As discussed in a previous post there has been a dramatic shift over the past fifteen years in the burden of taxation in Zambia moving from companies to individuals. One of the themes of the budget was that the increase in taxes from the mining sector should decrease the burden of personal taxes, and thus start to reverse this process. The budget increased the PAYE threshold for non taxation from a monthly salary of K500, 000 to K600, 000 and decreased VAT from 17.5% to 16%.
While Fr Henriot welcomed the announcements on mining, he also said the adjustments in Pay-As-You-Earn (PAYE) and Value Added Tax (VAT) were not adequate to significantly reduce the high levels of poverty in Zambia.
"I think we have to ask if that is really significant in terms of addressing the needs of the people,” Henriot said. “The JCTR does the basic needs basket and in Lusaka food alone, not extravagant but just basic needs of food, for a family of six are K569, 000... Surely people who get a little bit above K600, 000 or K700, 000 still haven’t met the basic needs basic which include, not just food but also lodging electricity, water and a lot other things. It’s now K1.6 million per month,” Fr Henriot said. “Surely there might be a possibility that the PAYE adjustment is not adequate enough to adjust the question of poverty... let the government continue listening and VAT has to drop even lower.”
“We don’t have clarifications how much of the US $ 415 million will come in this year? For what will it be used, for infrastructure, for social services or agriculture or some special fund? We need to know more about that,” he said.
“It’s true we need to deal with pensions that have not been paid but to say the K577 billion will be spent on social protection when K435 billion of that goes just to paying off arrears it leaves only K141 billion, a minimal amount, to deal with social protection,” Fr Henriot said.
However, Zambia Business Forum (ZBF) past vice president Phillip Chilomo said he was worried because the government was not ‘willing’ to renegotiate the mining development agreements. “The mining industry has always been ready to negotiate with the government because the windfall gains which have come out of the mines nobody anticipated them,” he said. “We are appealing to the government that whatever happens, we need to ensure that the return on investment is satisfactory so that we don’t see another exodus of investors in the mining sector.”
Meanwhile, the World Bank, who one might have expected to object to the non-negotiated nature of the reforms seem to have decided to take it on the chin, and offer further donor endorsements of the budget in an interview with the UK Guardian
World Bank country manager for Zambia, Kapil Kapoor tells the paper, "The new mining fiscal regime makes taxes more equitable as it places Zambia in the middle point of (global mining taxation)... The resources will help the exchange rate although it will make non-traditional exports non-competitive. It therefore requires ways of how to manage exports like cotton and tobacco." Kapoor said the government should now come up with a proper structure for managing the extra revenue to better benefit Zambians. "This is a good opportunity for Zambia to invest in rural infrastructure development," he said.
The Guardian also notes that Mwilola Imakando, the head of the Economics Association of Zambia, a Lusaka think-tank, said the new taxes would create mutual benefits for investors and Zambians.
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