Thursday, March 27, 2014

Taxation needs review - Mutati
By Kombe Mataka
Wed 18 Dec. 2013, 14:01 CAT

FELIX Mutati says the country urgently needs a comprehensive review of its tax regime in 2014. Mutati, a former commerce and trade minister in the MMD regime, told journalists yesterday that the review of the tax regime and tax laws was long overdue. He said what the country had been experiencing were piece-meal adjustments.

"What our biggest problem is in taxation in this country is capacity to administer taxation, capacity to ensure compliance for the various forms of taxes and the failure to assess to what extent we can include sectors of people in the tax framework. That is expanding the tax base," Mutati said.

He said if the government was able to build capacity, it would enhance high levels of revenue.

"As a country, we need to get to a place where we put concrete action in terms of how we address overall tax regime which covers the whole economy," Mutati said.

"If we are able to do that, there will actually be no need for us to issue Eurobonds. There is a tax law, for instance, which allows you to deduct these elements as part of your operating costs. Now, if the law says you can charge management fees and recover management fees, it doesn't say how much management fees must be recovered. So, what we need is to address those elements because international companies would obviously impose heavier management and consultant fees on the local operations as a way of getting money out, but our own law allows you to charge those fees against your profits. So, for me, I see the disease is how best we can address the elements that are recoverable for tax purposes. If you go to the income tax Act, it just tells you 'the following elements are allowable deductions for taxing purposes, without defining the perimeters - to what extent you can actually deduct, provided I have got an invoice."

Mutati said that a comprehensive review would also enable the government to identify areas for expanding the tax base.

"For us as Zambians, we shouldn't be focusing on just tax-lines. I think the overall focus must be how much taxation we are extracting from a particular sector as a total and how can we ensure that we take the tax that will still enable that sector or firm to be able to move and go forward?" Mutati said.

"Obviously, the mining sector is a big sector and heavily capital-intensive. If you take the one that we are hearing, Kalumbila mine, they are going to invest somewhere like U$2 billion. You are going to write off that investment over a period of time and, invariably, it will mean that in the early years, because you are going to have a lot of capital allowances that are going to rise, your net profit is literally going to be zero or you are going to be in a net loss situation. So, the dividend for the economy will come somewhere around five to 10 years later.

And Mutati said he was not in support of the re-introduction of the windfall tax.

"There were concrete reasons that made us remove the windfall tax and these reasons were formed by deep analysis, because from the taxation perspective, what we want to achieve is equity and fairness. Number two, the motivation should be induced by a tax framework, particularly, to anchor investment and thirdly to use taxation as a mechanism for growing the economy, not only in one sector, but also in the support sectors," he said.

Mutati said the levels of taxes that the mining companies were paying, the windfall tax and other forms of taxes inclusive, was in excess of 48 per cent compared to the overall taxation of other sectors which had a lower overall level.

"At that rate, obviously it would be choking business. Obviously when the PF got in government, they must have been exposed to the analysis and that is the reason they were unable to re-introduce it."

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