PRESS RELEASE

22nd September 2021

The Zambia Institute for Policy Analysis and Research (ZIPAR) has welcomed the Government’s commitments to reducing the fiscal deficit by containing spending and increasing revenue which it says will minimise excessive deficit financing, which led to rising inflationary pressure and excessive public debt accumulation, translating into huge debt servicing costs. The excessive debt and debt servicing cost set the economy off the desired course. However, ZIPAR is concerned that the current tax system is archaic and simplistic and will require overhauling to increase tax revenue, while new innovations will be required to enhance non-tax revenue.
Commenting on President Hakainde Hichilema’s speech at the ceremonial opening of the 1st session of the 13th National Assembly, ZIPAR Executive Director Dr. Herrick Mpuku is concerned that inspite of reforms in taxation, government revenue as a proportion of GDP has only increased from 18.4% in 2007 to only 20% of GDP in 2020. On the other hand expenditure has grown as a proportion of GDP from 23.4% to 37.1% over the same period. As a consequence, the budget deficit has risen to unsatisfactory levels at 14.5% of GDP in 2020, which is way above the prescribed threshold under the Fiscal Convergence Programme in the Common Market for Eastern and Southern Africa (COMESA) where the standard for Government budget deficit is set to 3%.
Dr. Mpuku points out that Government should institute deliberate measures to increase tax and non-tax revenue. He observes that there are only three tax bands under PAYE with a very low tax-free threshold. The top rate tax is attained at a very low level of income of K6900 per month and the disincentive effect of such a tax system is obvious and undermines economic productivity.
For this reason, Dr. Mpuku suggests that the Government should overhaul the tax system to minimise its impact on the low-income earners and harness the income potential of the high-income earners. Government should raise the minimum tax-free threshold and provide for a greater number of tax bands, which rise, with the top rate of tax being attained at high-income levels.
He adds that the proposed restructuring of the tax system will improve tax compliance from the current 60% to higher tax revenues. Additionally, such measures should be coupled with a careful analysis of the magnitude and operations of the informal sector with a view to capture a significant section of unrecorded taxable earnings.
Other aspects of taxation such as the mineral tax require review to ensure capture of the windfalls from high and anticipated rising copper prices in the future.
Other aspects of the speech analysed by ZIPAR include:
Micro, Small and Medium Enterprises (MSMEs): The President has declared Government’s commitment to the promotion of the MSMEs by establishing a dedicated ministry for this sector. ZIPAR welcomes the new ministry but emphasises that the role of this ministry is to articulate the overarching policy framework for sustained support to the MSME sector. This policy framework must embrace financing, business mentoring, capacity building, research and development, government procurement and business linkages pertaining to MSMEs.
ZIPAR’s view is that this Ministry must oversee and coordinate the execution of policy by dedicated service public institutions such as CEEC, DBZ, ZDA already operating in the areas of finance, business mentoring and training, research and development among others. The Ministry should therefore, not get involved in the direct provision of these services but monitor these institutions to ensure attainment of policy and development goals.
Additionally, Government must also review the whole MSME support framework to rationalise it and ensure that the necessary support reaches the various sections of the population across the country and especially women, youth, disabled and other disadvantaged groups in the most cost-effective way. Efforts must also be made to draw in private sector financial and business development service providers to improve services to the sector.
The growth of MSME sector should also lead to contributions to government tax revenue in the long term.

Issued by: Euphrasia Mapulanga Knowledge Manager-ZIPAR.
For Zambia Institute for Policy Analysis and Research
Contact: 0211 252559/0977 445864, Email: emapulanga@zipar.org.zm

Notes to Editors

1. This press release provides ZIPAR’s perspectives on some of the key pronouncements contained in President Hakainde Hichilima’s speech at the ceremonial opening of the 1st Session of the National Assembly. The aspects analysed in this note are not exhaustive of the key pronouncements in the President speech.
2. ZIPAR is a socio-economic think-tank whose mandate is to conduct research and policy analysis. ZIPAR was established by the Government Republic of Zambia (GRZ) with the support of the African Capacity Building Foundation (ACBF).