Zambia Postpones New Sales Tax Again After Inflation Surges

By 

Matthew Hill and Taonga Clifford Mitimingi 

2 August 2019, 13:41 BST

 

Zambia for the third time this year deferred plans to introduce a new sales tax that’s stoked fears of pushing up inflation which is already near a three-year high. 

The levy, which will be non-refundable and will replace the current value-added tax, will now only be introduced in January and not next month as planned, Finance Minister Bwalya Ng’andu told lawmakers in Lusaka, the capital. The delay will allow the government to address concerns over the new system, he said Friday.

Groups including the Zambia Institute for Policy Analysis and Research have warned the new system could hurt economic growth and send inflation higher. Consumer prices rose 8.8% in July from a year earlier, the fastest pace since November 2016, and may surpass 10% by year-end, according to Irmgard Erasmus, an economist at NKC African Economics. The mining lobby group in Africa’s second-biggest copper producer has also criticized the sales-tax plans. 

Ng’andu was appointed as finance minister in July after President Edgar Lungu removed Margaret Mwanakatwe from the post. 

Read more about Ng’andu’s plans to restart talks with the IMF 

Debt Oversight

The government also on Friday presented a bill to parliament that proposes a change to the constitution to remove a clause that gives parliament oversight over government borrowing. While there may still be room for lawmakers to supervise the state signing new loans, the amendment is worrying for a nation that the International Monetary Fund has already said is at high risk of debt distress, according to Amanda Shivamba, regional advocacy program officer at the Southern Africa Litigation Cente in Johannesburg. 

“Definitely, from a legal perspective this would not look good to the international community,” she said by phone. “If there aren’t checks and balances and there isn’t a separation of power, where too much power is concentrated in the executive, the country can find itself in too much debt and find it very difficult to get out of it.” 

Zambia’s debt has already more than doubled over the past five years to $10.2 billion by June, while 2019 growth is forecast to slow to the slowest pace this century. Yields on the nation’s dollar debt this year soared to above 20% as investors fret over the nation’s ability to repay. The finance ministry didn’t immediately respond to a request for comment. 

Other key changes in the constitutional amendment bill include: 

The re-introduction of the position of deputy ministers, which the Law Association of Zambia said is too costly 
Providing for a coalition government, where there is no such provision under the current constitution 
Removing the mandate of the central bank to issue Zambia’s currency. The bank’s role won’t change in this regard, and a new Bank of Zambia bill will be presented in parliament that will include the function of issuing currency

@Bloomberg

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