ZAMBIA – The government of Zambia has proposed revenue measures in the 2019 budget with a focus to enhance diversification through agriculture and tourism, a move that may be critical in easing the country’s external debt burden which stood at US$9.4 billion at the end of June.
Despite increasing concerns on the sustainability of Zambia’s debt, Minister of Finance, Hon Margaret Mwanakatwe presenting the 2019 national budget to the parliament said the economy grew 3.4% in 2017, higher than Sub-Saharan growth rates, which averaged 2.8% in 2017.
This is projected to grow at 4% this year led by improved performance in the mining, construction, manufacturing, and wholesale and retail trade.
Inflation remained between 6% and 8% throughout 2018 with food inflation weighted at 53.4% of the overall inflation rate.
The inflation rate is largely impacted by movements in the exchange rate and changes in fuel prices.
The Bank of Zambia attributes the increase to the increase in the supply of selected food items, general increase in transportation costs and the depreciation of the Kwacha against major currencies such as the United States Dollar and the Rand.
Value added tax (VAT) to be scrapped
The government has proposed a new tax measure, Sales Tax that will lead to the abolishment of Value added tax (VAT) with the main objective of enhancing the contribution of consumption taxes to Government revenue.
A Sales Tax, levied at the point of sale, collected by the retailer and passed on to the government could hamper free trade in the region as most countries have adopted a VAT system which is more conducive to easy movement of goods across borders.
According to stakeholders, the new tax was complicated to implement and will increase the cost of doing business.
VAT’s fiscal cash register will be replaced by an electronic fiscal device which has a fiscal memory, capacity to generate and record tax invoices and other reports and to transmit invoice data in real-time to the Zambia Revenue Authority Tax Invoice Management System.
The new tax measure is said to be simpler to administer with the measures expected to take effect on 1 January 2019.
New non-alcoholic beverages duties
The Finance Minister has proposed to introduce excise duty of 30 ngwee per litre on non-alcoholic beverages aimed at reducing the consumption of non-alcoholic beverages to lessen the associated impact of non-communicable diseases.
The new development may result to increased costs of non-alcoholic beverages as manufacturers are likely to pass the cost to consumers.
Plastic carrier bags users may also have to pay more after the Minister proposed an increase in excise duty on the materials from 20% to 30%.
This is intended to discourage the use of plastic carrier bags due to its negative impact on the environment, and also encourage the use of bio-degradable bags.
Boosting agriculture and manufacturing
The Government has allocated US$169.15 million (K2.1 billion) to the Farmer Input Support Programme (FISP) and Strategic Food Reserves geared towards solving sector challenges such as limited labour and credit facilities to farmers as well as distribution and sales challenges.
It also intends to procure and distribute inputs to the affected parts of the country and complete US$100 million tractor assembly plant in Lusaka to enhance farm mechanisation.
The 2019 budget reflected the 2019-2021 Government medium term expenditure framework with a focus on manufacturing, a major contributor to the country’s GDP.
It also features proposed investments in a pineapple processing plant in North Western Province, fruit processing in Eastern Province and cashew nut processing in Western Province, in support of the value-addition theme.
The Government has allocated a total of US$36.01 million to manufacturing related infrastructure (for Cashew nut infrastructure and the Zambia Aquaculture Entrepreneurship Project).
With improved funding, the sectors have the potential to make up for the significant imports and support a diversified and export oriented economy.