Editor’s Note: May 20, 2019

Is Zambia wrong to raise taxes?

“When we decide how to manage our tax regime, we decide on our own.” These were the words of Zambia’s president Edgar Lungu over the weekend, defending government plans to introduce a new, non-refundable sales tax on goods and services in 2019, replacing Value Added Tax.

The proposed tax – 9% and 16% on locally supplied and imported goods respectively – is part of efforts by Africa’s second-biggest copper producer to shore up public finances.

The plan has angered miners, who warn it will stifle investment, and could lead to mass layoffs.

Faced with the prospect of lower returns the reaction is understandable, but it’s not clear what else Zambia should do.

The country’s finances are in dire straits in the wake of the commodities slump, with the government struggling to pay public sector workers.

Borrowing its way out of the problem is not an option. Zambia is among 16 African countries considered to be at high risk of debt distress by the IMF, which has repeatedly turned down pleas for a loan citing poor debt management.

This leaves domestic revenue mobilization – ie. taxes. Mining, which accounts for 68% of foreign currency earnings and 73% exports, is an obvious target.

Whether the government uses the proceeds effectively remains to be seen, but higher taxes may be unavoidable.

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