Tax refunds strangle firms

ZAMBIA has the most stringent VAT requirement practices in the world,  the World Bank has revealed.

The Bank states that  after a survey of selected exporters in the region and around the world, it was found that no other country had such stringent measures as Zambia.

This has made it difficult for local companies to enter export markets and expand their foreign sales over a period of time.

The Bank has also disclosed that Zambia suffers from  unsustainable mining practices which have  a direct impact on the  well being of citizens.

According to World Bank report “Zambia Economic Brief- Making Mining Work for Zambia” just released, the observations have added to Zambia’s challenges of poverty, economic growth and human development.

The report which was prepared by the staff of the Macroeconomic and Fiscal Management and Energy Extractive Global Practices of the World Bank Group says “Though the Zambia Revenue Authority (ZRA) revised the rules in February 2015 to allow documents from transit countries to serve as proof of export after considerable discussion with stakeholders, the requirements remained more stringent than standard practice for VAT around the world.

It says high costs of receiving refunds on input VAT makes it difficult for Zambian companies to enter export markets and expand their foreign sales over time and discourages expansion of Zambia’s non-traditional exports.

The report implored the Zambian Government to consider disputed claims as contingent liabilities in its annual budget documents.

In its efforts to combat fraudulent claims for VAT refunds, the Government of Zambia in 2013 tightened documentation requirements for exporters seeking refund.

Although some companies complied with new requirements, most exporters protested that meeting the additional requirements applied in 2013 was impractical.

Though some companies mounted legal challenges, refunds fell to 26 percent of gross collections in 2014 from 50 percent during 2012 to 2013.

On mining practices, the report says already there has been increased environmental degradation, health damages by mining companies with serious socioeconomic consequences.

It says in accordance with global good practice, mining companies must fully internalize the environmental and social costs of their operations.

“Zambia’s environmental liabilities are large. In some cases, large multinational mining companies that possess deep financial capacity have transferred licences and associated liabilities to smaller companies with limited financial capacity,

“To protect the State from having to assume these unfunded environmental liabilities, the law should require that compliance with EPF become a requisite to the issuance or transfer of mineral rights,” it says

It further states if the Government agreed to honor claims but could not repay them, they should convert those into non-transferable debt.

“Prudence dictates that the Zambian Government should consider disputed claims as contingent liabilities in annual budget documents. It should implement any agreement to repay claims transparently and fairly.

“If the agreement agrees to honor claims but cannot repay them, it should convert these either into non-transferable debt, which firms could carry on the balance sheets as assets,” it said.


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