Zambia's Avoidance of Double Taxation Agreements (DTAs)

A Double Taxation Agreement (DTA) is a contract/ treaty signed by two countries (contracting states) to avoid or minimise territorial double taxation of the same income by the two countries. 

Each country has it's own laws and sometimes a person may be a resident of one and earns in come in another. Without agreements, the person maybe subjected to double tax on the same income in the country he is a resident, and the country he earned that income. This is basically the double taxation that is aimed at being reduced in an agreement. This is because without this agreement, a person will be demotivated to earn income if he will be taxed twice on the same income. So why would he earn the earn in another country when that country will tax him and the country he is a resident in, will also tax him? It will be a double lose for him as he may just be working to pay taxes in two countries.

To avoid this double taxation, country agreement on how they will reduce the taxes applied and make the person benefit and be motivated to invest or work to earn income. However, like most relief that is given, people take advantage of this and aim at eliminating or reducing their share of taxation to such levels that some countries, mostly developing countries, will end up without ever taxing the income that the person earns. This is the main reason why tax avoidance has been prominent recently. Sadly, the developed countries took advantage of this and enabled their citizens (companies included) to benefit from such and has resulted in massive illicit flows of resources from developing countries. If there was a fair share, no problems would exist.

Fortunately, injustice anywhere is a threat to justice everywhere, the same methods that were being used have now hit the developed world so much that what was a problem for developing countries, is not a "world problem". Almost all developed countries have found themselves in the same mess they tolerated. This is what has led to massive fights to end tax avoidance. We now have developed countries chasing companies and tax avoidance cases being so prominent when it has existed for developing countries for a long time. Some of the headlines in this topic are:  Bank BNP Paribas loses £35m UK tax avoidance case, Ladbrokes loses £71m tax avoidance case, HMRC wins 22 out of 26 tax avoidance cases in 2016-17, David Beckham and other celebrities lose £700m tax case, etc.

A serious search on this topic will show how wide-spread this financial problem is. Until the world is ready to agree on a fair share for the tax payer, we may have the problem increasing beyond control. Many NGOs have since been formed to try and help developing get a fair deal from the world economics. That clearly shows the problems being faced. 

Zambia has also been hit hard. We have companies that are always in lost making and not able to pay tax. How that is possible for a company to continue operating when you are always making loses shocks the brains in me. But this exists to an extent that I think the company will never pay tax unless we have someone put his foot down and deals with this situation. The day we will have this country getting tough on such issues, a lot of things will change. Until then, the handling of tax problems with kid gloves will continuously encourage this problem. Ever wonder why China kills tax offenders and has a great tax compliance rate? The way you handle tax issues, determines how your tax compliance will be. If you offer tax incentives to some businesses, expect the others not to pay as well. Everyone should be treated the same for tax purposes. Why would some people face no taxes merely for representing the people and you expect the people to pay taxes? These are issues that should be addressed for mother Zambia for you to expect changes in the way things are handled. 

For those interested in looking at Zambia's DTAs, the revenue authority has a list of treaties that Zambia signed and are in force. They also have a list of tax rates that are applicable in some of these treaties. This is shared below and shows: Status of the DTA, Entry into force, Applicable Rates (Dividends, Interest, Royalties and Technical Fees). With these days you can now understand things much more clearer when you read ActionAid Sweet Nothings Report or watch the BBC's Why Povery: Stealing Africa.

The DTAs are summarized as follows and can be found here: 

Amendment: 

After some enquiry, I realise I needed to defintion some terms for easy undertsanding of the table.

The term “technical fees” means payments of any kind to any person, other than to an employee of the person making the payments, in consideration for any service of a technical, managerial or consultancy nature. [source] 

Robbed Twice

Zambia's wealth was stolen during the colonial times. Unfortunately, thats not the only time. We have been robbed once before, and are being robbed right now!

Robbed Once

The colocinal masters came with one agenda - get all the minerals they can and any way that they can. They succeeded and got all the mineral wealth when they ruled over Zambia (then Northern Rhodesia). The result has been a totally poor country and the wealth developed Zimbabwe where a small portion was used by the settlers to develop the land they lived in.

