2014 Budget and Tax Measures

2014 starts on an interesting footing. So I thought I remind you of the tax measures expected to start today. Most of these where in the 2014 Budget speech. 

Airtime

Excise duty on airtime has been increased by 5%. So it is now 15%. Expected result is the reduction of the minutes you spent per Kwacha! Assuming you took note of the minutes you used to spend, it will surely drop in the new year. Moreover, you bundles are also expected to be hit by that change! Less MBs per Kwacha.

The increase was justified as raising money for variious developmental programs that the government will be implementing. If it has anything to do with projects like roads and any other infrastructure development, I have no problem with my drop in "units"!

Clear Beer

Beer has had an excise duty of 60% for a long time. However, this was suspended by a statutory instrument to 40%. So beer has been working with 40% excise duty. As of 1st January, 2014, the effective duty of 60% will kick in and everyone will have to pay that 20% they have not been paying.

Clearly, beer has long been known not to be affected by changes in prices - not that much anyway. So we should expect the same quantity of consumption and drunken behavior but now at a higher price. The money is also intended to be pumped into developmental projects.

Tourism Packages Standard for VAT

Tourism packages that are sold from 1st January, 2014 will now be standard rated. The 16% VAT will apply and tourists will pay when they procure a package. I am a firm believer in standard rating of all goods and reduction to the barest minimal of the exemptions and zero-rating of goods and services for VAT purposes. I think this is a good measure and one which should be used to improve our VAT performance. 

I wish many more goods and services would be moved to standard rate. Eliminate the zero-rating and exemptions to the barest minimal. VAT would be boosted. 

However, I believe we need to also look at the VAT chain and see where the tax leakage is. This will ensure all VAT paid or should be paid, is paid and to the right institution for it to be used in the right way. This is important and critical for Zambia.

Property Transfer

Property transfer rate has moved from 5% to 10%. This means all those selling property like houses or mining right, will pay an extra 5%. So those who plan to sell property in 2014 have to take into account this change as you may find yourself paying a little extra for property transfer tax.

Withholding Tax on Rentals

Withholding tax on rentals has dropped from 15% to 10% and has been made a final tax. Because it is now a final tax, it would not be used for deductions in one's final tax liability.

It is expected that this would bring in a "net increase" in collections under this tax even though it has been reduced. This is because there will be no more deductions claimed against it. So those in lose making positions will have to deal with this tax separately as it is a "stand alone tax". (I hope my attempt at simplification has not introduced a different meaning :) )

Public Benefit Organisations (PBOs)

These are charitable organisations approved by the Minister of Finance for various rebates, refunds or remissions when they import or buy goods for charitable works.

As a result of general rationalizing of tax incentives, various items which were previously available for refunds or remissions, will no longer receive such treatment. In particular, no motor vehicles will be "exempt" from paying taxes when imported by the PBO. All motor vehicles imported by these organisations will need to be paid for in full.

It seems like a harse decision to take, but when you hear stories of some churches which imported Hummers, X5, etc for their "pastor" in "helping" the need in society, who would look at this measure as "harsh" seriously, there is need to make people pay the due taxes in full and the right amount.

Though this measure was legislated in November, most PBOs will feel the effect in 2014. Being a 2014 budget measure, it suits to be discussed here.

Access to Banking Information

Zambia Revenue Authority (ZRA) will have access to information, notwithstanding obligations and secrecy imposed under the Banking and Financial Services Act, the Evidence Bankers Book Act, Legal Practitioners Act and the Accountants Act, required for tax purposes. 

Any person or organisation that had preveneted the ZRA from accessing information on "secrecy" or any such reason, will have an interesting find in 2014.

Grant Aided Institutions

Grant aided institutions that will now be required to deposit their revenues in the general revenues has been increased with the addition of Zambia Environmental Management Agency (ZEMA), Patents and Company Registration Agency (PACRA), Competition and Consumer Protection Commission (CCPC) and Weights and Measures Agency. This is in line with annoucements in 2013 Budget which say the first statutory bodies' (ERB and ZICTA) revenues being brought into the general pool. 

I hope this will truly bring about prudent management of revenues by the institutions in questions and ensure that government will have enough resources to provide for public services efficiently.

These are a few issues that will be brought on board by the year 2014 on the tax and budget front. We hope to see positive outcomes at the end of the year that we can talk about.

Happy 2014

Tax Avoidance Now Hitting The West

Africa has been trying for many years to find a solution to tax avoidance. There was little interest from Europe and the USA. Mostly because they actually gained from this tax that escaped from Africa and landed in their banks.

