Speaking during a Sales Tax consultative meeting in Lusaka this morning, Mwanakatwe said domestic tax revenues account for about 60 percent of the country’s national Budget.
“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 maybe 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,” Mwanakatwe said. “As government, therefore, we take keen interest in seeing that domestic resource mobilisation is enhanced. Again, as government, we realise that changing a tax system is a major reform which requires broad consultation. 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.”
She said consultations have been made with various sectors before the implementation of the Sales Tax.
“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. 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. 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,” Mwanakatwe said.
“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. Given the exemptions provided under Sales Tax, it is expected that production costs will remain relatively unchanged. It is thus expected that the Sales Tax will only increase prices to the extent of the number