Sun, 19 Feb 2017 11:12:44 +0000
By Mwine Lubemba
If you have been paying attention, you probably have seen the Made In Zambia-Buy Zambian adverts promoted by Zamtel featuring Jeff Sitali, Norena Chiteba and this nameless young school girl on YouTube—www.behance.net/Proud Zambians-Buy-Zambian-Zamtel.
They remind me of the all too familiar staple of Zambian journalism back in the UNIP era when the Ministry of Trade and Industry was in the forefront of promoting the “Buy Zambian” campaign. Today, however, these adverts are a bitter reminder of how globalization has decimated the manufacturing sector in Zambia and turned the entire Zambian landscape a warehouse forest full of imported creatures, goods and gadgets.
When we were growing up in Broken Hill renamed Kabwe later after Independence in 1964, I considered it a treat just to accompany my dad to go shopping in town from Bwacha compound where we lived. The shopping district was kept clean by council workers. DH Patel was the biggest shop in Kabwe then and dad would buy everything we needed from groceries to clothing. Passing through Kabwe town on my way to the copperbelt last week seemed like time had stopped in 1965. Elephants Head Hotel, the Civic centre, the Courts nearby, Hindu Hall, still the same old structures except, in a dilapidated state.
The Broken Hill silver, Zinc, vanadium and lead mine provided most jobs until it closed down, then came Kabwe Industrial Fabrics, initially a jute bag manufacturing outfit before it was retooled to a poly propylene bags weaving company. Mulungushi Textiles came much later, long after we left Kabwe. It would appear nothing much goes on in Kabwe because even the Zambia Railways state of art workshops built at great cost seem dormant and rumours are that the Head Office has finally been moved to Lusaka. Yet Kabwe has all the basic infrastructure required for agro-processing and industrial activity to prosper, water, electricity from Mulungushi Dam, roads, railway sidings etc. But nobody wants to set up factories in Kabwe, thanks largely to low cost imports.
The Kabwe story describes the heartache this economic upheaval sent through the town of Kabwe, shuttering factories such as Dairy Produce Board that manufactured excellent butter from local farm milk, Mulungushi Textiles, Kabwe industrial fabrics, Zambia Railways workshops and outward railway traffic, spurring hundreds of layoffs and forcing local businesses to declare bankruptcy. One 60 year old woman who was three classes behind at primary school I met on my way to the copperbelt lost her Job six years ago told me: “We don’t have too much light at the end of the tunnel in Kabwe.”
So as factory jobs disappear, Kabwe Town has few options.
Zambia has seriously been grappling with the repercussions of low-priced imports for the last one decade. The decline accelerated in 2002, right immediately the time China joined the World Trade Organization and started flooding, not only the African markets but entire world markets with cheaper goods. The problem is only getting worse for those Zambian workers and businesses competing with foreign competition. Even goods we thought were made in South Africa are no longer South African. And our existing Zambian tax codes are fuelling this imbalance.
For instance there is a press release from the ZRA that says: “ZRA CLARIFIES ON TPINs FOR BANK ACCOUNT HOLDERS.” On paragraph two, it states as follows:
“The government this year made it mandatory for financial institutions registered under the Banking and Financial Services Act to require all bank account holders to obtain a Tax Identification Number (TPIN) from ZRA in a move that will make it easy for the Authority to identify individuals that are in receipt of undeclared income such as foreign dividends and interest currently taxable.”
The question is: When does money legally banked in a financial institution registered under the Banking and Financial Services Act become undeclared income? Or is the ZRA press release implying our Banks accept illegal money? This also speaks volumes of how the ZRA views the operations of the Bank of Zambia, who are the supervisors of all our Banks in the country.
It also would appear, under the current tax code that seems to have prompted the ZRA to trigger in the TPIN requirement, Zambian businesses that export their goods and services to other countries finally pay a ±35% rate on whatever profits, interest or dividends received or any other money they make or return to Zambia. But the code rewards those Zambian business that import foreign made products by allowing companies to deduct those expenses from their final tax bill. In other words, the Zambian tax code rewards foreign imports while penalizing Zambian companies that export goods and services to other countries.
