The Zambia Association of Manufacturers has noted with concern the enactment of Statutory Instrument Number 90 of 2019 which became effective on 1st January 2020 which will have negative and substantial impact on the private sector as a whole
ZAM Vice President South and Spokesperson Chipego Zulu says whereas the SI aims to address compliance and administrative challenges of the VAT regime, it is notably similar to the proposed Sales Tax of 2019 with regards to its inflationary nature which will and has in the immediate to medium term resulted in higher costs of production and access to services such as transportation.
Ms Zulu says in the medium to long-term, the effects of the statutory instrument will translate into higher commodity prices and the inability of Zambian firms and businesses to compete both in domestic and regional markets.
She said currently Manufacturers are disallowed from claiming VAT on lubricants, spare parts, stationery, office furniture, office equipment, office repair and maintenance, office lighting and air conditioning, office cleaning services and ambiance, repair and maintenance of motor vehicles, accommodation in hotels and similar establishments, subscription for cable television service, hiring of transport, transmission belts, parts of converters, parts of machinery, transmission shafts, parts of transformers; and parts of electrical machines.
Ms Zulu said the list of consumables contains critical inputs to the manufacturing process and the SI therefore effectively negates the positive strides that have arisen from policy interventions in the past that sought to make items such as spare parts more affordable and therefore reduced the cost of production.
She said the implementation of this instrument increases the cost to companies making them uncompetitive and, in some cases, unprofitable.
Ms Zulu added that whereas it is appreciated that the intention of the statutory instrument is to increase Tax Revenue Income to the Treasury amidst the challenging 2020 economic landscape, in the absence of measures to reduce the tax burden on the private sector and stimulate growth through adequate consultation and the adoption of pragmatic and effective solutions, ZAM expects to see constrained growth in the short to medium term.
She said this is arising from Business costs increasing by approximately 20% and it is estimated that on average 20% of previously claimed Input VAT by manufacturers will be unclaimable in 2020 with a significant negative cost impact on businesses.
Ms Zulu said must be underscored that an estimated 80% of Input VAT that will not claimed is made up of Transport and Spares for most manufacturing firms.
She said prices increasing by approximately 10% and this will have significant implications on the already high cost of living in addition to ensuring that the country breaches the 2020 inflation target of 6-8%.
Further, Ms Zulu said Growth of illicit markets, significant price differentials between locally manufactured and imported products arising from measures such as SI 90 will promote the growth of illicit markets as consumers will adjust to source cheaper and/or more affordable products that are likely to be bought from illicit markets.
She said this will reduce the size of legitimate sources of revenue collection owing to the creation of an unlevel playing field, thereby making domestic resource mobilization more challenging.
Ms Zulu lamented that this is contrary to the aspiration of the Ministry of Finance, and indeed the Zambia Revenue Authority.
She said high costs of production and unconducive business environment is likely to lead to the closure of firms resulting in higher levels of unemployment and reduced
contributions to PAYE, NAPSA amongst other taxes contrary to the intention to expand the revenue base by disallowing Input VAT claims on consumables.
Ms Zulu said in the medium to long-term, businesses may change their business models to that of Traders and Distributors as opposed to Value Adders because SI 90 discourages value addition by allowing traders to claim VAT, whilst value adding firms such as manufacturers are unable to do so.
In a statement Ms Zulu added that this contradicts the aspirations of the 7th National Development Plan as well as Vision 2030 which seek to diversify the Zambian economy with growth being underpinned by value addition.
She said stimulating the growth private sector in the current context of the Zambian economy is indeed a significant challenge, but it is not impossible.
Ms Zulu said the Statutory Instrument No. 90 is extremely retrogressive for the manufacturing sector and highly unlikely to stimulate the much-needed growth at a time when the private sector needs to perform.
She has since called for the REVOCATION of SI 90 until such time as the noted challenges above are addressed.
She has also called on the Ministry of Finance to establish effective platforms for dialogue and consultation with the private sector on this and other cross-cutting issues towards the creation of robust and sustainable solutions to the challenges the Zambian economy is currently facing.
One step forward 5 steps backward kind of thinking. This will definitely kill the manufacturing sector. We ‘re already thinking of moving the factories to Malawi towns near the Zambian border and smuggle our own goods back into Zambia. Watch this space.
Actually surprised how locals transporters never argued this SI . its very damaging. i had a chance to face ZRA and the officer gave somehow a good advise to reengage Ministry of Finance maybe to give a relief about maybe 70 %
Zambia under Chagwa has fallen asleep! By the time we wake up, most factories will be gone to Ghana, Malawi and Tanzania!
The worst this government is non for is lack of consultation. They have a tendency to introduce something and then back peddle. This makes them to be chipante pante and that is not good if you want to win investor confidence. Tax laws should be stable and predictable not catching people by surprise as if it is cho chise.
“Known”
You people you’re amazing. You oppose every tax measures government wants to put in place. Sales Tax is the best tax system that would help government with revenue. USA, India, Canada are among the best performing economies today because businesses don’t defruad these governments using dubious vat claims. Just manage your operations costs. Invest in technology video conferencing instead of spending money on hotels, travel allowances and ware and tear of vehicles. Just one example. Actually I was very disappointed when Mr Ngandu shelved Sales Tax.
What is wrong with this govt? the more you squeeze the private sector the more it affects the govt, look at the lack of money to pay govt workers for example. the idea for the SI may not be bad but the timing is wrong? right now the govt needs to implement strategies that will begin to uplift the economy and once the economy is on the rise thats when they can bring the SI into force. implement ideas or plans that will stir up investment in the country, once investment comes in it will create employment and boost the monetary aspect of the economy. i know the govt is feeling the pressure of trying not to default on its foreign loan obligations but they need to find a balance that does not adversely affect the private sector and govt in meeting their goals. squeezing the private sector will…
squeezing the private sector will adversely shrink the current tax revenue pool and no amount of borrowing will be enough for govt to meet its developmental obligations as well as its obligations to the workforce in the govt.
Very progressive move, MOF. These foreigners will complain about everything. They give their unqualified relatives 10 times what they would pay a Zambian professional in very biased and unprofessional work environments. Time to pay what’s due to Zambians!!
So we have an Association of Manufacturers in Zambia? Trade King must be their boss and I believe bullies them. Can this association explain why no single company can manufacture simple buttons for our garments?