But life is a funny thing. What goes around, surely comes around. Now the USA is at pains to stop tax avoidance. Apple is accused of $74bn US tax evasion and thats what the news is all about.

The good news that has come out of this confusion is the push for harmonized tax system that will make it impossible to avoid paying their rightful contribution to the nation's treasury. Good news fro countries like Zambia whose tax base has been greatly eroded by such actions of multi-nationals.

I believe the way out is simple. Most tax havens would die without helping multi-nationals avoid taxes. So if there is a move to stop that, these tax havens will reject such a move. Do you think Ireland and Mauritius to agree to measures that will make it impossible for them to get money into their economy? But on the other hand, if the countries being affected unite to fight this kind of tax treatment and setup was to make these companies pay, great things can come up. Maybe even disagree to have Tax Agreements with these nations to force them to comply and make tax avoidance a thing of the past.

A positive outcome of this whole tax avoidance to me is the indication that the world is slowing becoming a solid market place, where if you ignore what is happening in Africa - tough luck, it will hit you in America harder than you thought. Apple is hopefully a beginning so that the world can come up with a solid united fight against tax evasion and avoidance.

The Case of Gay-Aid Economics

Poverty and Aid show an interesting aspect of slave and master relationship. The west has always used aid to get what they want from the poor. This is the case in point of what I will call Gay-Aid!

Gay-Aid is western aid tied to homosexuality in the recipient countries. It is fully endorsed by the USA that is, President Obama and David Cameron, the Prime Minister of Britain. 

"Gay rights appear to have become a new frontier in diplomatic relations between Western powers and African governments, with the US and UK warning they would use foreign aid to push for homosexuality to be decriminalised on the socially conservative continent.(Gay rights: Africa, the new frontier)" 

The idea is, countries needing aid, will need to support gay 'rights' to receive that aid. A simple do this to get this. The bate here being aid. To me thats a typical slave-master relationship.

This is clearly an indication that one needs to lose their ability to decide on issues of their 'being' and ask the master for a way forward. And I think this is what we need as Africa. To see that Aid really does nothing for the well-being of our nations. Its an investment from a partner who may never mean well at times. The way out is to look at the issues that affect our poor performance in an economy that rely on aid which maybe Gay-Aid or dead-Aid! Imagine trading off the Gay-Aid for good taxes in the mines! That in place will see nations that can decide their future and can decide on what they think is right or wrong. Though this looks more a political issue that an economic one, the moment you allow someone to dictate what is right or wrong for your nation or economy, you lose your destiny. 

Aid has little contribution to Africa's development. This is a tool used to make Africa states dependent on the West for them to use it any time to impose their values and beliefs. This is the only thing that can make great nations go down on their knees and beg for them to implement what the West want.

Why I hate Aid

There is a saying "A beggar is not a chooser". When you beg, the person giving help will determine what you do and how you do it. Ban Ki Moon went to Africa Summit and told the leaders to respect gay rights.(here). He clearly did not care who was there and what belief they hold on the issue. He is the secretary General. Would he do the same at an Arab summit? No! They have wealth as countries and that black gold - oil. They determine their destiny. Africa had almost all leaders on Aid payroll, they dare not react to such statements, the master was talking. That's why I hate aid - it makes you a slave!

The gay rights issue has problems in the USA, some states are fighting for it. Others are not even thinking about it. Does Obama wake up and say the Federal government will not provide services in those states? Of course not! But when it comes to giving aid to poor nations, it is "Central to the United States’ commitment to promoting human rights".

Be Rich and Control

Central to this Aid issue is not of a helping hand, but control. No wonder every one (except a few of us) hate China. The west has painted such a bad picture on China because they can't control it. It has money and hence power to decide what it wants. If those are transferred to Africa, the west loses grip on everything they have been trying to bring to Africa to continuously step on Africa. That is the big issue.

Africa now needs to work on the issues that continuously disadvantage it (aid included). They need to work on multinationals that steal from Africa through not paying due taxes (they actually declare loses but profits are declared in tax havens). They should demand what is due to them, if need be, nationalizing some of the companies would actually make some countries better off! I know a lot refuse that, but has anyone looked at China? If a country is only getting 10% of the returns on natural resources in foreign hands, it would be good to run it on a state level if that company will bring in 20% after a poor investment from an African government. Besides, all returns will be in the country and not sent to their countries.

You can't have all companies run by multi-nations and their governments say bring gay-rights to receive aid and you think you decide your destiny! That is the tool of control you can only avoid by being rich enough to live without aid or multi-nationals running your economy.

