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Statement on Motion of Supply for the 2020 Budget

Republic of Zambia

WINDING UP SPEECH ON THE MOTION OF SUPPLY FOR THE 2020 BUDGET
BY HON. MINISTER OF FINANCE

16 OCTOBER 2019


Madam Speaker, as I wind up the debate on the estimates of revenue and expenditure for the financial year ending 31st December, 2020, I would like to thank honorable members from both sides of the House for debating this motion with the utmost candor and passion. Madam Speaker, in the midst of this passionate debate confusion was expressed at some point regarding my own gender. I want to assure the House that I’m still a male.

I also wish to express my gratitude to the expanded Committee for working tirelessly and according various stakeholders and the general public an opportunity to provide constructive comments on the various aspects of the budget.

Madam Speaker, there was also an attempt, in the course of the debate, to identify me as the only good man from amongst my colleagues in Government. While I was naturally flattered by these accolades, I must be quick to add that flattery is a form of corruption and I know that this House takes a very dim view of corruption.

Madam Speaker 19 days ago, I came to this House as a bearer of a message from His Excellency Dr. Edgar Chagwa Lungu, President of the Republic of Zambia recommending favourable consideration by this House of the 2020 budget. This budget was prepared through the combined work of all of us in Cabinet and in presenting it to this House I was the privileged mouth piece speaking on behalf of all my able and hardworking colleagues in Cabinet.
As I speak to request unfettered support for this budget, I have attempted to capture and respond to some of the concerns and issues raised by members of this House in the course of the debate. In so doing, I want to begin by stressing that the budget has been prepared against a backdrop of limited fiscal space which has affected the amount of discretionary resources available for the implementation of this budget. Consequently, it has had a telling effect on the amounts of resources allocated under the various heads of expenditure.

Madam Speaker, the first concern expressed was that in its content the budget does not speak to its theme which is “Focusing national priorities towards stimulating the domestic economy”. On the contrary, I wish to state that the budget abundantly attempts to do just that. Current liquidity constraints present a challenge to economic activity and growth in this country. To be able to stimulate economic activity, the budget proposes a number of measures to help individuals, small businesses and corporates gain access to this much needed liquidity. These measures include:

  • Zero rating capital equipment and machinery for the mining sector and zero rating VAT on copper cathodes sold locally so that mining companies and companies involved in copper processing are not subjected to liquidity constraints induced by delays associated with the VAT refund system and which adversely affects corporate cash flows and subsequently production;
  • Substantially increasing the allocation of resources directed at dismantling arrears in order to unlock liquidity among small scale contractors and various suppliers of goods and services to government.
  • Increasing the use of local contractors through the enforcement of the requirement to allocate at least 20% of works being done under any major project in order to put more money in the hands of Zambians who in turn will use it to lubricate the economy through their spending.

Furthermore, fiscal incentives in the form of suspension of duty on aquaculture equipment are intended to encourage investment leading to growth of this industry. It is also pertinent for the House to note that notwithstanding the existing constrained fiscal space, this budget has not yielded to the temptation to adjust upwards direct taxes and VAT rates. This is meant to preserve disposable income in the hands of ordinary tax payers

A second and widely repeated concern expressed mainly by members on your left, Madam Speaker, was that the amount allocated to public order is excessive because it will only serve to enhance the capacity of the security personnel to tear gas innocent citizens. The truth Madam Speaker is that the allocation under this head is intended to facilitate the completion of various infrastructural projects such as housing units for men and women in uniform, modernise their equipment and provide other resources necessary for them to carry out their work and particularly replace obsolete equipment which is of no use in the face of the complexity of fighting crime and protecting the integrity of this country given the rapid change in technology. In addition, Madam Speaker, funding for these projects will come from disbursements of loans that have already been contracted and not from new borrowings.

Madam Speaker, I’m also weary to think that the work of our men and women in uniform, some of whom put their lives on line every day in the course of duty, can be so trivialised as to be reduced to only that of throwing tear gases at people. I think it is totally inappropriate to characterise the work of our security service personnel as essentially being that of brutalising our people. On the contrary, we owe it them to honour them for their sacrifice and service to this country and one way in which we can do that is to equip them adequately to the extent that we can in order for them to continue to guarantee our safety as a people and as a nation.

