excerpts from the book "Its Now Time For Zambia to Prosper"
The argument for lower taxes Taxes play a very crucial role in modern societies. As it were, there are certain services that are best mobilized and managed by a central government for the benefit of all citizens. If services such as health, education, sanitation, security and social services were completely left in the hands of pure capitalists, the majority of our people will not afford these services and will be left out. Because of this, many governments continue to find excuses for increasing taxes because many of them have not been prudent and innovative enough to come up with other means of raising revenue for public expenditure. Tax happens to be an easy but lazy alternative for a lot of politicians all over the world. However, the stark truth is the majority of citizens world over want no taxes or at least the lowest tax rates possible. This is because currently many workers are not making ends meet. No wonder workers often find taxes to be punitive. In Zambia where the PAYE tax rate can go as high as 35% it means if your salary is K10,000, the government will take K3,500 from you and leave you with K6,500. If you are a family person and live in a rented house, you will definitely feel the pinch of the K3,500 tax deduction. Whichever way you look at it, you are not going to be a proud tax payer. No matter how responsible a citizen you are, you will forever wish this tax amount was reduced substantially to give you room to afford a better life. High taxes contribute to poor quality of life Because tax eats into the already meager incomes of the majority of poor households, tax negatively affects the quality of life of the bulk of our citizens. It would have been a different story if most of our citizens were wealthy but unfortunately they are not. Every bit that you deduct from an already struggling family hurts. Lower taxes encourage business Lower taxes would mean more finances available for citizens to spend. More expenditure supports more business and jobs. Lower taxes will increase tax revenue If you have heard of the infamous tax havens, these are essentially countries or regions with very low tax rates. Simply due to common sense, many wealthy companies and individuals prefer to take their money to these low tax places. The result is tax havens attract substantial cashflows. Now when we do a bit of mathematics 5% of $100 billion is $5 billion whilst 35% of $10 billion is $3.5 billion. The point is with lower tax rates, a country will attract more investments resulting in more tax revenue than when they peg their tax rates high. Though the media have unconsciously began to portray low tax regions as rogue and illicit regions, low tax regions are actually doing the smartest thing around. By the way it is not illegal to have zero or low taxes. There is no national or international law against that on earth! It is a matter of choice and citizens all over the world prefer it. In fact many politicians all over the world continue to play lip service about wanting to reduce taxes for their citizens but they simply lack the brains and morals to do it. More people will voluntarily pay tax at lower tax rates Currently, there are a lot of tax evaders in Zambia as a result of high tax rates. You are talking about individuals and even some of the biggest corporations. Lowering tax rates will make it more affordable and encourage more tax payers to pay tax eventually resulting in increased tax revenue. The proposed deal with the Zambian government But is it possible for Zambia to achieve a situation where citizens and companies pay the least amounts of taxes but yet resulting in higher tax collections than currently collected by the Zambian government? The answer is it is possible and this is how Zambia will achieve this. In 2015, our government spent just under $6 billion on various things including public service salaries. The money came from tax revenues, investment earnings and a significant portion from loans. My proposed situation for Zambia as regards taxation is where we push our GDP beyond $100 billion and start charging 5% flat rate on income and not profit, for both companies and employees and pretty much everything else including export duty. This means, instead of charging companies on their profits, we will simply charge them 5% on their income as the only and final tax. No VAT, no nothing else. A tax of 5% is pretty much affordable for everyone because even a person earning K100 only can surely afford to pay K5 tax. At a GDP of $100 billion, we will be able to recover $5billion in corporate taxes. At a national wage bill of $20 billion, we will be able to recover another $1 billion from employees. From exports of $40 billion, we will be able to recover another $2 billion. The only thing that will be taxed a bit higher will be imported products that are also produced in Zambia. For example, because Zambia is very much capable of producing bananas, when anyone decides to import bananas into the country, the bananas will attract a higher tax than the usual 5%. In this case, the import tax will not be less than 10%. Another necessary strategic move will be for our government to invest in such a way that government ends up with 30% ownership of our emerging investment vehicles. That is government is to own 30% stake in all the Agri-city corporations, Ranch towns and so on. Then as part of dividends for its investment, the government will be getting 5% of all revenues every month from the businesses it would have invested in. That is in addition to the 5% mandatory income tax. When at the end of the year, a corporation generates profits that will result in 30% of profits being higher than the 5% of income government received during the year, the difference will be remitted to the government. Meaning if businesses government invests in generate $60 billion in revenues, 5% of this will be $3 billion payable to government. In addition, government will also receive the mandatory 5% income tax of $3 billion bringing the total government revenues to $6 billion from government investments. Overall, this approach will result in government revenues as tabulated in the next table. # Tax base Description Tax base (usd billion) Tax % Tax income (usd billion) 1 GDP 100 5% 5 2 Wage bill 20 5% 1 3 Export volumes 40 5% 2 4 Other revenues 2 5 Govt investments 60 5% 3 Total Tax Income 13 This will be more revenue than the government of Zambia has ever generated and it will be achieved at the most progressive tax regime ever operated in Zambia and Africa. Mind you, I have not even factored in the tsunami of investments that will rush into Zambia at this tax rate. This tax regime is guaranteed to bring further investments into the country which will further grow the tax base and revenues. Off my head, at 5% tax, government revenues will easily hit $20 billion. With this picture, it is proposed that the government of Zambia participates in the unfolding Zambia by acquiring 30% stake in all the investment vehicles proposed. That is the government of Zambia should acquire 30% stake in agri-cities, ranch towns, mining towns and so on. The proposed investment is a $30 million in each of the 33 cities and towns bringing total government investment to $990 million. This can be invested at a comfortable period of 10 years. This investment, apart from raising revenues for government, will automatically result in the achievement of almost all objectives of the government. That is the investment will result in:
Aid will no longer be sustainable in the near future Africa has benefited immensely from international aid and many governments literally survive on aid. The truth however, is that aid is not sustainable and African governments need to make it a priority to gain financial independence and wean themselves off aid. There will come a time when the majority of countries who have been offering us aid will no longer be able to. The “Zambia Shall Prosper Project” is designed to play a major role in making our government financially independent.
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Mauden ShulaMauden Shula is Co-founder and the CEO for Jobs4Zambia (Jofozam Ltd). He is author of several books including : "Why I want to Employ one million People" and "Its Now Time For Zambia To Prosper". The two books contain the strategic agenda for Jobs4Zambia. ArchivesAdvocacy
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