What Democracy on Economy?

There is a cry for democracy in everything that is done. If that democracy means doing away with gay-rights, you are not "democratic", but if you ahve oil and oppress women you are a friend to the west, then what is democracy? I have noticed on matters of economic importance, the west will ignore issues of democracy if it will lead to what they like. Unfortunately, there is no control on this issue as it even affects the UN. It will not protect the people if the returns will not amount to anything for the west. Countries that have stood up to such forces, have grown by following their independent paths. China and Russia are a good example. They don't care what the west does now as they have power to define their destiny.

If oil will be gotten through regime change, it will be supported and even leadership made to pay for refusing change. But if it will come through the current regime, people's deaths will not matter. Economics does! Libya and Syria are cases in point. and the key element was the oil.

Economics Matters, Rights Don't!

Gay-Aid is tied to 'rights' for gays! Regardless of the people's beliefs or stance on the issue (like colonial masters deciding for the village). But women in some Arab countries can't even drive a car. Have you ever heard Ban Ki Moon talk about them? He talks about gay-rights. I have not even heard him address Syria. There is oil there!

Africa's New Fight - Economical

The new fight for Africa should be economical, not political. Africa must unite and fight all aspects of the oppressor. If it means leaving the UN, you may have to. What has it done for the continent economically? It would be easier to make Africa stand economically if the UN supported its cause. Do you think Africa has a chance to fight Gay-Aid being promoted by USA and UK backed by Ban Ki Moon? Which nation will stand and say, we are Africans and don't believe in this. Mugabe did, where is he on the economic map? Malawi's economy is a sorry sight - Mutharika spoke about the displeasure of gay activities and the court sentenced some people.

We need to get rid of this Aid issues in Africa and believe we can do it without the west. We can do it. The problem is that we are constantly blocked in our thinking by the west through schemes like aid, human rights grants, etc.

Like Marcus Garvey said:

We are going to emancipate ourselves from mental slavery because whilst others might free the body, none but ourselves can free the mind. Mind is your only ruler, sovereign. The man who is not able to develop and use his mind is bound to be the slave of the other man who uses his mind ..

I end saying...

Africa, Emancipate yourself from mental slavery, None but ourselves can free our minds

Paying Taxes

Something of interest (tax- wise) happened today.

I had a discussion with a work mate about para-statals and their tax payments. And I think we all need take this seriously and see how we can help our country develop.

Who should pay taxes

All companies and entities in the republic need to pay tax. Be it a Ministry, a government institution, an agency, an NGO, etc. That is the normal way things are supposed to work especially for VAT. For income tax, the situation is different. All institutions that earn an income is supposed to pay income tax. That obviously eliminates government institutions as they never earn an income.

The few exceptions are military personnel or agencies, the presidency and such, through the duty-free goods and drinks. So as to make things cheap. And enable them work without disruptions of chasing refunds or fundings. Ok that's my understanding (limited as it may be).

Now my point of interest, most institutions don't want to pay taxes. They want to be a bottom-less pit which can be funded or use its privileges to get favourable treatment but also don't want to contribute to the revenue generation. I'm not talking about the obvious. Think about it, for example why should ZNBC or ZESCO not pay VAT? VAT is a consumption tax (I will always remind people about that), so anything being consumed should be paid for. Since its being consumed and everyone will pay VAT, it will be easier for administration purposes if all paid it. For anyone producing an intermediate product, they will claim it back and only those consuming the product will have the tax stick on them. I buy a Fanta, I pay VAT, ZNBC or ZESCO does not pay? Will that be fair? After all, drinks are to be consumed. Unless they can prove as being an input, then they claim it. After all, the idea of claiming the VAT if one is not the final consumer is in place to enable businesses handle costs.

And another thing. We as a people should take interest in knowing what taxes are being paid by institutions regarded as "public" or of importance. We should not only be interested in knowing what the mines pay. We should know what the mines and other big institution  How much does tax does ZESCO, ZNBC, Shoprit, Game, etc. I think we should also be given an opportunity to see what incentives are being given and the justification of such a move. I would like to know what items are coming in free of taxes and for which companies. I have a stake in this country and a permanent share holder, so I should know. Such disclosure will ensure officers are doing the right thing.

Right now, there is this belief that officers are bribed in issuing tax incentives or allowing items to be treated favourably. So is this true or mere speculations? It can only be best sorted out by disclosing what company A received. And how much revenue loss has resulted from such a move.

Maybe I shold stop here before I get political... seems to be a fine line between politics and economics especially in Zambia.