But to all that can see what this country has got, will realize that at the time, it was impossible to fight the big guns with bow and arrows. The red Indians tried it and were almost wiped out of a land now called United States of America. We had to fight differently and in 1964, we won a great battle and got our independence. 

We must always remember what we got from this fight. They stole every piece of mineral they saw and gave nothing in return. The greed with which they came with was exhibited in all that they did and could only "leave" when there was nothing else to do. The truth is they never left.

I sometimes ask God why my people had to suffer all this while and yet we had the wealth that every one thinks and dreams about. I subscribed to the Paradox of Plenty to try and explain the inequality that has resulted from Zambia's copper and mineral wealth, it does not comfort me.

Our own people sold the mineral wealth in many forms. The stories of the Litunga and BRE selling all the mineral wealth and got paid for every extraction is a story Zambians should be familiar with. How it happens and the noise that results every year is because the people who benefited from that wealth want a bigger chunk still. None of the other paramount chiefs ever got what the Litunga got for the minerals in form of "salary" or income at one point reaching 8000 pounds a month. That was a direct benefit of stolen wealth by the way. 

They actually have used this as a point of pride here:

The concession entitled Lewanika to receive the payment of £200 annually and 4% on all minerals and precious stones mined in his territory for a period of twenty years.

I don't care if that happened with the agreement of the people. If it just included their own area would be fine to him as king. But they later wanted to increase the land in order to benefit from the same wealth that lay in other people's areas. Just like the greed of colonialists, they also learnt to steal what is not theirs. This is discussed in length here.

The point I want to bring out here is: every time we talk about colonialists robbing our country's wealth and mineral resources we should be honest enough and admit that our very own people aid and guide them on how to do it. In the colonial times, it was chiefs and people around them. They would sign anything as long as it brought something for them in the pocket the deal was done!

Sadly thats the truth.

Second Robbing

We have to know what kind of problems we are facing in the world as Zambia. We still have abundant wealth. We are very rich, sadly we are very very poor.

We have moved to midlle income country - on the few items that have been accounted for. Not accounted for in this country, but whenever some one got wind of what was collected from Zambia. So the wealth and result of that income is economic fiction to you and I. What is sad, is that people who get this wealth will actually declare it somewhere else proudly and share it amongst themselves with pride. Because they declare it there, the taxes are low. We can't see it here and we try to get a little from the stealing by raising taxes, they justify the none declaring of such undertakings as a result of high taxes. Surely there must be honour even among thieves!

Every Zambia in the colonial era knew where and what London was. People even now line up to visit the place. Nowadays, every Zambia should know about Ruschlikon, is a village in Switzerland. Because what this place receives, would change the very face of every Zambia. More so, the pocket of all Zambians. Our taxes would be low if only we got a share of what this village receives. My inspiration is here.

This is interesting as the robbing of our country's wealth is happening at the very time that I am writing this. Again this is aided by our people. Unlike Lewanika, the aiding now is from someone people voted for. I can say it as the London judgement can not be erased. Chiluba facilitated this in many ways. They actually lied about the status of the mines in order to sell it at a lose. But even that, the actual "dirt" from the mines was worth more than the mine was sold for. Least we forget:

"The judge concluded that though Mr. Chiluba had a salary of only about $10,000 a year during his decade in office, he spent more than $500,000 in a single shop, Boutique Basile, in Geneva. The shop owner, Antonio Basile, testified in 2008 that payment for the clothes sometimes arrived in suitcases stuffed with cash.

The goods are now stored in battered metal trunks by Zambia's anticorruption task force. There are piles of designer suits, monogrammed dress shirts and elegant ties, silk pajamas and dressing gowns. But most remarkable are the more than 100 pairs of size 6 shoes, many affixed with Mr. Chiluba's initials in brass. He is just a little over five feet tall, and each pair has heels close to two inches high." Its all here.

Mwanawasa tried to get something out, but died too soon. Conspiracies go here, but I never subscribed to any. Then Rupiah came on the scene and everything died a natural death. Thank God the situation was arrested and he only ruled for 3 years some say. But what happened in those 3 years?

Again, aided by our own people I should repeat.

Case for Nationalisation?

