Patriots for Economic Progress Present Alternative Budget for 2018
The Patriots for Economic Progress – PEP an upcoming political party on 20 October 2017 presented an Alternative Budget which party President Sean Enock Tembo said was aimed at completing the gaps the honourable Finance Minister Felix Mutati’s budget had. This was exactly 21 days after Zambia’s Minister of Finance presented the 2018 National budget. This was the first time ever since the late UPND president Anderson Mazoka – MHSRIP- ever presented one as political party president. The budget was to be followed by a dinner function at Radisson Blu where the Minister of Finance Honourable Mutati would be guest of honour.
Key take away from the PEPs alternative budget include:
REFORMS RELATED TO TAX REVENUE
The Patriots for Economic Progress proposed sweeping reforms in tax administration system, which will seek to ensure tax efficiency, tax effectiveness and tax equity. Tax efficiency looks at minimizing the percentage cost of collecting K1 of tax. On the other hand, tax effectiveness looks at the ability to collect tax as measured by the tax-revenue to GDP ratio which is one of the lowest in the region standing at about 17%, compared to 26% for South Africa, 25% for Namibia, 25% for Botswana, 27% for Lesotho, 23% for Zimbabwe etc. On the other hand, the tax equity looks at fair contribution to the national tax pool by all economic players, commensurate with their financial standing.
Patriots for Economic Progress proposed two key adjustments to Pay as You Earn - PAYE tax. i) Firstly, PEP proposed to increase the tax-exempt amount to ZMW5, 000 so that anyone with a total gross salary of ZMW5, 000 should be exempt from paying tax.
ii.) Secondly, we propose to abolish all tax bands for PAYE and instead have a flat tax rate of 25%. This is in line with our belief that citizens who work harder and earn more should not be penalized for their hard work with a higher PAYE tax band, but instead rewarded. The existing tax framework for PAYE actually encourages laziness among our people penalizes hard work. We cannot hope to prosper as a nation with such a lopsided tax framework.
Patriots for Economic Progress proposed to make two major adjustments to the Corporate Income Tax framework. Firstly, we propose a single corporate tax rate for all income sources with the exception of income from agriculture and mining. Secondly, the across-the-board corporate tax rate shall be 25%, including for financial services sector entities such as banks, which are currently taxed as high as 40%, which for all intents and purposes is retrogressive as it inhibits growth. The Patriots for Economic Progress proposed to reduce the rate of Value Added Tax to 12% from the current 16%. Being a tax on the final consumer, they believe that the Zambian consumer is already heavily taxed through other indirect means, hence the need for some relief.
With regard to the mining sector, the Patriots for Economic Progress proposed the abolishment of corporate income tax, to be replaced with a Mining Turnover Tax (MTT) based on gross sales, at 11.5% for open pit mines and 9.5% for underground mines. This measure will help address the problem of tax avoidance by mining companies and ensure that they fairly contribute to the tax pool of this Republic. Other mining taxes will remain unchanged. It is worth noting country men and women that when our copper mines were being run by ZCCM, they contributed an average of 26% to the national tax pool and ever since the copper mines were privatised, they have been contributing an average of 4% to the national tax pool.
This situation is untenable and can no longer be allowed to continue.
With regards to non-essential products, the Patriots for Economic Progress proposed an additional special tax of 20% for all alcoholic beverages, an additional special tax of 35% for all processed tobacco products, an additional special tax of 10% on all gross proceeds from gambling by gambling facility owners, an additional special tax of 5% of all gambling winnings by gamblers.
REFORMS RELATED TO DEBT MANAGEMENT
The PEP stated that the issue of national debt needs to be properly managed as it can easily cause the collapse of our economy. The primary reason why our economy stagnated in the 20 year period between 1983 and 2003, is because we were in a debt trap and it took the completion of the HIPC program for our debt to be forgiven and for our country to get out of the debt trap that we had been in for 20 years. A debt trap is a situation in which it is impossible to repay a debt because available revenue barely meets the interest payments on the debt and is not enough to amortize the principal amount. A debt trap can easily lead to a debt default. The PEP believe domestic debt stands at about $3 billion and project finance debt stands at about $31 billion thereby bringing national debt to $42 billion.
The PEP explained the difference between the debt Zambia contracted in the 1980s which was later forgiven, and the debt that is being contracted now, is that the current debt is being contracted largely from profit-seeking corporate entities while the debt we contracted in the 1980s was from rich sovereign nations whose moral guilt caused them to forgive our debt. It must be emphasized that profit- seeking corporate entities carry no moral guilt and it is therefore unlikely that debts such as the Euro Bond shall ever be forgiven. The question that we must begin to contemplate is what will happen to Zambia when we default on our debt obligations? For starters, our properties abroad will be seized.
Patriots for Economic Progress proposed an immediate freeze on any additional contracting of debt for this country in order to pragmatically deal with this issue of our deteriorating debt levels as a nation.
REFORMS RELATED TO FISCAL MANAGEMENT
The PEP highlighted lack of fiscal discipline remains an issue of great concern when it comes to the prudent management of our economy. It has become a common feature in the national budget that items in the budget are not funded and yet items not budgeted are funded. This practice defeats the very essence of budgeting in the first place.
The PEP proposed that the Minister of Finance must prepare and submit a report to Parliament outlining the extent to which the previous year’s budget was implemented, before presentation of the National Budget. Such a measure would ensure that the Minister of Finance is held accountable on non-adherence to the provisions of the budget.