Reform VAT System – ZAM

Zambia Association of Manufactures (ZAM) has called on government to reform the Value Added Tax (VAT) system and address backlog of refunds to ensure improved compliance and reduce the fiscal deficit to 3 percent by 2026.

In his presentation during the ZAM Post Budget meeting, Association President Ashu Sagar said the sector’s contribution to Gross Domestic Product (GDP) has stagnated between 6 percent and 9 percent due to volatile exchange rates, and challenges associated with Zambia Revenue Authority (ZRA) Smart Invoice Compliance.

Mr. Sagar stated that other factors include burdensome license and permit requirements, export barriers from neighboring countries, high energy costs, late disbursement of the VAT refunds, and increased regulatory pressure from Bank of Zambia.

“The processing time of VAT refunds rose to 845 days in 2023 against a ZRA Charter of 30 days. This is a major concern for the Zambian manufacturing sector.”

“To resolve this, it is recommended that VAT refunds be treated independently from the budget and processed based on risk,” Mr. Sagar proposed.

Mr. Sagar further noted that the absence of tax concessions in the 2025 national budget is likely to slow industrial growth, reduce foreign exchange investment and weaken the competitiveness of Zambia’s manufacturing sector.

He added that businesses are already struggling due to the severe drought and persistent load shedding.

Mr. Sagar also expressed concern over the increased excise duty on non-alcoholic beverages to K1 per litre from the current 60 Ngwee.

“This measure will increase production costs in the non-alcoholic beverages sub-sector. It is recommended that Excise Duty for domestic producers be maintained at 60 Ngwee per litre in 2025, while Excise Duty on imports be charged at K1 per litre to protect local industry.

“Automatic annual adjustment of Excise Duty on Tobacco products, fuel, and used motor vehicles, indexed to the average inflation rate of the preceding year with a cap of 20 percent,” he stated.

He however said the introduction of 5 percent Selected Goods Surtax (SGS) on imported printed paper products and packaging materials of HS Code 4819.20.00, will encourage domestic production and create opportunities for growth in Zambia’s packaging sector.

Meanwhile, Ministry of Finance and National Planning, Permanent Secretary-Budget and Economic Affairs, Mwaka Mukubesa acknowledged the Association’s request on the need for some of the incentives including, reducing excise duties, import surtax, and customs duties on various raw materials and machinery used in manufacturing.

Mrs. Mukubesa indicated that the 2025 budget was generally non-concessional due to the revenue mobilization agenda to achieve fiscal sustainability.

“Moreso in light of the need to increase domestic revenue collections to service the restructured debt, among other expenditure needs. however, the government is committed to ensuring a conducive and predictable tax environment to support private sector growth,” Mrs. Mukubesa said.

She assured that on the expenditure side, crucial investments will be made in key enablers of growth that will benefit the entire Zambian economy.
Mrs. Mukubesa said tgovernment is ramping up its efforts to improve the country’s road infrastructure that will ultimately bring about growth.