CSOS Claim Sales Tax Will Raise Poverty Level

Zambia Reports, May 21, 2019

A consortium of Civil Society Organisations has said the implementation of Sales Tax will increase prices and the cost of doing business and ultimately raise poverty levels among Zambians.

The CSOs, in a statement today, note that the proposed Sales Tax, which involves tax imposed at every stage of the supply chain, will result in a steep rise in the cost of goods and services and ultimately result in higher poverty levels.

They stated that they are concerned about the negative impact that the implementation of sales tax will have on the economy and citizens particularly women, children and other vulnerable groups.

“If implemented the proposed sales tax, which involves tax imposed at every stage of the supply chain, will result in a steep rise in the cost of goods and services and ultimately result in higher poverty levels. Given the higher probability of sales tax increasing citizens’ tax burden, there is need for a fairer and more progressive tax system within the existing gender and age inequalities. We are of the view that government should address the existing limitations with the VAT system instead of replacing it with Sales tax. However, should the government insist on proceeding to enact the bill, to extend the time period for implementation up until sometime after the current Medium-Term Expenditure Framework (MTEF) planning period which will help coordinate sales tax with the existing government policy,” the CSOs stated.

The CSOs further state that Sales Tax will increase prices of goods and services. 

“The proposed sales tax will be imposed at every stage of the supply chain. This means that from importation, manufacturing, production, distribution, wholesale and retail point of supply a tax will be paid to the government. We are concerned that this taxation across the value chain will make goods and services more expensive for consumers.

At every stage of the value chain there will be a 9% tax levied on the supplier and the longer the supply chain will be the more costly these goods will be for final consumers. For imported goods the rate will be 16%,” they stated. “This will increase the price of goods across the spectrum: for example, the tax additional tax burden on soap could be up to K1.14, which could be passed on to consumers while the additional tax burden on a mobile phone priced at K2699 could be up to K543.04, which would see a price increase of K271.52 if just 50% of the cost was passed onto consumers. This tax will thereby increase the cost of living for ordinary Zambians who are already burdened with high living expenses in the country. Currently, the Basic Needs Basket for a family of five is at ZMW 5,519 which is way above the average income of most poor households.”

They stated that inflationary pressure of the Sales Tax would hit the poorest and most vulnerable.

“These indirect taxes are paid on economic transactions which affect the ultimate price borne by consumers and therefore have a strong impact on the household budget for the poorest. Currently the poverty rates are high with rural poor standing at 76.6 per cent and 23.4 per cent in urban areas including extreme poverty rate among women standing at 60% and even higher among those aged 60 years and above,” the CSOs stated.

“If goods and services are too costly for ordinary citizens, this slows down the rate of economic activity and has negative implications for businesses which will be at loss if their products are no longer affordable for consumers. When economic activity is low due to less consumer spending, firms reduce their workforce and unemployment rises. If businesses are no longer making sustainable profits this forces them to close down which is a blow to the Zambian economy as the private sector is instrumental to economic growth.”

They stated that they are also concerned about the implications that the tax will have on Zambian businesses along the value chain and in different sectors of the economy.

“Firstly, the sales tax will increase the costs of production for domestic manufacturers by increasing the purchase price of locally sourced and imported raw materials and semi-finished products for locally-produced commodities. Secondly, the cascading effect of sales tax will incentivize large manufacturers and retailers to sell or buy goods directly from each other, which cuts out wholesalers and distributors from the value chain, which will damage the many SMEs that make up the sector and create jobs. This effect can be encapsulated by the fact that domestically produced goods selling into supermarkets could face a higher tax burden of up to 36% than goods imported directly by the store at 25%. The effect of the sales tax will disadvantage Zambian firms, particularly SMEs, at home and when exporting,” the CSOs stated.

“What projections have been made on the impact on growth, inflation, unemployment, poverty, trade and revenue? How have the tax rates been decided and what is the objective and expected impact of setting the tax at these levels? How have the exempted goods been chosen? How will the exemption regime mitigate the risk to businesses with a smaller voice, as well as the risk of corruption?”

The consortium of CSOs include Non-Governmental Coordinating Council (NGOCC), Civil Society for Poverty Reduction (CSPR), Jesuit Centre for Theological Reflection (JCTR), Centre for Trade Policy and Development (CTPD), Support to Older People in Zambia (STOP Zambia), Consumer Unity and Trust Society (CUTS) International, Zambia Council for Social Development (ZCSD) and Action Aid Zambia.

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