Talking Tax

Last week the Zambia Revenue Authority (ZRA) hosted a Taxpayers Appreciation Day which also marked the end of the business financial year.

The event served to discuss various issues pertaining to tax collection by the ZRA, and to recognize good and consistent tax payers that would be role models for the private sector to encourage voluntary compliance.

It was with this spirit that the ZRA chose to register the theme ‘Recognizing and Encouraging Voluntary Compliance in Revenue Collection’.

The Taxpayers Appreciation Day carried to the private sector various messages which included government’s intolerance to tax evasion and corruption, in addition to recognition that domestic taxes were increasingly growing each year and now accounted for 70 percent of the national budget.

Encouraging pronouncements highlighted the initiatives by the ZRA in establishing a Large Taxpayers Office (LTO) and the Medium and Small Taxpayers offices.

Other interesting programs pursued by the ZRA are the ongoing internal Integrity Committee that focuses on professional conduct of ZRA officers, and the newly introduced electronic payment solution that operates on a commercial banking platform that allows taxpayers to make on-line payments to Customs for taxes in respect to imports. This e-payment facility is open to all importers big or small, and will soon be offered by several commercial banks that would like to provide the service to their customers.

The ZRA has come a long way since their establishment just over 15 years ago. ZRA officers are slowly beginning to be recognized as any other organ of the government machinery, as opposed to the old days when they were labeled an unquestionable extortionist force that preyed on the hard working business person.

The pace at which the ZRA is moving may be too slow to realise the government’s desire to motivate voluntary tax compliance which will rely on taxpayers and all citizens filing tax returns at the end of the financial year as is common in most developed economies.

There is reason for ZRA to fast track voluntary compliance through some pro-active initiatives that will encourage registration for tax and hassle free compliance. It must be recognized that tax registration does not necessarily result in tax payments. This has been acknowledged by the ZRA but it is also generally accepted that tax evasion is much worse than tax delinquency where taxpayers acknowledge that they owe specified taxes to the ZRA but do not have the cash in hand to make the required payments. A payment plan can always be developed to liquidate the debt to ZRA on a negotiated and manageable timetable.

There is a desire to prevent tax evasion, and to encompass the informal sector in the tax base. These goals suggest that the ZRA would incur lower costs in tax collection, and that the formal sector would be less pressurized to pay taxes that are necessary to finance the national budget.

In other words, if more people and companies paid tax, then the tax burden on each person or company would be less. This is a desirable goal especially for the existing taxpayers.

Government has made calls for the ZRA to establish Stakeholders Forums which would become a platform for taxpayers and the ZRA themselves to dialogues, debate, and formulate tax collection policies, procedures, and processes.

These wish lists from government and the ZRA require some investments that will develop the required attitude and culture from both members of the public and private sector, and the tax collection system itself.

First, the ongoing initiatives to simplify tax collection and payment systems are commended.

Second, the efforts in keeping the tax collection machinery in the ZRA operating on professional lines are helpful and go a long way to building partnerships between the taxpayer and the ZRA.

Third, the Revenue Appeals Tribunal has been a positive vehicle for recourse to be accessed by taxpayers that feel the ZRA has treated them unfairly.

Fourth, the establishment of a Stakeholders Forum will be useful in bringing out tax issues faced by the public and private sector, and will also assist the ZRA to communicate more effectively with the taxpayers that they serve.

Fifth, many countries in the region and more prominently South Africa, offer tax amnesties from time to time. These amnesties motivate delinquent taxpayers and tax evaders to clean up and re-register with the aim to be only tax compliant, and to actually pay the taxes that are due. The reasoning behind this initiative is that if a company is operating outside the tax net then they will stay there for as long as they can until they finally liquidate the business to avoid the penalties that may befall them if discovered by the tax authorities. As a result, many companies are voluntary deregistered and many more companies are newly established without the credit worthiness of longer established businesses. These new companies find that they cannot borrow from the banking sector and the country suffers from much slower economic development. The tax amnesties remedy this by allowing the wiping off of the books, and a fresh and committed start is offered to businesses that can keep their business track records and there after become better taxpayers with a more rapid growth rate. ZRA would do well to consider this option to widen the tax base within the formal sector.

Sixth, the challenge of bringing the informal sector into the tax system is no small achievement. It also comes with a price. The price is that if every small trader and individual will pay some form of tax, then the government had better establish a very good system for service delivery to the public which will be the benchmark for returns to the public for tax paid. Demanding tax in itself suggests that the level of accountability to the public will also have to improve to avoid the entire initiative being ignored and undermined by the general public.

Several mechanisms and options are available for collecting tax from the informal sector with simplest being a monthly, or quarterly, or annual payment that is determined by the business level that the informal business is engaged in. A street vendor will be liable for a base level of tax. A Ntemba will pay a slightly higher tax level. A market stall will remit an even higher tax payment, and so on. The innovations in technology now make it possible for names, photographs, and bar codes to be printed on tax receipts, certificates, or badges that can easily be issued at post offices and can be authenticated with handheld bar code readers that may be carried around by tax inspectors.

As the new tax year begins to roll out this month, some of these ideas, innovations, and options may be considered by the ZRA, and with government and public support, Zambia may rapidly fund her own national budget from domestic resources and really put the economic independence that has eluded the nation squarely in the hands of Zambians.

Published 6 April 2010