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IMF
levy proposal rouses ire of taxpayers
The
Zambian government is divided over controversial tax proposals by the
International Monetary Fund (IMF), and analysts have warned that
extending the value added tax (VAT) of 17.5 percent to include food
and other basic commodities would make necessities unaffordable.
"We have been assessing [the tax proposal] like any other
proposals from other stakeholders. For us to adopt them, they must
meet the demands of the local scenario, and not just represent the
interests of co-operating partners or donors," Jonas Shakafuswa,
Deputy Finance Minister, told IRIN.
"We are very cautious because we just came from an election that
taught us a lot of things about the people's general feelings with
regard to issues of tax," he added.
In a recent report, 'Zambia - Key Issues of Tax Reform', the IMF
suggested that in the 2007 national budget the government should
reintroduce VAT on currently exempt items, such as food and other
agricultural products, water and sewerage, domestic transportation,
mosquito nets, books, magazines and newspapers. About two-thirds of
Zambia's 11.7 million people live on less than US$1 a day.
The 17.5 percent VAT would be paid on purchases at all stages of the
production-distribution chain and claimed back by producers,
wholesalers and retailers, with the end-user paying the tax but unable
to claim it back.
"The proposals are the IMF's opinion - we have not adopted this
report, and not a single tax proposal by the IMF should be taken as
government's position. [This] is just one of the reports that we are
using to review the tax system before the 2007 national budget,"
Shakafuswa said.
The IMF proposal has been widely criticised by various stakeholders,
who claimed the tax would harm the country's development. Guy
Robinson, president of the Zambia National Farmers Union (ZNFU),
maintained that it would stunt agricultural output and increase the
production costs of food, leading to higher prices for consumers.
"The IMF's starting point is the loss of government revenue as a
result of VAT exemptions - IMF should have looked at the impact of VAT
on agricultural performance," he said.
Muyunda Ililonga, president of the Consumer Association of Zambia,
said the tax measures would result in many Zambians being unable to
access basic goods, as increased costs, caused by having to pay an
additional 17.5 percent at the time of purchasing materials to produce
items for sale, would be passed on to the consumer.
"These recommendations are a negation of government efforts aimed
at improving the quality of life for most people in Zambia,"
Ililonga said.
The IMF also called for an end to generous incentives, including tax
holidays and reduced VAT, which the government has offered foreign
investors, especially in the mining sector, pointing out that such
exemptions had amounted to over $15 million in lost revenue in 2005.
In an effort to reduce overdependence on copper, Zambia's traditional
export, and elevate agriculture as the mainstay of the economy, in
2004 the government suspended VAT on agricultural products and started
subsidising farm inputs for smallholder farmers by 50 percent.
Robinson said, "the IMF is recommending that the current price of
food must attract 17.5 percent VAT on top [of the current price], and
that small-scale farmers must pay 17.5 percent on agricultural inputs,
which they will not [be allowed to] claim back, like other
VAT-registered businesses. The recommendations mean that the IMF does
not want to see agriculture grow, and people [being able] to afford
basic foodstuffs."
Taxation became a contentious issue ahead of the presidential poll on
28 September 2006, particularly in the election campaign of losing
candidate Michael Sata, who claimed the narrow tax base resulted in
high income tax for civil servants. Zambia's 400,000 civil servants
sacrifice up to 37.5 percent of their basic pay to income tax, while
foreign investors receive tax holidays and all capital goods brought
into the country for production purposes are exempt from VAT.
Joyce Nonde, general secretary of the Zambia Union of Financial and
Allied Workers, said employees were fed up with being suffocated by
high income taxes, introduced as a conditionality for a $3.8 billion
external debt write-off.
"We are saying, 'IMF and World Bank, please stay out of our
country' ... They are not going to dictate the budget again to us. We
want to see the government reducing tax, because we made huge
sacrifices to attain the HIPC [Highly Indebted Poor Countries
Initiative] completion point. Government imposed a wage freeze on us,
there were no salary increments for over two years, and we have had to
pay high taxes." Nonde said.
Shakafuswa told IRIN that "People want better lives, reduced tax,
and it would be unfair to overlook all their desires. But at the same
time, government needs to raise revenue to meet its obligations to
deliver. It has to tax people, and we seem to be in an awkward
position at the moment to make an outright decision on this
matter," the Deputy Finance Minister said. "We have decided
to call a national stakeholders meeting before the 2007 budget, where
we shall discuss all issues of concern."
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