BUUMBA CHIMBULU writes
@SunZambian
GOVERNMENT should not go ahead with the proposed implementation of the sales tax in 2020 but instead make amendments to the existing value added tax (VAT), says the Zambia Institute for Policy and Analysis Research).
ZIPAR research fellow for public finance Shebo Nalishebo said making amendments to the VAT regime was a better option than introducing sales tax.
Mr Nalishebo was speaking in Lusaka at the weekend during the Economics Association of Zambia public discussion forum on sales tax that Government should deal with the VAT refund problem.
“The best option that eliminates the risks to businesses, workers and consumers, and simultaneously supports a reasonable tax revenue inflow is to make amendments to the VAT regime.
“Instead of establishing the sales tax regime, the government should therefore deal with the refund problem first within the context of a systematic VAT system reform,” Mr Nalishebo said.
He said since money was concentrated in the mining sector and sales tax rose largely because of VAT paid on imports of capital goods by large mining companies, Government should make such goods exempt.
If no VAT is paid on them in the future, he explained, then there would be no refunds.
“The success of the changes to VAT regulations made in 2017 in increasing revenues shows what could be achieved.
“In addition, revenues could be enhanced even further if the government was prepared to reduce the number of goods and services that are currently exempt from VAT,” Mr Nalishebo said.
He said the proposed design of the sales tax would lead to several adverse economic effects, with the biggest being the cascading effect.
The cascading effect would lead to higher effective tax rates across all sectors of the economy.
Mr Nalishebo said the increase in the cost of production would also reduce economic growth by 2.5 percent.
“If implemented, economic growth will continue to go south, to below the two percent annual estimate projected for this year.
“We are talking about effective tax rates moving from an average of 12 percent under the current VAT system to 22 percent under the sales tax system,” Mr Nalishebo said.
