The Zambia Tax Platform (ZTP) notes that the Zambia Revenue Authority (ZRA) did not meet its total revenue collection target for 2022 despite the treasury recording an increase in collected gross revenues amounting to K106.6 from K96.3 billion in the previous year. ZTP also notes that total refunds increased by 31.6 percent amounting to K16.3 billion from K12.4 billion in 2021. In 2022, ZRA under-collected net revenues by 0.8 percent compared to 2021 when net revenues exceeded their annual target by 46 percent. While the two years had different approved targets with 2021 having a lower target, the under-collection of tax revenues in 2022 raises concerns for the 2023 target which is higher.
In 2022, ZRA registered good performance in Company Tax by over 28.2 percent and also increased compliance by taxpayers which resulted in tax revenues exceeding the approved target by 2.1 percent in 2022 compared to 33.3 percent in 2021. However, Value Added Tax (VAT) and Excise Duties underperformed on account of the extension of tax concessions on fuel. There was also an under collection of non-tax revenues by 17.2 percent in 2022 compared to 2021 where ZRA collected non-tax revenues in excess of 111.7 percent of the approved target. This under-collection was mainly due to lower collections in the mining sector.
According to ZRA, jointly, mining and quarry, wholesale and retail trade, manufacturing, financial and insurance activities, and public administration and defense have contributed an average of 75 percent of the gross collections over the past three years. As ZTP, we are concerned that Pay-As-You-Earn (PAYE) and VAT remain among the major contributors to tax revenues at 20 percent and 16.3 percent respectively. VAT is a regressive tax and as the cost of living continues to rise in the country, the tax burden increases. According to the Jesuit Centre for Theoretical Reflection (JCTR), the cost of living remained above K8, 500 by the end of 2022. Similarly, PAYE puts the tax burden on individuals compared to taxes like corporate income tax.
The Ministry of Finance and National Planning (MOFNP), notes that the underperformance of non-tax revenue in 2022 were mainly on account of lower collections on mineral royalties due to low copper prices and production levels. Mining Company Taxes accounted for 13.5 percent and Mineral Royalty Tax accounted for 11.6 percent of tax revenues which still indicates that the mining sector remains a significant contributor to revenue performance in the country.
As ZTP, we encourage ZRA to stay committed to the implementation of tax reforms for 2023 such as those aimed at strengthening tax compliance and administrative capabilities. To this end, ZRA and MOFNP should monitor and evaluate the performance of tax policy measures and incentives especially those applied in key sectors including mining and energy sectors. This will be critical in minimizing potential revenue losses. ZTP further encourages ZRA to strengthen the fight against all forms tax evasion. Government should also continue working towards reducing tax leakages by reviewing and possibly canceling outdated and inefficient double tax agreements.
Peter N. Mumba (Mr)
Social Economic and Investment Monitoring Analyst