VAT on imports.
Other measures that they also propose include technical solutions being implemented that would see the introduction of invoice matching software. Furthermore, they also propose technical solutions that would introduce a VAT refund forecasting and monitoring system.
The general belief on proponents of Sales Tax is the anticipating that tax receipts are bound to increase hence a plus for the national treasury. However, Chamber of Mines argues that with the anticipated rise in goods and services, this may have a negating effect that would inadvertently lead to less commercial transactions. “The phenomenon of tax rates increasing beyond a certain point, then resulting in lower economic activity and declining tax receipts, is well understood by economists and is illustrated by the Laffer Curve.” In short, there is only so much tax one can collect before the revenue maximization point is reached which is a clear and present danger that advocates of Sales Tax must be well aware of.