You’ll find similar ambiguity in the 10% tax surcharge on Maize and Timber exports. Taking the case for maize exports, we see that the government has this year made available K2.9 billion (US$290 million) for FISP. Most of this Maize grown from FISP funding has been bought by foreign Grain Traders. It means the Zambian tax payers have subsidised Grain Traders with the initial cost and labour of growing the maize. The tax payers who provided government with FISP money are again being made to pay for mealie meal at K120 to K150 per 25kg bag or K300 per 50 kg bag. Meanwhile if government was to use the K2.9 billion and import the maize at US$250 per bag, Government would import 1.15 million tons of maize or 23.5 million bags of 50 kg maize. If government were to distribute this maize free of charge to every Zambian instead of paying for imported FISP inputs which are given out free of charge to a select few peasant farmers, every Zambian born Child and adult, all the 15 million of us would receive 1.5 bags of maize per year and no Zambian would go hungry. But if government allowed the export of say the same bags of maize (1.15 million tons) out of the surplus maize grown this money would then be used to pay or replace the money used for FISP input imports. The net effect would be to encourage participation and grow the maize sector. But let’s not digress too far off the topic.
We need to take major steps to fundamentally revamp the tax code. We need an overhaul that will end the preference for foreign made products, a reform that could help keep the few available jobs in Zambia and attract even many more jobs to be created and make Zambian businesses more competitive at home and abroad.
The debate should centre on wonky phrases like the ones from the ZRA Press release that a few actually grasp. What this really means is that our leaders want to create jobs and end unemployment in zombie towns like Kabwe. That means we need to lower overall corporate tax rates from say 35% to say 20% or even lower and apply it equally to imports and things made in Zambia. This would level the playing field for Zambian manufacturers, allowing business in our own backyards to compete with foreign companies that currently benefit from lower costs and favourable Zambian tax codes.
Right now, companies are taxed at exactly the same rate regardless of whether they sell their goods in Zambia or overseas. In other words, Zambian producers are hit twice. They’re forced to compete with cheaper imported goods sold in our country. At the same time Zambian companies face higher costs for products sold abroad, making them less competitive in those markets as well. Whether we know it or not, our tax code levies a “Made in Zambia Tax” on every domestic producer and manufacturer, making it harder and harder for these companies to keep their doors open and keep Zambia workers employed.
We need to get rid of this “Made in Zambia Tax” by removing all existing barriers that makes it more difficult and expensive for Zambian companies to return money they make in foreign markets back to Zambia. That coupled with immediate deductions capital investments, would encourage companies to expand existing operations and even build new ones here inside Zambia and not only by giving half-baked-half- hearted incentives to those new companies setting up bases in Multi Facility Processing Zones as the case may seem now.
The end result will translate into our manufacturers having much greater incentives to produce Zambian goods from Zambian local materials for sale overseas. This would also remove the existing incentive for Zambian companies who tend to park their overseas profits in other countries or allow themselves to be gobbled up by foreign rivals in order to enjoy favourable tax rates. Most importantly this would also eliminate one major incentive for companies to outsource Zambian jobs. This will also help reduce the tide of heartaches and job losses that have made Towns like Kabwe shells of what they once were, with shrinking populations and fewer opportunities for those who remain.
Zambia will be left behind as countries we compete with in the region modernize and lower their tax rates and reduce the cost of doing business even further. Many of these countries we compete with have already modernized their tax code to deal with the realities of the global economy by promoting exports and subjecting imports to the same tax treatment as domestic companies.
We need tax reforms to make it easier to invest in Zambian businesses. Zambian products and Zambia workers. It’s time for our Members of Parliament to demand that we usher in a new era of Zambian prosperity.
We already persevered ten painful years of transforming from a socialist driven economy to a market driven economy under Chiluba, after ten years of political and manufacturing decline under Mwanawasa, it’s time to start telling the Zambian comeback story again– Proud Zambians- Buy Zambian.
Just a thought,