Tax Incentives :(

I have always had problems with tax incentives.... simply because I believe if someone is investing, he is not doing you (as a country) a favour. He is in it for the money, he knows he can make enough profit without incentives before he starts, and the tax incentives simply make him "super-normal" profits! Prove me wrong! No one single person would invest if the profit margin is non-existing or if the profit is only coming in after the tax incentive!!!

My looking at tax incentive maybe wrong to some of you. But in the same vein, thats why I have little understanding of the role of Zambia Development Agency (ZDA). I seriously need someone to educate me! If you are doing a course and the school says do all your assignments, tests, etc, but to encourage, we wont mark them as we will give you those marks (about 50%) and you just need to get more than 50% from both the assignments and the final exam to pass the course - who would let such a chance go begging???? That my people is how I see the tax incentive.

I have always said, to an economist, only two things are certain: death and paying of tax! We will all die, and we all should pay tax! So the logic of tax incentive violates my belief - and I can prove it!

Tax Needs

Taxes are paid for infrastructure, security and other public goods which governments put up. So if a real investor asks for tax incentive, ask him if he can do the roads, pay the police, hospital staff and their buildings while he is running his investment. If he refuses, he shouldn't get the tax incentive! No one investor would be willing to not pay taxes if he wont be assured of security through the police, courts of law, access roads, etc. So if he asks for tax incentive, he simply wants someone else to pay for those services! Just on this point, whats the role of ZDA? To unfairly ask people to pay for services used by these wealthy companies?

Incentive Benefits

I have been looking at a report that will show me the benefits of tax incentives in Zambia (as opposed to the benefits the country would have had if taxes were  paid)! I believe that is the single most important reason for continuing with incentives in this country. Without it, we shouldn't even think about it. What benefit would tax incentives bring if they provide no benefits? We would be doing a dis-service to ourselves, our children, and our children's children!

Getting High on Incentives

I think we have reached a point that we get high on incentives, we may even start asking companies to invest through an incentive of not requiring them to register as a company. Seriously when we reach a stage of allowing companies to steal, as an incentive, we can't sink lower than that. This is through what someone called the VAT "incentive". My little education would not understand this, but I believe people think this is possible.

Let me explain my failure to understand the VAT incentive.

VAT is a consumption tax paid by you and me on final goods that we buy for consumption. For example cooking oil, soft drinks, etc. So the company selling you these things will "hold the tax" and submit to the revenue authority. You pay, they take it to government. If you give that company a tax holiday for that kind of tax, you are asking people to pay to the company (for their operations) and not for public services! Is this normal? I think there is no difference in that action with some someone thieves high-jacking an armored vehicle taking taxes to the Bank of Zambia! Money is illegally being pumped into the company by people who don't want to invest in that company and for no benefits. Its like you simply change the one who is supposed to tax from the tax authority (in this case ZRA) to the company. I think the issue would actually make sense to someone people if you explain it better like this:

The action is like asking government to give back the taxes paid by the people to the company to do with it as it wishes. So the government goes and cuts a cheque equivalent to what that company brought in as taxes. 

There is no basis, no logic! The tax burden is born by people, the company has nothing to do with VAT. They don't pay it, they simply collect it for government. So if you give them what you call an "incentive", you simply giving them money or investing in their company as a government! I would add and say, thats theft! 

I think the only logical tax incentive is to allow every single entity to pay the correct amount of tax due, so that in time, they can pay less as the requirements are met. Without this, they actually open up an imbalance in taxes required, and would lead to more taxes paid in future. I always say, paying less taxes, is actually asking to pay more taxes!

If our taxes don't meet today and tomorrow's requirements, we will need to pay more taxes in future! Don't believe me? What taxes do you think people in Greece are paying compared to what they paid some years ago? Any failure to raise money by a government will lead to people paying more to meet those demands. I know a government can borrow, but ultimately, those loans will be repaid from taxes in the end! There is no one single source of revenue for government that can replace taxes. Actually with tax incentives, you may end up paying taxes to make up for the taxes that a company needed to pay. More so if that is a foreign company which would just pack its bags and leave!

We have to one day call for the end of a thinking that one needs to incentivize investment! Investment comes with or without incentives. As long as someone knows that they will make a great incentive, the business environment itself is enough incentive. Zambia has incentives in that area, investments are safe, we just need to get the taxes and build great infrastructure as the last incentive - not giving companies money! 

