Wednesday, December 10, 2008
IMF urges caution on economic zones
Written by Kabanda Chulu
Tuesday, December 09, 2008 12:11:18 AM
THE International Monetary Fund (IMF) has urged the Zambian government to exercise caution on incentives associated with the Multi Facility Economic Zones (MFEZ) because they will erode the tax base.
Commenting on Zambia's intention to set up economic zones in various towns around the country, the IMF mission to Zambia stated that targeted tax incentives for investments could be appropriate under special circumstances.
"Inefficient use of tax incentives, in particular tax holidays, may entail significant costs, therefore, great care needs to be taken to ensure that such incentives associated with the MFEZ do not erode the tax base over time and in this respect, the monitoring and reporting of tax expenditure will be helpful," it stated.
Since last year, the government has declared intentions of creating the town of Chambishi as an MFEZ where more than US$800 million worth of Chinese investments would be pumped in the area without paying any taxes. Also two areas in Lusaka, one near the International Airport and another south of Chilenje, have been identified as MFEZ, and more recently, the town of Solwezi was classified as an MFEZ.
The IMF mission also observed that economic prospects in the country were looking favourable because of strengthened macroeconomic policies.
"Economic prospects are looking favourable and real gross domestic product (GDP) is projected to grow by about seven per cent and depending on the quality and extent of the implementation of the Fifth National Development Plan, growth can still be higher," the IMF stated. "However, sustaining robust growth hinges on maintaining macroeconomic stability and making use of public resources and undertaking the improvements in infrastructure and financial and private sector reforms which are essential to enhance productivity and competitiveness."
The IMF mission to Zambia is based in the United States and it is headed by Francesco Caramazza. The mission was recently in the country and held discussions with the government relating to the reviews of Zambia's three-year economic programme supported by IMF under its Poverty Reduction and Growth Facility (PRGF).
The mission also reviewed economic and financial developments and discussed Zambia’s economic performance in 2007 and policies and prospects for 2009. The mission also met with the representatives of the private sector, civil society and various cooperating partners.