Higher domestic revenue collections are essential to Zambia’s economic recovery if current levels of government expenditure are to be maintained in a sustainable manner.
This was indicated in the latest Zambia Economic Brief, titled “Raising Revenue for Economic Recovery in Zambia”, issued by the World Bank (WB) on December 7th, 2016.
For Zambia to realize its goal of fiscal fitness, higher domestic revenue collections are essential, according to the brief.
The report suggests that the government should work to improve both tax policy and tax administration. To achieve this, the WB recommends Zambia to:
- Develop a strategy to increase tax compliance
- Scale up taxpayer focused public education campaigns
- Design and build an effective system for property tax, and
- Further support efforts to improve transparency in monitoring the country’s mineral value chain
“There remains a need to look closely at ways to improve revenue collection so that economic recovery will be expedited, growth itself can be made more inclusive to support households’ escape from poverty, and to ensure that prosperity is better shared in Zambia,” said Ina-Marlene Ruthenberg, World Bank country manager for Zambia.
The WB notes that Zambia needs to calibrate carefully how much revenue is required for its development goals and to ensure this analysis feeds into the revenue policy and the administration of taxation.
Zambia Revenue Performance
The WB notes that between 2004 and 2014, Zambia has emerged from being a country with a high aid dependency to one where in 2015 grants provided just 1.4% of revenue compared to 98.6% domestic revenue, earned largely through taxation.
Revenues increased in real terms as the economy grew from the early 2000s and by 2013, domestic revenue had reached 16.9% of GDP.
It then rose to 18.2% of GDP in 2014 and 18.5% in 2015. In 2016, revenues were targeted to reach 20.1% of GDP, but as growth and trade slowed, so did VAT and customs receipts. The forecast for 2016 is 17.9% of GDP.
Income tax has provided the largest share of domestic revenue since 2000, reaching approximately 38% in 2015. The amount collected has grown by 231%, in real terms, since 2000.
VAT collections have grown by 59%, in real terms, since 2000 and provided 25% of Zambia’s domestic revenue in 2015.
Non-tax revenue, which includes mining royalties, grew slowly in the 2000s. However, since 2010, it has grown by 40% per year on average (albeit from a low base), as mining firms have produced more and improved their tax compliance.
In 2016, a large increase in non-tax revenue was projected through the enhanced collection of fees and fines.
The Zambian Minister of Finance, Felix Mutati, has set a revenue target of at least 18% of GDP in 2017, with the aim of limiting the fiscal deficit to 7% of GDP while dismantling some of the arrears that built up in 2015 and 2016.