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.

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.

Effects Of No Electric Power On The Economy

I have ignored confronting ZESCO on the issues on power and what they are doing to this economy. But I have noticed, the more we ignore the issue, the worse the situation turns out to be.

So no ignoring and I have put on my fighting gloves as this issue cannot be ignored any further.

Electricity As Power In The Economy

One thing is for sure, in our country Zambia, the issue of power is important as it is the only source of energy for feed our hungry needs for economy progress. Not even our phones would work without power for a week. My laptop cannot be on without power for over two hours - maybe thats why I'm thinking of Asus Transformer with the potential of over 10hrs of no power!

I have bought a laptop charger for my car as I can buy fuel and charge whilst driving. That handles my problem - but only temporarily. The main problem is ZESCO. And since we are not doing anything about, it stays the same.

ZESCO Company or Baby Fed!

I have always wondered what is so special about ZESCO that makes it take us for a ride this long. Then I ask myself, if this company is a public enterprise, it should respect us as the owners and provide the necessary things or we may sell or shut it down. That it exactly what it means. Zambian people own it! So they should control it.

There are two things which shock me about how we handle business in Zambia. And until we find a way to stop this behavior, we will always be in trouble. 

Why? Just look at this:

• We negotiate taxes! We negotiate the birth right of being a nation so we can give people or foreign companies "incentives". The mere fact that this country is peacful and welcomes the investor is an incentive enough. But we go ahead and give then even the little we could have got from them. We need to stop this and move on progressively.
• We spoon feed a company (like ZESCO). It ends up depending so much on government. It gets loans with no plan of how it will repay them. And the debt is stuck on government. Because of that, it over charges the people while companies like mines get "favourable" rates. It may make sense to you but, it does not to me! If this was a company setup logically, it would put rates that make sense from the mines and not hammer the people.
  
  The sad part of this is that, mines get favourable treatment from all over, when they needed to be paying their equal share of the taxes. So you and I pay not only our taxes, but the mines' taxes and the salaries for ZESCO employees. Then power is taken away from our homes and put in the mines for the mines to rip even more wealth. Is this fair?

In doing the above, we have ended up being a failed generation. There is little we can show our children the positive contributions we made to the country. Zambia is in the state it is today because we don't do anything about it.

ZESCO's Tax Contribution

Do we know the tax contribution of ZESCO? I think we should know. We should also know how much loans they contract as we end up paying for this. I don't think it is too much to ask. We own the company. We should know how much taxes it pays, the dividends, then the amount of foregone customs and taxes that ZESCO enjoys. Then we should look at how much we are paying the workers. Its just fair and right for us owners.

Economy Effects
Without power, we can't power up our laptops and make reasonable income. We can't run servers from our houses to power up net-stations in Zambia. So we end up paying for server space in Europe or Asia. This is an out-flow of resources to other countries. Will government get taxes from that money? No way my friend. So we are probably the only country in the world without a ".com" community. And thats just 12-20 volts of power for our PCs and laptops. That partly explains why South Africa has almost every company with .co.za and in Zambia even government institutional websites have".com", ".org" or ".net". e.g. www.zambianconstitution.org (surely we are not even proud of .org.zm.

That is the cost of such critical elements in Zambia's economy like electricity and so on.

Computers people are all over the country. But have no means to be supported. All great .com companies are run and start from homes as it is cheaper and will give you time to start the busines, see the mistakes and then go on a full time scale. With ZESCO in existence, you will be in sane to even think of running your PC without a power backup system. All my websites are hosted in Asia. When they ask me why, I give excuses about not having time to configure and manage them all day. Truth - no there is now way I can run them here without paying through my nose to ZICTA and which ever of our 13 service providers - not sure who many actually host from the 13!

So my .com dream died when I looked at the cost of doing anything in that direction in this country with such power and expenses which favour foreigners and the rich.

Now imagine those with ideas of electronic inventions. Or manufacturing items. We are killed before we even start. Thats is the real effect of such power nonsense.

