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Mwanakatwe weighs in on Sales Tax

The Ministry of Finance says exports will be exempt from the Sales Tax in order to make them competitive and earn the country foreign exchange.
Speaking during the Stakeholders’ meeting on Sales Tax in Lusaka, Finance Minister Margaret Mwanakatwe says government is convinced that from the tax administration point of view, it will collect Sales Tax with better efficiency.
Mrs. Mwanakatwe said the decision by government to abolish Value Added Tax and replace it with Sales Tax is necessary to stop the refund debt escalation create fiscal space, to pay the outstanding VAT refunds, and more importantly increase revenue collection to support government’s social development programs.
“As you may be aware, following Zambia’s ascendance to a lower middle income country, fiscal support from our cooperating partners has overtime been reducing. We should therefore constantly review our domestic revenue mobilisation strategies in order to sustain our development agenda and reduce poverty,” she said.
“I wish to remind you that domestic tax revenues account for about 60 percent of our national budget. As government, therefore we take keen interest in seeing that domestic resource mobilisation is enhanced.”
She said realised that changing a tax system is a major reform which requires broad consultation.
She disclosed that since October 2018 Government has been engaged in internal consultations between different ministries and agencies in order to fully appreciate the impact of this change on the economy.
“On the external front, the government has been in consultation with various players in the economy. Thus far consultations have been made with the agriculture, manufacturing, mining, tourism, energy and financial sectors. Ladies and gentlemen, given the structure of our economy, we are convinced that from the tax administration point of view, government will collect sales tax with better efficiency,” said Mrs. Mwanakatwe.
“In order to address the effects of cascading associated with sales tax, exemptions have been provided on capital goods, basic foods items, and essential goods and services in the health, education and water sectors. Exemptions and selected inputs into production in priority sectors identified in the revised 7th national development plan namely agriculture, manufacturing, mining and tourism have also been provided to ensure that the cost of production is low.”
She noted that given the exemptions provided under Sales Tax, it is expected that production costs will remain relatively unchanged.
The Finance Minister said it is thus expected that the sales tax will only increase prices to the extent of the number of distribution points in the production value chain.
“In order to support local industry, a differentiated sales tax rate has been adopted at 16 percent on imported finished products and 9 percent on locally manufactured products. Furthermore, exports will be exempt from the sales tax in order to make them competitive and earn the country foreign exchange. I note that our domestic tax system is largely self-assessment. It is therefore important that our taxpayers are provided with updated tax information to enable them to know their tax obligations. This will make it easier for them to be tax complaint,” she said.
And Zambia Revenue Authority Commissioner General Kingsley Chanda assured the business community that the new policy will be implemented smoothly.
Mr. Chanda said ZRA cannot support any tax policy that may injure industries.
He has implored the industries to engage the authority on how the Sales Tax will be administered.

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