Augmented Tax Incentive Economics

I'm always amazed at how people in this country take taxes as an unnecessary evil which should be avoided at all times. Any chance that is presented to someone to avoid being taxed, they jump for it. So maybe the issue of taxes has not been presented to everyone in their complete sense. I know I may have touched about it from time to time, but I don't think I have aimed at hitting the 'nail on the head' as they always say! So here is my blog-ness attempt.

What is tax?

A compulsory contribution to state revenue, levied by the government on workers' income and business profits. (That's as simple a definition as I can find).

What is tax revenue used for?

Do we need to look at that? Ok maybe we should as missing one element of this can spell disaster. The most comprehensive use for tax that fits this discussion is on wikipedia:

Money provided by taxation has been used by states and their functional equivalents throughout history to carry out many functions. Some of these include expenditures on war, the enforcement of law and public order, protection of property, economic infrastructure (roads, legal tender, enforcement of contracts, etc.), public works, social engineering, and the operation of government itself. Governments also use taxes to fund welfare and public services. A portion of taxes also go to pay off the state's debt and the interest this debt accumulates.

So why pay tax again?

As outlined above, all services you require from government are provided for through taxes and borrowing (loans, grants, etc) both from internal sources and external sources. So failure to pay tax implies a vote to have little government provided goods and services. This actually is the real "If you wont pay, it will never show!". Your taxes determine what you will receive from government. In Zambia we have to be quick and say all things equal as we are used to seeing our money being used to enrich some leaders! Someone told me its the only way we know how taxes are used in Zambia is wrong ways.

So I believe its about time we started believing in the usefulness of the taxes we pay. But most importantly, leaders need to show us where the taxes we pay go to. That is the remedy. It does not go well when billions are being buried, with no sign of what was put up from the taxes paid!

So can we embark on this trip of Augmented Tax Incentive Economics!

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.

Zambians lackadaisical???

I have always been a person advocating for serious approach to work and all associated with it. I think a lot more can be done when we take it with hard work and the seriousness it deserves.

I proudly say, the lazy people are always willing to let things be the way they are and are not keen on seeing change or fighting for it. Partly I assumed was the casual approach that most of us Zambians have to certain things. However, in all the countries that Zambians have gone to or emigrated to, the situation is different. They work harder, are united like a serious community, are found in all high earning positions etc. So the coming of the Chinese seem to show us as being lazy?? Well, I think the cultural differences may show up in areas of serious concern.

The China-Zambia relation has been one of mistrust and serious concern economically. They are known to pay less to Zambian workers, have little or no respect for the country's laws and feel like the bosses of this small population. Chinese goods are considered fake and weak or unreliable. Words like "gonga" are always associated with Chinese goods. In particular the Chinese dual-sim phones with TV! And they come in many shapes some claiming to be Iphone, others Nokia and those that have no name to steal, are simply called MP4 phones. Now whoever got a chance to buy one, will confess of the ills of these phones.

Now I wondered why we always say we have a lot of Chinese people among us and yet, we never see them in night clubs, malls, or mingling among us. So to read on The Economist that these people consider us lazy ... or by the exact terminology lackadaisical made me wonder. So my first action was to coin the exact meaning of this word. To understand the perspective as I saw it, I will quote the meaning I came across it.

lack·a·dai·si·cal

adjective /ˌlakəˈdāzikəl/  Lacking enthusiasm and determination; carelessly lazy - a lackadaisical defense left the Spurs adrift in the second half

So is it "carelessly lazy" or "lacking enthusiasm and determination" that Zambians have? Seriously I think we need a serious check with such words being labelled on us.

On one hand, these are the companies that give slave wages and expect people to work and be productive? I have heard of people say 'work as you are paid' and 'you are valued as a worker, as much as you are paid'. Lackadaisical!? Maybe our change in country management, especially that people say the new leader has no room for laziness will make us move from being considered lackadaisical! Hard work is what I feel has been a problem in many aspects of the Zambian life but I don't think we ever reached a level of carelessly lazy! We have done a lot more with the little that we are given. I know corruption is a big issue in the country. And a serious approach to that will make things a lot better.

Lackadaisical is a word that we Zambians should not be placed next to. We have to do our ultimate best in all that we have. We can start by cleaning out the mess that corruption has brought, make every single investor abide by the laws of the land and bring value to their investment and not seem to be begging for investment. I firmly believe anyone coming to invest will have looked at the business gain before they get on the plane to Lusaka! So why should they come and ask for incentives? Or make requests which have no business logic! This is the disaster we have to work on!!

We need to start from scratch and make an investment worth while. No need to have investors for the sake of being investors when the overall value addition is zero!