Formal employees to continue bearing bulk of tax burden

COMMENT - Dr Musokotwane said the only way to lessen the tax burden on the few Zambians in formal employment would be through growing new industries. - That's not true. Zambia is barely getting anything form the mines and foreign corporations. What is not needed, is finance minister who shields the mines from taxation.

Formal employees to continue bearing bulk of tax burden
Written by Chiwoyu Sinyangwe
Sunday, October 18, 2009 2:54:38 AM

FORMAL employees in the country will continue to bear the bulk of the tax burden owing to limited number of serious industries to offer alternative sources for government revenue, finance minister Dr Situmbeko Musokotwane has said.

But former finance deputy minister Jonas Shakafuswa has charged that the government has sacrificed the Zambian people by abolishing higher taxes from the mining sector, a move he said was done to please multinational mining companies.

Meanwhile, University of Zambia (UNZA) economics don Professor Venkatash Seshamani has proposed that the increase in Pay As You Earn (PAYE) threshold be suspended until when it will make economic sense to raise it.

Speaking during Zambia Federation of Employers (ZFE) national budget discussion on Friday night, Dr Musokotwane said the only way to lessen the tax burden on the few Zambians in formal employment would be through growing new industries.

“Contrary to what I see that too many foreign companies…where are these companies? If there are too many companies in Zambia whether foreign or local, we will not have too many people out of jobs,” Dr Musokotwane. “The truth of the matter is that there are not many companies in Zambia whether foreign owned or owned by local people. The moment, you leave Lusaka, how many companies can you count that have serious employers which are serious tax payers? How many taxes are going to be paid from there? The truth of the matter is that you collect almost no taxes in these places because they are no serious companies in these areas.”

Currently, Zambia has less than 750, 000 in formal employment out of the population of 12 million.

Dr Musokotwane said the government was desirous to have each town in the country having some form of economic activity taking place so taxes were paid everywhere.

He also said the informal sector could not be relied upon as it was not key to solving limited revenue collection the country was facing.

“We cannot rely on the informal sector, even if these people were to be 100 per cent efficient, definitely, they will collect more but that will not sort out our major problem of revenue because you can only tax people who genuinely earn money,” said Dr Musokotwane. “People who are selling eggs on the street or this and that…yes we will be able to collect this and that but really the solution is to have many more companies”

But Shakafuswa opposed the government complaints about reduced revenue inflows, saying the move could be offset by increasing revenue collection from the mining sector, the country’s lifeblood.

Contributing to debate on the 2010 budget on Thursday evening, Shakafuswa said instead of completely mooning the windfall tax on the base metal mining sector, government should have adjusted the threshold instead.

The government in 2008 introduced a new mining fiscal regime which aimed to collect US $415 million from the mining sector but the fiscal regime was abolished this year following protracted dispute between the government and the mining multinational companies.

“Let us make money for our people from the important industries so that our people are proud of us,” said Shakafuswa. “We need the money for infrastructure not where when we are sleeping. Our government officials are being taken for dinners by the so-called investors. It baffles me that the government forgone that US $415 million…mind you these investors are ready to pay a US $20 million bribe so that they don’t pay US $400 million.”

Meanwhile, Prof Seshamani said the current adjustment in the Pay As You Earn threshold which was being adjusted by about K100, 000 did not make economic sense as was being eaten by the higher inflation rate.

“So the real benefit of this PAYE increase is being eaten by inflation,” said Professor Seshamani. “It is better you say we can’t do this (PAYE increase) this year.”

And ZFE president Dr George Chabwera bemoaned the reduced funding to critical sectors like the Ministry of Health.

“…We are concerned at the reduced allocations to social sectors such as health, education and labour. We think these areas should be adequately provided for to enable employers recruit from a labour pool that is educated and once ill, employers and employees will be treated in a functioning health service,” said Dr Chabwera.