These are issues that should come into play for every company that receives such unwarranted favorable treatment. I know we all want this to happen to the mines, but surely, why not to every company that seems to know be doing the right thing.

I think we should be given a platform to do this. Not all of us can be politicians in order to put in place favorable business environments for our business. So we need to be looked at as well.

I am a Zambian I deserve Better! And ZESCO is not helping in any way. It should be made to do this just like all mines that feel taxes should not be paid coz they invested in the mines. Yes, but I am a Zambian, I own the minerals. You own the means to extract. If we disagree, you go with your means, I look for someone or I do it myself. But will you find the mineral I own? No! So I deserve better.

I am a Zambian, I Deserve Better!

Statutory Instrument No. 33 of 2012 - Yipppiiiieeee!!!!

The introduction of Statutory Instrument No. 33 of 2012 by the Bank of Zambia is a welcome move for any one interested in making our country Zambia better economically. I find this, an action worth celebrating over.

For starters, it was not making sense to have Kwacha which is ignored in most transactions within the republic as people preferred to trade in US Dollar. The fact that we have a legal tender, we should use it. Why should rental for housing be in US dollars and yet that house is in Zambia, in Zambian economy? There is no problem with one basing the rent on US Dollar, but that must be a good reason to do so. This action undermined kwacha and made it useless as everything was being backed by the dollar.

Dollarisation

This is a term used when citizens of a country use foreign currency (a US Dollar in this case) in parallel to or instead of the domestic currency as a medium of exchange within the domestic economy. So Zambia using any other currency to quote for prices or to demand payment of any services or goods is dollarisation.

Zambia was one country you could quote your goods and services in any currency with no shame. If there was a visit from Congo, they could have even bought in Congo currency.

But this brought with it many problems which are so severe in most cases it can even be damaging to the economy. A stop to this measure was not only needed, but was needed fast!

Benefits of S.I. 33 of 2012
There are so many positive effects that have been mentioned when issues are refered to the S.I. in question. But all in alll, I think there is only one positive effect that can be linked to this measure and the rest are merely as a result of this. This is the issue of controlling monetary policy of a country by the authorities that may be. There is no point in having monetary policy if at the end of the day, the monetary policy in the country is actually controlled from outside the country.

Zambia has a legal tender of Kwacha. So the authorities will defend and protect the Kwacha as it is the sole currency of the economy. Use of dollar or rand, will mean we tie our economic activities to another monetary authority and can even do away with some functions of the central bank. This is only useful in a country which is in a crisis.

So economic players should actually look at this measure and the great benefit it will come with.

Mis-Understandings
One common mis-understanding of the S.I. has been on the international trade. Most people expect the S.I. to block international trade and has thus brought an imbalance in the economy. Some "wise" people went as far as claiming we can't have the S.I. when Zambia is an importing country.

• Domestic trade is supposed to be conducted in the legal tender of the country. You can never go to the USA and expect to rent a house or buy a TV in Euros or Rands! But you expect this to be done in Zambia? But the problem has been that this dollarisation was left unchecked! So the S.I. simply reminds you of what currency you will use to trade in. It was shameful to walk into these "Real Estate" companies from South Africa even quoting in rands but never in Kwacha!
• International trade can continue and be conducted in any currency you wish. The only thing one needs to know is that the Kwacha is a convertible currency. That said, you can then simply pay even in Rupees as long as you use the bank system to send your money. They will in turn get your kwacha but send rupees. Simple like all other countries do.
• The bank system use will make sure the monetary authorities have control over the transactions and enable citizens buy things from anywhere in the world at no cost to our currency! Thats why when you travel out of the country, you get your usual ATM but with draw dollars or rands depending on which country you are in. The system is able to handle all transactions.
• We have a duty to protect our country and that starts with the currency. Parallel monetary policy has not helped the country at all. (Parallel in the sense that although we have our own monetary policy, it is controlled by currencies that have an embedded monetary policy of the country they come from. We had houses being sold and quoted in dollars leading to the weakening of the Kwacha every single day. Now we can concentrate on making Kwacha strong and viable in the world trade. That starts by making sure it is a legal tender for this country. I don't think I can go buy a car in South Africa with a Kwacha, why should we make possible for anyone else to come and use their currency in our country? 

