Fee condemns VAT reduction
Fee condemns VAT reductionBy Post Reporters
Sunday January 27, 2008 [03:00]
EUROPEAN Union (EU) head of delegation in Zambia Dr Derek Fee has said it was not a good idea for the government to have reduced Value Added Tax (VAT). And the United States government has said the Zambian government’s continued emphasis on the growth of the health and education sectors is the right way towards positive economic growth.
And Economics Association of Zambia (EAZ) national secretary Chibamba Kanyama has urged the government to put in place measures so that the budget cycle is not blamed for failure to implement projects.
In an interview immediately after finance and national planning minister Ng’andu Magande unveiled the 2008 Budget before the National Assembly on Friday, Dr Fee said the reduction of VAT from 17.5 to 16 per cent would increase consumption.
“The reduction in VAT isn’t going to make huge changes in people’s lives, instead it will increase consumption and that is not a great idea,” Dr Fee said. “In the EU a consumption tax of between 17 and 21 per cent is favoured.”
Dr Fee said he was of the opinion that it was better to enable people to invest in productive activities as opposed to increasing consumption.
“The Minister of Finance has done a bit of a mix of both,” Dr Fee said. “He has increased non taxable income which increases people’s incomes and also reduced VAT but again as I say in my opinion, it is not a great idea to reduce VAT.”
And Patriotic Front (PF) Kabwata member of parliament Given Lubinda said the government should have retained VAT at 17.5 per cent.
“VAT is a consumption tax. Why should people pay less to the government on consumption of beer and other products?” Lubinda wondered. “I would have been happier if VAT was retained at 17.5 per cent and then Pay As You Earn reduced further than what has been done.”
Lubinda said the increment in non-taxable income from K500,000 to K600,000 would make little impact.
“What is K600,000 in our economy?” Lubinda asked. “The tax free income in Zambia should have been at least K 1.5 million. K600,000 is even lower than the government’s basic pay which is K 750,000.”
And Zambia National Farmers Union president Guy Robinson expressed concern at the government’s reduction in the allocation to the agriculture sector.
“The allocation to agriculture has dropped from 8.8 per cent last year to 6.6 per cent. We hoped that the allocation would have increased,” Robinson said.
“Our main area of concern appears that the livestock disease fund has reduced by 50 per cent. What we would like to find out from the Ministry of Agriculture is if that is the amount that they asked for from the Ministry of Finance or it was just the Ministry of Finance’s decision to allocate that amount.
They need to sit and re-look at those figures because livestock diseases are still crippling this country and with conditions of weather being as they are, livestock diseases are expected to be worse this year.”
And US Embassy deputy chief of mission in Zambia, Michael Koplovsky, said his government supported the Zambian government’s plans to improve the social sector.
Out of the K13.76 trillion budget, the education sector has a 15.4 per cent chunk while health is set to get 11.5 per cent of the allocation. Koplovsky said the US government was interested in three key budgetary components which are health, education and economic growth.
“Education and health are very important investments for the future of Zambia. Only with proper education do Zambians have a foundation for this kind of economic growth and only with health will Zambians be actually able to see these opportunities that this government is growing,” he said.
“The message captured it very well, that the best way to fight poverty is the policy in the budget that encourages economic growth and the government has had a very good record of economic growth and it has set a good target of 7 per cent economic growth.”
Koplovsky said the lowering of taxes was a good way of putting money in the pockets of the less wealthy Zambians. British High Commissioner to Zambia Alistair Harrison said he was encouraged by the warm words that Magande had for the cooperating partners.
“This is a clear indication that he wants to continue the successful partnership that exists between the cooperating partners, the Zambian government and its people,” said High Commissioner Harrison who described the contents of the 2008 budget as positive.
And Caritas Zambia executive director Sam Mulafulafu said pressure would be mounted to ensure that the government honours its budgetary commitment to pay-off outstanding arrears for pensioners and retirees.
Mulafulafu said Caritas would eagerly wait to see how the government implements its pledge to offset all retirement and pension arrears in this year’s budget.
