ABOUT THE INTRODUCTION OF MINIMUM ALTERNATIVE TAX: THE GOOD AND THE BAD- Sean Tembo

ABOUT THE INTRODUCTION OF MINIMUM ALTERNATIVE TAX: THE GOOD AND THE BAD

By Sean Tembo – PeP President and TONSE ALLIANCE Spokesperson

1. Government recently tabled in Parliament an Income Tax Amendment Bill number 9 of 2025, which, among other things, introduced a new tax called Minimum Alternative Tax (MAT). This tax is to be charged at the rate of 1% on turnover, for persons and partnerships that are neither on turnover tax, nor on presumptive tax. The question that arises is whether this new tax is progressive or retrogressive? In order for us to fairly and objectively answer the above question, we need to breakdown this tax. Who is it targeted at? What are it’s pros and cons?

2. According to the Bill that seeks to introduce the Minimum Alternative Tax, this tax is aimed at addressing the issue of tax avoidance, and will therefore widen the tax base by increasing the number of persons that contribute to the national tax pool. Before we delve into whether this new tax can actually achieve the stated objective, let us first look at who it is targeted at.

3. The Bill says that the Minimum Alternative Tax will only apply to persons (both natural and corporate) that are neither on turnover tax nor on presumptive tax. The current threshold for turnover tax is K5 million, meaning that this new tax will apply to businesses that have an annual turnover of more than K5 million per annum.

4. Let us now look at the merits of the argument presented, that the introduction of the Minimum Alternative Tax will address the issue of tax avoidance and therefore widen the tax base, so that instead of a few people contributing to the national tax pool, the tax burden can be shared among more taxpayers.

5. It is true that Zambia’s tax base is very narrow. It has historically been narrow since the time of independence, for a variety of reasons. In fact, when you look at the resource envelope for all the National Budgets that we have ever prepared since 1964, you will realize that on average, tax revenues have only accounted for about 50% of the national expenditure. This begs the question of how the other half has been funded?

6. During most of the KK regime, the other half of national expenditure was largely funded by profits from various parastatals, especially ZCCM. During most of the FTJ, LPM and RB regimes, the other half of national expenditure was largely funded by foreign donors through grants. During the MCS, ECL and now HH regimes, the other half of national expenditure is and was funded by borrowing. The song of expanding the tax base is one that has been sung by all of the 7 administrations that have so far run the affairs of this nation, with little success.

7. The most basic question that needs to be asked, and answered, is; why is Zambia’s tax base so narrow? Well, according to Bill 9 that seeks to introduce the Minimum Alternative Tax, our tax base is narrow because of tax avoidance. But l beg to differ. In as much as tax avoidance is one of the reasons for our narrow tax base, it is not the main reason.

8. In my considered view, the main reason for our narrow tax base is the continued lack of a conducive environment for the private sector to grow and flourish. Unlike other countries in the region, Zambia has never had a vibrant private sector since independence. Successive administrations have never really appreciated the importance of a vibrant private sector and it’s potential contribution to the national tax pool.

9. Even the current administration, which spoke so vehemently about creating a conducive business environment, when they were in opposition, have completely failed to do so, and appear to have no clue whatsoever, as to what it really takes to create a conducive business environment for the private sector.

10. You cannot talk about creating a conducive business environment for the private sector when businesses that supply goods and services to the Government (the largest customer in any economy) take 3 years to be paid. When you look at the national budgets from 2021 to 2025, you will note that the amount of domestic arrears has increased from about K18 billion in 2021 to about K95 billion at present. That’s a more than 400% increase. Domestic arrears is the amount of money that Government owes various businesses that supply goods and services to it. Now, in a small economy like ours, when Government, which is the largest customer, owes businesses in the private sector, a staggering K95 billion, then you cannot surely expect the private sector to survive, let alone grow and thrive to be able to adequately contribute to the national tax pool.

11. Other hindrances to the growth of the private sector include high interest rates, which make it literally impossible to borrow. That is why foreigners are able to come to this country with capital sourced cheaply from their respective countries, and start a business in any sector, and thrive, because there is no competition from local players. Meanwhile, we the Zambian people just watch the foreigners become rich before our very own eyes, a few years after arriving. The most that we can hope for is to get employed by these foreign players. Not because we don’t have brains or ideas to start businesses, which the foreigners start, but because we do not have access to reasonably priced capital.

12. A quick question is why are interest rates so high in Zambia? It is because of the poor decisions of Government, who decide to massively borrow from local financial institutions, through instruments such as Government bonds and Treasury bills, thereby wiping out all the liquidity on the market, and crowding out the private sector. On any day of the week, the bank would rather lend to the Government than to Sean Tembo. When you look at the national budgets for the years 2021 to 2025, you will note that domestic debt has increased by almost 200% from about K87 billion in 2021 to about K248 billion at present. The money that Government has borrowed from local financial institutions is the money that the private sector could have borrowed from these institutions. In other words, the private sector has been crowded out by Government. Surely, you cannot expect the private sector to grow and adequately contribute to the national tax pool, in such a business environment?

13. The list of hindrances to the growth of the private sector is endless, and includes a suffocating regulatory environment which is very costly to comply with, extremely high tax rates, etcetera. My advice to Government is that, instead of introducing additional taxes as a way seeking to widen the tax base, you need to consider working towards creating a conducive business environment for the private sector. When the private sector is able to grow and thrive, the tax base will widen exponentially.

14. On the issue of tax avoidance, yes it is true that the Zambian people have low appetite for tax compliance. But the best way of addressing the issue of tax avoidance is not by enacting laws such as the Minimum Alternative Tax, no. We need to address the reason as to why the Zambian people have low appetite for paying tax. In my considered view, this low appetite for paying tax emanates from the lack of accountability by successive Governments in the use of taxpayers’ money, as well as corruption and wastefulness. How do you expect people to have appetite to pay tax when their money is used to buy 68 containers of medicines which are then forgotten in a private yard somewhere in Makeni until they expire, and the Minister responsible is not fired, but merely transfered to another ministry? How do you think taxpayers feel about that?

15. In conclusion, the proposed Minimum Alternative Tax is an unnecessary tax because it falls far short of addressing the root cause of why we have a narrow tax base in Zambia. The only way we can widen our tax base is by creating a vibrant private sector. And the only way we can create a vibrant private sector is by addressing the issues that are currently stifling the private sector, such as failure by Government to pay businesses that supply it with goods and services, high interest rates, expensive overregulation, instability in the supply and pricing of key factors of production such as electricity and fuel, high tax rates etcetera.

Introducing additional tax types such as the so-called Minimum Alternative Tax, will only further suffocate the private sector, thereby indirectly further narrowing the tax base. But it takes a competent Government to see things from this standpoint. The question is; do we have one? I have always argued that this country needs to have a competent and visionary President, even just for 10 years, and it will be put on a trajectory of economic prosperity forever. Once we are on a proper trajectory, our fortunes as a nation would have been SET forever, even if we subsequently have less competent and less visionary Presidents. Anyway , TILI TONSE 欄 and the Future is SET ✌

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SET 01.09.2025