Zambia’s Finance Minister on 28 June announced a deferral in the implementation date for the proposed General Sales Tax (GST) to replace Value Added Tax (VAT). This will be the third date with which the Zambian authorities propose for the new tax to take effect. Earlier MinFin Minister Margaret Mwanakatwe hinted a likely deferral (from 01 July) taking into account the need for time for the bill to pass through parliament prior to its enactment. However the policy implementation inconsistency has been recieved with mixed feelings by business houses citing uncertainty that is causing planning constraints in pricing. The Parliamentary Committee on budget and economic affairs courted Zambian stakeholders on the viability of sales tax in Q2:19 whose inputs and responses will set the tone for parliamentary debate in the coming weeks.
Our analysts attach 70% odds that the sales tax will not be implemented this year due to various structural factors and push back emanating from schools of thought that believe that the proposed tax is administratively cumbersome and ultimately inflationary.
There have been numerous calls for postponement to 2020 from reputable accounting bodies such as ZICA with various Civil Society organizations highlighting the adverse impacts on commerce and livelihoods of the citizens. The Zambian authorities propose a sales tax regime which they deem will ease the burden on the state of refunding the mines circa $850 million to a billion dollars annually. It is also said that the state will collect more in taxes to cushion some of the structural issues the copper producer is facing.
BUSINESS PULSE REMAINS BLEAK
With Zambia deeper into contraction zone at 43.9 (PMI for May) from levels of 45 (April) private sector activity has for 8 months been weighed by an elevated operating costs and uncertain environment with players edgy as to pricing decisions pointing to taxation policy in part. Input cost inflation printed at a 42 month high on currency risk drivers but weighed by an uncertain environment. Sales tax is said to be inflationary across the value chain which is not easy to narrow hence concerns from stakeholders on the tax rate proposed. There’s is urgent need for authorities to rethink the implementation date realistically to aid business planning processes which have the potential to drag gross domestic product growth rate for the copper producer.
The odds of sales tax implementation this year keep hiking. We attach a 70% likelihood of a non effect of GST in 2019.
Complied by Stacey Susa