It is always strange to find an economist who subscribes to nationalization. I actually do in this case. We have to realize that mines and mienarl wealth that they bring at such levels call for serious re-thinking. We had the mines in the hands of Government, and now they are in the hands of the private sector. The two bring out one thing I would like all of us to know and think about. The returns from the mines were actually greater when the copper prices were down that when the prices are currently high. If a $10 million return came when the copper prices are low and only $2 million when they are high, it only makes sense as to get them back. After all, at a high copper price, $360 million is paid as taxes in some village in Europe. Thats one fact you have to agree with. But take that with a sharp head, not like the political rhetoric of Julius Malema. You have to get back on a footing that works better for every Zambian.

Regardless of how we do it, there is clear cheating and business conducted with parent company yet a claim of "at arm's length" in Glencore. Did you actually see how our own person laboured to defend a country he works for? I felt ashamed. He was caught unaware.

So if this was to continue, we will get nothing until the mines are declared unfit to mine anything from them. We nationalize, we get enough resources to plough back into the economy and we may actually get more benefits from this resource. America nationalized when the going was tough. We should not adopt economic policies that will not bring anything to the country when we all know how it should be done.

No economics is better than the economics that brings food on the table for all us and not the thieves. 

I believe there is a legitimate call for nationalization in the wake of transfer pricing, hedging and all manner of bad economics at play. Whilst doing that, we should cancel double taxation agreements that favour the west and disadvantage us. Actually, I think double taxation agreements which led to taxes being paid anywhere else apart from Zambia should not only be illegal but never signed and those signed canceled. We should make it a standing order that any shares exchanged on a company in Zambia should be taxed here at the rate applicable. Failure to pay those taxes should automatically trigger Government sanctions.

Moreover, we should setup mechanisms that will monitor and follow all transactions involving Zambia's mineral or other produce.

But nationalization is and will always be the cheaper option as long as we put in place a structure that will run the national resource company prudently and as a full time business.

Using Taxes for Business ...

I was shocked to listen to this "enlightened citizen" on what Government should do about taxes to businesses in order to improve the business climate. Unfortunately he touched an area I have great interest in - Taxes!

I don't know why people in Zambia think business can only do well when they don't pay taxes! Please! Businesses have to take taxes into account whenever they take all other costs into account! What sense will that bring? A company will be better off not paying taxes and not have infrastructure or buildings to operate from? Or be exposed to all manner of crime? Or operate without knowing what tomorrow will be like as there may be a possibility of war or demonstrations?

Taxes have a serious place in a country and will mean the success or failure of a company. They enable a government to operate, carry out policies, employ law enforcement and construct roads and airports which the same company paying taxes will use to either sell his produce or transport it to its clients. Bottom line, it makes a country function. Failure to pay taxes results in a country borrowing money which will mean its citizens have to pay more taxes, or run-down infrastructure! If companies don't pay taxes, the government will still need to function and so citizen will be taxed more in PAYE, VAT or other taxes to raise the much needed cash.

So, anyone talking about taxes should really understand the situation on the ground before they open their mouth. Zambia is surrounded by poverty! It relies on donors to meet some expenses! So the taxes are not raising enough revenue for its operations. Remember the gold rule of economics - Never borrow for consumption! You can only borrow for investment as you are assured of raising the borrowed amounts. So as long as the government is borrowing to meet consumption purposes, we are doomed! And since our taxes have not yielded enough money to run the basic functions of government, we should never even think of avoiding taxes! Taxes to an economics exist as real as death to any human being. Death is certain, and so taxes are also certain.

I think we all need to take a different approach to taxation and move with them in a way that we respect paying taxes! It is shocking to find even church leaders want to buy vehicles without paying taxes!? Money donated by the people. That money donated has actually a law which will allow people donating to claim taxes out of it! I'm sorry, but that is real greedy and we must root this out and as Zambians understand that taxes are what makes Zambia!

We will gain more by being patriotic by paying taxes than buying flags at the time of a football match. Imagine if each Zambian spent K20,000.00 for the betterment of the country or to help the country with infrastructure development? That's how University of Zambia was built. And now people's children are getting an education unmatched! This is an example of a tax working. So we should now make it a point and make sure foreign investors understand that much as we appreciate the business they bring here, they should pay for peace, infrastructure, stability, resources, human capital and so on. They can do that by paying taxes. These in turn will make them have a business to run and move along. Remember, they are just here to make money - nothing else! If it was not for money, they would have not been here.