This is one of the positive issues that economic players in the country should be happy about. After all, the benefits are for all the people around.

I think this measure has been one that has taken too long to be implemented and I'm one of those that think we can do a lot more to help the country prosper!

Well done for S.I. 33 of 2012!


I have heard talk about the problems of the S.I. Basically, the only "errors" the first "errors" I saw was reference to the wrong Act (the typo of year), but that would not injure the spirit of a good law. So we just need to correct that typo and a problematic paragraph and we are good to go. We need such progressive directions in this country to get something out.

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.

The More Things Change, The More They Remain The Same!!!

I had a problem with the way the previous government handled issues related to economic well being of the country. They created sacred cows that would be treated differently when it comes to taxes, tax incentives and so on! Tax payers should be protected. Moreover, we should ensure there is a balanced approach to the way people pay taxes! (I'm passionate about taxes - try to understand).

If you are going to let people go without paying taxes, let everyone go! Let us teach people to realize that they need to do things in a proper way! There is no alternative to doing it right. I believe that is the only single lesson you would teach your child. That is the only single think that a government can teach its citizens. Everything else would be dependent on doing it right. You pay the right taxes, you conduct the right business, you engage the right suppliers, you keep the right records for your business and so on.

The Past

We had some businesses which enjoyed "sacredness" under the old regime. I did not like that! Some companies got incentives, while others where taken out of business for the same actions. You needed to know someone up high to get some things done! If you don't rub the right shoulders, your business goes under! That is not a way to run an economic. It looks political, but the whole arrangement affected economics in massive proportions. Rent-seeking was the order of the day. It reached levels that government officials received calls from higher offices to implement certain things (sometimes I'm shocked when I read the papers on what led to some decisions - and always called it political pressure). We have to work at this, economic progress cannot be achieved if politics are involved. I have reminded myself not to be political on this issue as I expect progress and the day we add political aspects, we compromise progress.

The Present

I loved the pronouncements related to corruption and the "hands-off" on the economic that came from the new regime. But I has been disappointed, we have now started promoting street vendors at the expense of shop owners! Some one told me, this is done so as to improve the lives of people by giving them a means to earn a living. They can now afford to buy food, clothes, medicines, etc. This is more so because they have no trading places where they would sell their goods.

It really was a good point. And I looked at it as a right measure. But after reflecting, we need to come back to reality on the ground. The streets are dirty, diseases came spring up any time. There is no order. And there is no taxes being paid by these traders. I have not seen a ZRA officer on the streets! So we have promoted tax evasion and wonder why there are no trading places? What would make the shops in Freedom Way, Cha Cha Cha and Cairo road want to pay taxes? They face competition from the vendors - who don't pay taxes or rent! Its an imbalance in economics with no supporting argument. This is one single disappointment that the present has presented to the economic well being of this nation. I seriously hope it is temporal. We have eroded the tax base even more.

The Real Effect

It looks like the measure is aimed at encouraging entrepreneurship. People can buy and sell without paying taxes. But the real effect is teaching people to look at taxes as optional. An Indian shop owner would see the benefits of trading on the streets than paying rent and taxes!  Mind you, most shops in Freedom Way, Cha Cha Cha and Cairo road are owned by local business men and women. Their businesses are being torn to pieces. Most people avoiding this chaos on the streets stop buying in town and move to malls. They promote foreign shop owners and push their businesses to greater heights. And we wonder why local businesses don't do well? There is no sense in saying "buy Zambian, promote and develop Zambia" when all Zambia is, on the street in chaos yet foreign companies are in nicely ventilated shops, with air-condition and smooth music.

We need to look at this issue and find ways to help people but not by destroying the sanity that town had. We have to do things right. And vendors on the street is not right. They need to feed their families yes, but I think they can feed them better if bigger shops paid taxes which would construct schools for their children and create employment. They can do with selling the same quantity in markets than lose all trade to malls with fresh clean vegetables.