Govt presents K106bn budget, abandons Sales Tax

FINANCE minister Dr Bwalya Ng’andu yesterday presented a K106 billion national budget for 2020 representing 32.4 per cent of the country’s gross domestic product.

Meanwhile, the PF government has abandoned its intention to replace VAT with Sales Tax by addressing the compliance and administrative challenges of Value Added Tax administration.

Dr Ng’andu said for the 2020 budget in which the government expects to raise K106.0 billion, K53.8 billion will be from taxes, K18.2 billion from non-tax revenues, and K3.1 billion would come as project support grants from cooperating partners.

In addition, he said domestic financing accounts for K3.5 billion while K27.5 billion would be sourced externally.

He called for minimising the cost of running government; halting the accumulation of domestic arrears and prioritising the dismantling of the current debt stock to unlock liquidity and stimulate economic activity in the country; using off balance sheet financing model such as Public-Private Partnerships; re-scope some works in the road sector from bituminous to gravel in order to reduce costs; and revising the public procurement Act to provide for reference pricing and strengthen oversight for high value procurements.

To address the challenge of domestic arrears, Dr Ng’andu said government would slowdown external debt contraction; postpone or cancel some pipeline loans; cease the issuance of guarantees; and refinance existing loans.

“Mr Speaker, as a key strategy to stimulate economic activity, I have increased the allocation towards dismantling of arrears to K2.3 billion in 2020 from K437 million in 2019. Further, government will reduce borrowing from the domestic market to 1.1 per cent of GDP from 1.4 per cent of GDP in 2019,” he said. “Sir, the fiscal deficit is projected to reduce to 5.5 per cent of GDP in 2020 from 6.5 per cent in 2019.”

Dr Ng’andu allocated K44.1 billion for General Public Services.

Notable expenditures under this category include K33.7 billion fort debt obligations and K2.3 billion for dismantling of arrears to unlock the much-needed liquidity in the market.

There is K1.2 billion for Local Government Equalisation Fund and K249.6 million for Constituency Development Fund.

He allocated K636.0 million towards redemption of the Eurobond.

“Sir, I have also allocated K135.0 million towards voter registration and other election related expenditures. For any unforeseen and unavoidable expenditures, I have allocated K100.6 million. I have also allocated K100.0 million to the Compensation Fund,” Dr Ng’andu said. “Mr. Speaker, I propose to spend K21.8 billion under Economic Affairs function. Of this amount, K10.6 billion is for road infrastructure, K1.1 billion towards Farmer Input Support Programme and K660.0 million towards the purchase of strategic food reserves.”

He allocated K9.4 billion for health, an increase of 16 per cent from the 2019 allocation.

“Of this amount, I propose to spend K5.0 billion for primary health service delivery which includes health promotion, disease prevention and treatment. Further, K2.9 billion has been allocated for hospital services such as curative, rehabilitative and palliative care services,” he said.

Government would spend K900.6 million for the procurement of essential drugs and medical supplies.”

Government proposes to spend K2.6 billion on social protection, of which K1.0 billion would go towards paying retirement benefits to public service workers to reduce the waiting time between retirement and receipt of benefits.

Government proposes to spend K11.6 billion on Defence, Environmental Protection and Recreation, Culture and Religion.

He said the government had listened to various stakeholders’ concerns over the proposed introduction of Sales Tax by introducing administrative measures to strengthen enforcement and efficiency of VAT.

Dr Ng’andu intends to upgrade the taxonline system for domestic taxes and interface it with customs system to ensure that all claims of refund for import VAT paid to Customs Services during import of goods are validated through systems based controls against data in the customs system. Government would make mandatory the use of Electronic Fiscal Devices (EFD) for VAT and other tax types and facilitate accreditation of additional EFD distributors and Virtual EFD software suppliers and vendors.

Other measures include enhance Data Analytics and bulk data matching with third party institutions such as Patents and Company Registration Agency, Ministry of Lands and Natural Resources, NAPSA, ZESCO and the Zambia Public Procurement Authority; and augment and ensure timely audits of VAT claims, including outsourcing services of external forensic auditors whenever necessary.

“Mr Speaker, I further propose the following measures: Zero rate capital equipment and machinery for the mining sector; Standard rate ancillary services that are directly linked to

the transit of goods through Zambia; Disallow claims of VAT on consumables such as stationery, lubricants and spare parts.

This measure will not apply to businesses for which these consumables are stock in trade; limit input VAT claims by mining companies on diesel to 70 per cent from 90 per cent; and limit input VAT claims by mining companies on electricity to 80 per cent from 100 per cent,” Dr Ng’andu announced.

He zero rated copper cathodes sold locally in line with government’s industrialisation and job creation agenda.

All these measures take effect on January 1, 2020.

He proposed suspending import duty, for three years, on the importation of machinery for processing of solid waste to generate electricity and produce organic fertilisers.

To mitigate the effects of climate change and air pollution, he proposed to increase carbon tax on all motor vehicles entering Zambia by 20 per cent.

“Mr Speaker, for government to have resources required to meet our development needs, every citizen must pay their fair share of taxes. I therefore appeal to all my fellow citizens to be tax compliant. To tax evaders, be warned that the long arm of the law will soon visit you,” said Dr Ng’andu. “Sir, corruption is against our core national values and will not be condoned. Sir, in unity, no challenge is insurmountable. Together we must emerge stronger from the current challenges. Together we can do it.”

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