“We trust that it is realistic and for us we will take it as it is and we will put pressure because the commitment has been made,” he said.
“It will bring income and I hope they will invest because most of these retirees are spending a lot of time in Lusaka, spending more money which they do not have.”
He asked the government to undertake the pay-off early in the year to allow the retirees get back to their areas and engage in productive ventures.
Meanwhile, Zambia’s renowned musician Mukosha Chembe, alias MC Wa Bwino, said the zero-rating of tax on music equipment was a plus for the industry and a reward for the musicians’ 10-year lobbying over the issue.
“I am ordering equipment immediately because the measures are coming into effect by midnight tonight,” said Chembe.
And Kanyama said there was need to enhance capacity building in project implementation in order to align the system with the disbursement of funds.
“Government needs to do a lot in project implementation because what is budgeted for must be put in place rather than taking funds back to the treasury. Hence systems should be put in place early enough so that the budget cycle is not blamed for any failure to implement,” Kanyama said.
“And the tender board system must equally be overhauled in certain areas so that there is speedy implementation of projects within a given year and standards and specifications for implementation by the contractors must be properly agreed so that they (contractors) meet bench marks.”
And World Bank country manager Dr Kapil Kapoor has advised the government to ensure that revenue proceeds from windfall mining taxes are spent on projects that will benefit poor people.
He said the biggest challenges facing Zambia was to increase and sustain the economic growth rate as well as implementing key projects.
“Overall, the budget is good, especially that key sectors such as health and education have been prioritised, but what remains is to grow the economy and sustain it and also implementation of major projects is a positive development,” said Dr Kapoor.
“But it is not clear how revenue proceeds from windfall mining taxes will be utilised and we advise the government to ensure that funds are spent on projects that will benefit poor people who are in the majority.”
Zambia Association of Chambers of Commerce and Industry (ZACCI) chairman Hanson Sindowe said the reduction in the standard rate of value added tax (VAT) would enhance the competitiveness of local entrepreneurs.
“Any measure resulting in reducing the cost of doing business is welcome and we are happy that government has looked into this issue of lowering the VAT since it will be a boost to economic growth,” said Sindowe.
Zambia Manufacturers Association (ZAM) chairman Dev Babbar said the introduction of export levy on cotton seed and copper concentrates was a positive development.
“This is what we have been calling for because value addition will result in job creation,” said Babbar.
posted by MrK @ 9:20 AM
5 Comments:
Well well well...there goes Mr Derek Fee.....!
Where does a consumption tax end...and where does a production tax begin?.....
Its a difficult one...If Fee's point is that we should be reducing production costs to help Zambian producers, then we are in full agreement. Low costs in production would lead to low prices...and better direction for the buy Zambian approach....my understanding is that VAT is levied on imports as well...if correct, then low VAT may simply lead to greater imports....if true, then Sindowe is spinning the VAT reduction....as good for Zambian producers' competitiveness...its difficult to see how that is the case..
Cho,
Great to see you back again. I hope the holidays have been to your satisfaction?
I think the use of the word 'consumption' is a little misleading, at least to me as a non-economist. I usually imagine it to mean all consumer goods, including essentials like food an energy. However, apparantly it only refers to luxury goods?
Low costs in production would lead to low prices
In theory, at least. In practice, the cost of imported goods and the reduction on VAT on them might be very marginal.
Better would be ways of reducing the dependence on (imported) oil and fuel, creating employment projects to upgrade infrastructure, etc.
Thanks!
Great to be back...
I agree the best way forward is to find ways in which we can stimulate local production. There's an often overlooked angle to empowerment...that is the "rural question"...most imported goods service urban markets....the poor in rurals are not well served by cheaper imports due to poor roads..this is why we need to encourage local production for them...its not suprising Magande acknowledged that rural poverty has gone up!!
One of the first thing cheap imported goods do is destroy local production.
I think the key is implementing ways of raising incomes, so new markets for consumer goods are created.
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