Economics of Growth or Development

There is always a way in which something easily be judged and presented for verification. Even the ideas of a nation doing well has a way that it can be evaluated and presented for verification by someone or anyone to prove the results. I blog more when I feel low, that too can be analyzed in that perspective and like all things which have a way of being analysed, one can easily seen how many blogs I have actively been writing to assess my mood, if I felt low in the past month or not. All these are ways in which one can assess.

The Economics of Growth or simply put, The Economics of Economic Growth, have also there ways in which one can assess the progress a nation is making in attaining certain benchmarks in growth or whatever one wants to find out. And from these, we can see if we have made progress, or gone back in time by taking two steps backwards for every step we took forward. Each of these steps that were undertaken presents a yard stick on which certain levels can be assessed and evaluated.

A country can be called 'Third world' or 'Less Developed Country - LDC' or indeed 'Developed Country' based on certain evaluations or certain benchmarks that it must achieve to be called that. It's this strict following of measurements or sticking to certain aspects of the whole economy that will grade a Nation or degrade it. What issues are considered will determine what a nation is looked at as being.

My economics of growth or development has very few aspects to be looked at. These matter and are good yard sticks to measure any such progress with great easy and accuracy they can be a basis for any evaluation of a nation. With rich tools at our dispossal, using these aspects as measures can surely make analysis easy.

The measurements of development of any nation based on the ideals of simply analysis are:

• Economic growth
• Reduction of Poverty
• Efficient utilization of economic resources

These stand out as a good measure of how well a nation is doing. The definition of these are as vital as any other measure that one can place on a nation for developmental assessment.

Economic Growth
The simplest definition of Economic growth that I know is 'Annual rate of change of real Gross Domestic Product (GDP)', but lets use as many of these as we possibly can make the understanding as inclusive as we can 'long-term expansion of the productive potential of the economy.' (tutor2u.net) sounds the best possible technical yet simple definition of economic growth.
From the two above, we see that economic growth has the basics of any form of growth in life. There is change, and that change is obviously leading to better production, increase in quantity of a good, etc.

This is important as it qualifies what your measurement of that growth will be. If Zambia's economy grows by 7%, it should be clear what elements are being addressed and what implications they have on the people or citizens of that country. What has really changed and what does the change entail for the ordinary person. As only the resulting changes will have an implication on the life of the people.

Reduction of Poverty
Many people see economic growth and reduction of poverty as one and the same. But think about this. If a country produces produce and the following year it increases that production. Will poverty be reduced or will that change be merely an increase in the production of goods? Clearly, the two will not be the same. Reduction of poverty is simply an improvement in the living standards of people while economic growth can be taken as an improvement in the 'producing standards'.

Reduction of poverty has many aspects, and a collection of improvements in these aspects will surely be an improvement of a country's outlook. For example, reduction of unemployment levels will result in a number of people having work and earning a living hence better off than before.

Poverty provides a politically filled aspect of day to day living - especially in Zambia. The government may sound and blow their trumpets at the gains and the resulting economiy growth, the opposition will also roar on the unemployment levels and the low living standards of the common man. Surely one is politically correct and the other isn't, right? Wrong! There is economic growth indeed. But the poverty levels are not changing. Or maybe they are changing slowly!

So they are both politically correct. And the result is one section fondly loved by the well-to-do and the other loved by the common people and unemployed. They appeal to different people as these relate to what is being said and truelly believe the voice they follow has the truth being spread.

For an observer, you simply expect that if economic growth is happening, this should surelu lead to other aspects of an economy to benefits from this growth. It then may lead to lower unemployment levels, inexpensive goods and generally a well fed and looked after population. Unless we expect this economic growth to be strangely setup.

Efficient Utilization of Resources
This generic explaination produces a situation which will have less wastage and more output which will be fairly distributed amongest the people. Its this utilization which will determine what a country gets from the resources. This grouping of resources if not limited to production resources of raw materials but goes further as to include people. A developed country will use its labour in productive ventures and will not waste man hours through shrinking.

So a mixture of the development of these things will surely have a bearing on classifying a country as developed or developing. And should be evaluated in looking at the country and its resources.