With nearly a decade to go before we arrive at Vison 2030, the envisioned performance of Zambia economy has been restrained with GDP growth averaging 4%, which is still below the 8% threshold needed to drive sustainable growth. Likewise, the growth of the Manufacturing sector has been constrained, averaging at 4% and contributing an average 8% towards GDP over the past 10 year.
A number of factors have contributed to this state of affairs including but not limited to; the high persistence of illicit trade on the Zambian market, high fuel costs, energy deficits, increased taxation, higher wage bills, high interest rates which have limited access to affordable financing for investment/re-investment, and unpredictable and inconsistent policy reforms. These challenges have exponentially increased the cost of doing business and led to cost reduction measures by manufacturing firms such as downsizing, relocation of operations, and even closures.
Considering these challenges, the 2021 National Budget Submissions made by the Association call for the review of our tax policy to ensure its alignment towards supporting and stimulating business growth and sustainability, as well as spurring export growth and employment creation.
Cross Cutting Concerns:
- Medium Term Stability: The 2021 Budget must ensure stability in the macroeconomic environment through adoption of medium-term reforms. These measures must ensure low inflation rates, exchange rate stability and minimized fiscal deficits. Budget reforms in line with the Economic Stability and Growth Plan (ESGP) and Medium-Term Expenditure Framework (MTEF), must be consistent with existing policy instruments such as National Investment Policy (NIP), National Trade Policy (NTP) and the Seventh National Development Plan (7NDP). To this end, in his inaugural Budget Address last year, the Hon. Minister of Finance – Dr. Bwalya Ngandu did commit to conducting a Comprehensive Tax Policy Review in the year 2020. Granted, the year has presented various challenges of its own with respect to the onset and impact of the COVID-19 Pandemic on the coffers, further exacerbating the need for a comprehensive review to inform tax and fiscal policy development and implementation going forward. Tax Policy and its effective administrative is critical to the renaissance of the Zambian economy and will contribute to Zambia’s quick economic recovery post-COVID. Policy consistency and coherence therefore remain key measures for consideration in the 2021 National Budget through the maintenance of predictable tax regimes in all sectors and an active consultative process with the private sector.
- Reduction in Business Costs: The 2021 budget must ensure reduced business costs for our domestic producers and manufacturers to enhance their competitiveness and ensure their survival. This will require reductions in the cost of doing businesses i.e. through reduced corporate taxes for manufacturers from 35% to 15%, as well as reductions in import duties on production inputs, and licensing fees.
- Promotion of Local Sourcing: In line with the Proudly Zambian Campaign promoting the consumption of the locally manufactured products, the 2020 budget must support the Local Content Strategy (LCS) by prioritizing public procurement of local products and actualizing this commitment. Amendments to the Zambia Public Procurement Act (ZPPA) must ensure that preferential procurement and reservation schemes spur the growth of industry to globally competitive levels.
- Export Promotion: With the emergence of AfCFTA, Zambia must maximize its land-linked connectivity and exploit its comparative advantages. This entails safeguarding domestic industry from external dumping while accordingly upscaling domestic competitiveness. This requires an enabling tax policy that supports the development of globally competitive non-traditional exports which can compete favourably in regional and global markets. This requires a review and subsequent updating of the strategy with respect to the development of Multifacility Economic Zones (MFEZs) and Industrial Parks to ensure that domestic value chains are strengthen and contribute positively to employment and wealth creation.
- Promotion of Domestic and Foreign Direct Investment (FDI): Both Domestic and Foreign Direct Investments (FDI) must be equally encouraged, through incentives that support Greenfield, Brownfield and Start-up capacities by compensating for capital investments i.e. Tax holidays, Tax waivers on Capital equipment and investments in infrastructure. In this regard, the tabling and enactment of the following key legislation is critical to setting a clear direction with respect to the nature and structure of incentives for growth with respect to domestic and foreign investors, as well as their administration; the Zambia Development Agency Bill (ZDA Bill) and the Investment, Trade and Enterprise Development Bill (ITED Bill).
We look forward to active participation in the 2021 National Budget Consultative Process.
By; Chipego Zulu – Vice President (South)
