The Centre for Trade Policy and Development (CTPD) has raised concerns about Zambia’s tax revenue performance in the first half of 2023. As the country strives to manage its public debt and ensure sustainability, the effectiveness of taxation in generating domestic resources becomes critical.
Tax revenue mobilization plays a pivotal role in Zambia’s budget financing by reducing reliance on external sources of funding, which can contribute to further debt accumulation. However, the first half of 2023 has seen unmet tax revenue targets, indicating potential challenges in domestic resource mobilization.
According to the Zambia Revenue Authority (ZRA), tax revenues in the first half of the year fell short by 6.3 percent compared to the same period in 2022. Several key taxes witnessed declines, with company tax dropping by 29.1 percent, mineral royalty by 23.2 percent, customs duty by 13.0 percent, and domestic value-added tax (VAT) by 6.8 percent. The closure of major mines, leading to reduced output, has significantly impacted their contribution to government revenue. Addressing this issue promptly is essential to prevent further revenue losses.
Furthermore, the net collection of taxes during this period registered a 7.7 percent decline, primarily attributed to reduced output in the mining sector, among other factors, affecting the collection of key taxes, such as company taxes.
In the same timeframe, VAT on imports, pay-as-you-earn (PAYE), and withholding taxes emerged as the top three contributors to total revenue, accounting for 21.1 percent, 20.1 percent, and 10.1 percent, respectively. While this represents an increase from the previous year, it also highlights an overreliance on formal sector taxation. There is an urgent need for the ZRA to extend its reach into the informal sector, encouraging its transition to the formal sector. However, high fixed entry costs into the formal sector act as a deterrent. The government should take deliberate steps to remove these barriers and boost tax revenue.
With the 2024 National budget presentation approaching this month, CTPD anticipates significant allocations to key sectors, including education and healthcare. This underscores the need for resource generation. To address this, the government should expedite the process of finalizing investors to operate dormant mines at full capacity, contributing substantially to the revenue pool. Additionally, the ZRA must enhance its tax administration and enforcement capabilities to strengthen revenue streams and improve the performance of underperforming tax categories.
The Centre for Trade Policy and Development (CTPD) is a not-for-profit, membership-based trade policy and development think tank. Established in 1999, CTPD aims to influence pro-poor trade and investment reforms at national, regional, and multilateral levels, advocating for trade as a tool for poverty eradication.