Wednesday, June 12, 2013

EAZ warns of higher taxes, tough measures on revenue
By Henry Sinyangwe
Tue 11 June 2013, 14:00 CAT

ZAMBIANS should expect more stringent measures on the revenue and expenditure side of government as there is likely to be upward adjustments to taxes in the next budget, warns Economics Association of Zambia president Isaac Ngoma.

And Ngoma says subsidies on fuel and maize needed to go as phasing them out also carries risks.

Responding to a press query, Ngoma stated that the problem would arise because the government recently approved a new wage agreement which was not budgeted for this year.

"Data from Ministry of Finance indicates that this will increase the wage bill in 2013 by KR890 million. In 2014, the full impact of the wage increment will according to Ministry of Finance, increase the wage bill by KR4 Billion. There is also the ambitious infrastructure projects which are gobbling huge sums of money beyond what is available. Certainly, the big budget item is due to the new government salaries, which we suspect will push the salary bill to 50 per cent of government expenditure or some 11-12 percent of GDP. If correct, it means the salary bill is far too high. The norm for a developing country would be closer to 4-6 percent of GDP," he stated.

Arising from this, Ngoma stated that it would not be surprising to see some adjustment to taxes, including pay as you earn (PAYE) or corporate taxes in the next budget.

On the fuel and maize subsidies, he observed that the government had been budgeting less for the subsidies but ended up paying more.

"In 2013 alone, the government budgeted for KR300 million for FRA subsidies and nothing for fuel subsidies. The projected expenditure is KR1.2 billion for maize subsidies and KR1.1 billion for fuel. A similar situation is obtaining regarding foreign reserves. Apparently, it seems BoZ has been using some reserves to cushion the depreciation of the kwacha. Since 2013 BoZ reserves have been declining not increasing. BoZ estimates that if the measures to support the kwacha continue, reserves will reduce by US$750 million in 2013 from the current 2.8 months of import cover to 1.9 months of import cover," Ngoma stated.

He stated that there was need for compensatory measures, especially expanding the cash transfer system, as recommended by a recent World Bank report.

"Some issues for government consideration include keeping the subsidy on kerosene, which is mainly consumed by low-income consumers though currently in short supply. Are there some charges paid by transporters and minibuses that could be reduced to help offset the fuel price increases? Another area for government consideration is to put more money into targeted measures like livestock production (dipping, restocking, creating disease free areas). They should also improve the extension services and boost irrigation to foster increased agricultural production," Ngoma stated.

On by-elections, he stated that the cost was nowhere near the subsidy bill and the amount being spent on government salaries.

On the new districts being created, he stated that the government needed to explain whether and how this would improve service delivery in rural areas and whether other options were looked at such as better use of the Constituency Development Fund and beefing up ward level services.

"We shouldn't encourage an approach to public spending where this or that item is exchanged ad hoc. All public expenditure, current and capital, should be scrutinized carefully both during budget formulation and implementation for cost effectiveness and rate of return," stated Ngoma. "The lack of a strong system to do this in the government is a serious and much under-discussed problem."

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