PRESS STATEMENT : EQUITY IN THE ADMINISTRATION OF INCOME TAXATION

PRESS STATEMENT

EQUITY IN THE ADMINISTRATION OF INCOME TAXATION

Zambia is currently in a state of fiscal austerity that entails the Government cutting down on spending while increasing tax revenue collection to reduce the fiscal deficit and in turn, the need for public borrowing. ActionAid Zambia (AAZ) is concerned with the increased inequality caused, in part, by these measures.

Tax systems have the potential to address inequalities and correct market failures for sustainable and equitable development. While the Pay As You Earn (PAYE) tax system is progressive, however, there are concerns by some sections of society about the burden of PAYE placed on a few employees working in the formal sector. 

Some stakeholders have argued that the PAYE should be abolished, and other taxes are considered instead. Additionally, others have also argued that the PAYE is too high and should be relooked at.  It is our considered view that the income threshold of ZMW 9,200 subjected to 37 percent is too much. Therefore, income that should be subjected to 37 percent tax under the PAYE should be far higher than income of ZMW 9, 200.

ActionAid has observed a growing dependency on PAYE which has a comparatively higher tax rate of 37 percent which is easier for ZRA to collect but is a burden on the taxpayers.

Therefore, there is need to diversify the tax base and ensure that other high-income earners are captured in the tax net. It is unfortunate, that while a few formal sector employees are subjected to high tax through PAYE, there have been recent reports of ZRA’s inability to adequately monitor, audit, and fairly tax big corporations – particularly in the mining sector. 

The recent revelations about ZRA’s limited capacity to audit mining companies makes a very sad reading. While we commend ZRA Board Chairperson for the honest revelation, it is sad that Zambia is losing revenue on account of the lack of capacity by ZRA to audit mining firms. Government should enhance capacity building for ZRA staff. This requires adequate financing to ensure that staff undergo high quality training. It is important that there are adequate investments in terms of proper compensation to retain highly qualified staff. Failure to adequately compensate highly qualified staff may lead to mass exodus of these staff to join highly paying sectors. 

United Nations Conference on Trade and Development (UNCTAD) estimated that Africa loses USD89 billion through Illicit financial flows. This problem deprives not only Zambia but the entire continent of much needed resources. The complexity and inequalities of the global financial system makes it easier for revenue authorities such as ZRA to forego taxing rights to other jurisdictions and regressively tax local citizens and businesses more. 

We therefore call on the government through the Ministry of Finance to reform the current tax policy in personal income to relieve the burden placed on individuals. There is need to reduce the high tax rate of 37 percent to effectively increase household income to afford their basic needs. Additionally, the tax bands by income need a drastic shift upwards from the current K9,200.

With only 10 companies contributing 80% of tax revenues in the mining sector, actions must be taken to increase compliance among artisanal and small-scale miners. The full operationalization of the Minerals Regulation Commission will be cardinal for the increased contribution of the sector to our economic prosperity.

With the current challenges there is also need for more investment in the tax administration to ensure they have adequate capacity to tackle the complexities of international taxation and develop robust systems to maximize compliance and revenue collection.

Lastly, we reiterate our call for continental action to facilitate information sharing and increase Africa’s representation to reform the global financial architecture. Aadvocating for an inclusive platform for international tax cooperation within the United Nations (UN).

Signed

Jovina Newanzake (Ms)

Interim Country Director-ACTIONAID ZAMBIA