Government’s insistence to implement Sales Tax this April will kill Zambia’s already stressed economy, a certified fraud examiner and tax expert has warned.
In a statement outlining the dangers of implementing the controversial Sales Tax in April, Cheleman Nshitima stated that government’s insistence to replace Valued Added Tax (VAT) with Sales Tax would kill off Zambia’s already stressed economy due to the cascading effect it would have on drastically increasing the cost of doing business in the country.
“The proposal to replace to VAT with Sales Tax is tantamount to over-killing and can only be compared to the primitive fishing method whereby a herbal toxin called ‘Ububaa’ is used for purposes of catching fish, but one usually ends up poisoning the entire river killing not just fish, but every organism in the river. And in this particular case, a Sales Tax will unravel the entire Zambian economic ecosystem as a whole with unintended consequences,” Nshitima warned.
“Unlike a VAT system, Sales Tax, and due to its regressive nature, does not encourage manufacturing and other budding entrepreneurs as it becomes costly for them to manage input costs, which in-turn, makes their goods and services expensive and uncompetitive both on the local and foreign markets. Should the government decide to go ahead with these proposals, then Zambians should prepare for a stormy cloud brewing over the economic horizon unnecessarily so, induced by Sales Tax and exacerbated by the rise on the cost of capital.”
He said an economic meltdown was likely to ensue arising from the Sales Tax’s implementation.
“This storm will spell disaster not because the mining companies have threatened to take cover, but because of its domino reach on our fragile economic ecosystem. On the other hand, the mines may and can in fact weather out this storm by simply hibernating their activities, but not so other sectors. It is for this reason that government should reconsider its stand mostly on its intention to introduce a Sales Tax,” he said.
Nshitima argued that the VAT system was more robust, but had been negatively affected in its administration.
“The VAT system on the other hand is a robust tax system, which is also quite versatile to adapt in varying economic conditions. Right now, the administration of VAT system is in a big, big mess and taxpayers have been saddled with unnecessary administrational cost burdens in addition to being owed huge sums in VAT refunds,” he narrated.
He disputed the notion that the current VAT system was subsidizing exporters.
“It is pure nonsense to say that refunds under a VAT system are subsidies to companies, such as the mines. On the contrary, when managed properly, VAT refunds acts as a short-term source of borrowing by government from the private sector because unlike in other countries, VAT refunds in Zambia do not attract interest payments, however long it may take to make such refunds,” explained Nshitima.
VAT can broadly be defined as a consumption-based tax, which is levied in the supply chain at each point where value is added to a good or service.
It was introduced in 1995 to replace Sales Tax at that time, which was not helping government generate as much revenue.
Data shows that since VAT’s introduction, government revenues have grown exponentially, but currently, government has to refund exporters, such as mining companies whose exports are zero-rated, a situation the PF administration is attempting to erase.
Sales Tax will, therefore, be re-introduced from April 1, 2019, despite stiff resistance from a broad range of stakeholders.