December 16, 2003

Government to increase taxes

Finance minister Ng'andu Magande announced that the government planned to increase taxes next year, emphasising that the move would not affect "Pay As You Earn" (PAYE). According to him, increasing taxes was the only way government could raise money to fulfil its debt obligations because tax was the major source of state revenue. "We have no money. We are bankrupt, but we have a lot of programmes to finance. Already, we failed to reach the HIPC (Highly Indebted Poor Countries Initiative) completion point and we have to pay the debt," Magande informed. He added that prevailing economic conditions did not allow government to consider increasing PAYE as it would prove too much for workers. "We have heard that the economy is biting and that workers' salaries are not something to write home about. But we are working on that and that is why PAYE is not our target right now." He also said that by excluding PAYE, government would not court public disaffection. "I don't think after we announce the budget, people will go on to the streets and say we can't feed our families."

On private sector investment, Magande told that the major constraint was not lack of incentives but the high cost of capital. He also dismissed arguments that high taxes negated investment, saying that the amount of tax payable depended on how much an investor earned. Magande warned that reducing taxes would negate other sectors of the economy. He said this was why government was instead considering ways of making capital cheaper in order to encourage investment. "There are enough incentives under the Investment Act and that is why we have decided not to give special favours." He furthermore argued that incentives like tax holidays did not benefit the country as some investors decided to leave after the holiday adding that what was needed was a framework that not only encouraged private investment but also ensured that investors invested some of their earnings back into the economy.

And on the gemstone sector, Magande said the state was studying modalities of streamlining gemstones trade so that the benefits were spread across the economy. He added that government was also considering giving relief to local investors in the sector and how best to ensure that the proceeds of such relief were invested in production. (The Post, Lusaka)

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