Government’s Taxation Misstep Threatens Local Alcohol Industry and Public Health
By Daimone Siulapwa
As a political analyst deeply invested in Zambia’s democratic principles and an advocate for fair business practices, it is with great concern that I address the alarming issue plaguing the alcohol manufacturing sector in our nation.
The punitive taxes imposed by the Zambia Revenue Authority (ZRA) and Ministry of Finance (MOF) have created a grim scenario where it is now more cost-effective to import alcohol than to manufacture it locally.
This misguided policy not only jeopardizes the survival of our local businesses but also fosters an environment conducive to smuggling and illicit brewing.
The repercussions of these exorbitant taxes are manifesting in the form of intensified smuggling of ethanol, a vital component in alcohol production.
Just recently, ZRA intercepted 80,000 litres of ethanol valued at 3.1 million kwacha which was smuggled into the country as hydrogen peroxide. What government must realise is that is just the beginning of a much bigger smuggling syndicate, which will obviously be facilitated by some greedy ZRA officials.
This illicit activity not only undermines the formal manufacturers in Zambia but also exacerbates the existing problem of counterfeit alcohol flooding COMESA market.
Shockingly, there seems to be a deafening silence on the part of authorities to address this rampant issue.
In a controversial move in 2023, government announced in the 2024 National Budget, that the Ministry of Finance and National Planning had altered the excise duty valuation for spirits, liqueurs, and other spirituous beverages in Zambia.
This change, though intended to create a fair and transparent tax system for the alcoholic beverages industry, poses a substantial risk to local manufacturers and may have far-reaching consequences.
The Zambia Association of Manufacturers (ZAM) acknowledged the government’s aim to reform the tax system, but raised concerns about the potential ramifications.
The shift to valuing excise duties based on market prices may seem reasonable on the surface, but it introduces significant challenges for local manufacturers.
These companies, committed to tax compliance, face higher production costs compared to traders importing cheaper goods from other countries.
The disparity in costs will excessively disadvantage manufacturing firms, creating an uneven playing field. They are now not only competing against non-compliant retailers, the informal sector, and illicit production but are also vulnerable to the influx of cheaper imported alcoholic beverages.
The altered valuation methodology gives imported products, especially from SADC member states, a distinct price advantage.
This change not only jeopardizes the competitiveness and quality of locally produced alcoholic beverages but also poses a threat to the local supply chain.
The potential rise in illicit activities such as smuggling and the production of illegal alcohol could have severe consequences for public health.
The lack of proper monitoring and assessment mechanisms, from production to sales, raises concerns about adherence to regulatory and health standards.
Moreover, the Zambia Revenue Authority (ZRA) and the Ministry of Finance’s introduction of punitive taxes is driving a concerning trend.
The exorbitant taxes on ethanol, a key component in alcohol production, are rendering it more economical for businesses to import finished alcohol rather than manufacture locally.
This not only discourages local manufacturing but also fuels smuggling and illicit brewing.
The issue of smuggling, particularly of finished alcohol products, is exacerbating the problem of counterfeit alcohol at COMESA market.
Shockingly, suspicions have been raised regarding the involvement of some ZRA officers in accommodating smuggling and potentially owning shops at COMESA.
A swift and comprehensive clean-up is urgently needed to curb this illicit trade that jeopardizes public health.
The new tax on ethanol has already led to a 100% increase in the prices of locally manufactured alcohol. This drastic spike not only threatens the survival of businesses but also puts numerous jobs at risk.
It is important for the government to recognize that taxing already burdened businesses to this extent is counterproductive and risks a huge decline in overall tax revenue collection in a long run.
In light of these developments, ZAM strongly recommends that the government reconsiders its approach and engages industry stakeholders, especially Micro, Small, and Medium Enterprises (MSMEs), to find a more balanced and sustainable solution.
Collaboration is essential to aligning the government’s revenue objectives with the growth and survival goals of the local manufacturing sector.
The future of Zambia’s alcohol industry and the well-being of its citizens hang in the balance.
Urgent action is required to rectify 5mthese punitive taxation measures, safeguard local businesses, and ensure the continued prosperity of the manufacturing sector.
In the pursuit of increased revenue, the government seems to have forgotten a fundamental economic principle – businesses cannot thrive under the weight of excessive taxation.
Lastly, I implore the Zambian government to heed this call for reform. The excessive taxation on ethanol must be revisited, and a comprehensive strategy to combat smuggling and counterfeit alcohol trade at the COMESA market must be implemented urgently.
Failure to address these issues promptly not only jeopardizes the future of the alcohol manufacturing sector but also undermines the very essence of a democratic and economically viable Zambia.
07/01/23
Daimone Siulapwa is a political analyst, an advocate for tribal unity and Citizen Economic Empowerment. Send your comments to dsiulapwa@gmail.com