Tax reforms needed to cut debt

ZAMBIA will pay off all outstanding legitimate VAT refunds, but plans to press ahead with a new nonrefundable sales tax despite criticism from some businesses as it strives to cut debt, its finance minister said.

The proposed tax change in Africa’s second-biggest copper producing nation has upset the mining community, which has said the country is deterring new investment it desperately needs.

In a speech in Lusaka, Finance Minister Margaret Mwanakatwe told business leaders, who are involved in extended consultations over the tax change, that the move was necessary to stop “debt escalation”.

She also said it would help pay outstanding refunds “and more importantly, increase revenue collection to support the government’s social development programmes”.

The new sales tax was meant to have been introduced on April 1, but has been postponed until July to allow more consultation.

Industry insiders have said the government owes an estimated $600 million in VAT refunds. The International Monetary Fund has repeatedly warned Zambia is struggling with high debts and shrinking foreign currency reserves.

Zambia last year announced a range of tax reforms, leading some miners to warn of job losses, although some threats have failed to materialise.

In January, for example, Canada’s First Quantum Minerals scrapped plans to lay off 2 500 workers in Zambia.

Zambia is not alone in seeking to change the terms of engagement with its foreign investors. Neighbouring Democratic Republic of Congo, Africa’s biggest copper producer, and Tanzania have also increased their tax demands. |