Madam Speaker, the third concern raised was that the amount allocated to climate change is too small and not commensurate with the pivotal position that has been given to climate change in this budget. In response to this, it is necessary to give context to the K611,777,853 shown in the budget under the Head Environment Protection. This amount specifically covers funds for Climate Change and Resilience Projects and the Zambia Integrated Forestry Landscape Project under the Ministry of National Development and Planning. It also incorporates the Environment Management and Protection Project and the Zambia Environment Management Authority under the Ministry of Water Development and finally the Climate Policy Implementation and Forestry Management project under the Ministry of Lands and National Resources. The reduction in the allocation from 2019 to 2020 is due to the completion of the Itezhi-Tezhi- Dundumwezi -Namwala Climate Resilient Road project.
However, the budget does respond more specifically to the climate change challenge with a number of measures which in part propose to:

  • Suspend import duty on machinery used for the processing of solid waste to generate electricity and produce organic fertilizers;
  • Abolish customs duty on liquefied petroleum gas;
  • Increase carbon tax on motor vehicles entering Zambia by 20%; and
  • Remove VAT on stoves, other gas cookers and gas boilers.

These measures are intended mainly to reduce dependence on hydro power and encourage the use of other sources of power for domestic and industrial consumption. The measures contained in the 2020 budget are also in addition to measures already announced in the 2019 budget which include:

  • Custom duty exemption on machinery and equipment that are imported for building of power stations, irrigation canals and dams;
  • Zero rating for VAT purposes energy saving appliances, machinery and equipment, which include energy efficient lighting lamps , florescent tubes and bulbs, solar geysers, solar panels solar batteries and inverters for solar power;
  • Increasing customs duty on electric geysers, electric stoves, and shopping plastic carrier bags to 40% from 25%.

Environment protection is also main streamed under the various heads of expenditure. Since it is considered as a major cross cutting issue, all ministries and spending agencies will be expected to incorporate environment concerns in their programmes.

Madam Speaker, it is gratifying to note this House’s grave concerns expressed here regarding how government proposes to fund measures intended to increase this country’s capacity to meet the challenge of climate change. This suggests that this House has gone past the stage of climate change denial. But just in case there is still doubt or ambivalence in the minds of some members, I wish to direct their attention to words of one of Russia’s greatest writers Leo Toystoy who writes thus;

“at the approach of danger two voices always speak with equal force in a man’s soul. One voice tells us to weigh the danger and act, NOW. The other voice says it is too painful and tormenting to think about the danger when it is not in man’s power to foresee everything and save himself. In solitude we listen to the voice of alarm, in company we listen to the voice of denial.”

The question is which voice are we listening to in this house?

Madam Speaker the fourth concern expressed is that our debt management strategy is inadequate especially since debt is as it were “the elephant in the room.” Bringing debt to levels which are sustainable is one of the key objectives that this budget seeks to achieve through the implementation of a battery of measures which include:

  • Slowing downing on external debt contraction, postponing and/ or cancelling certain pipeline loans and ceasing the issuance of sovereign guarantees in pursuit of fiscal fitness.
    These measures require that we give some clarity to the K30.6 billion reflected in the budget as external financing and which has been construed as new borrowing. This amount, Madam Speaker, is not additional borrowing but is mostly disbursements from already contracted loans which cannot be cancelled or delayed without suffering costs in the form of penalties or giving rise to legal liabilities which could end up costing the country much money. These resources will continue to finance various development projects and programmes, including the improvement of urban and particularly rural access roads which are so desperately needed especially in rural constituencies, completion of hospitals and schools among others;
  • Re-scoping some works in the road sector from bituminous to all weather gravel roads in order to reduce costs of completing already designated roads;
  • Expanding the national road tolling programme which will constitute the back bone of the road maintenance programme;
  • Completing the expansion and modernization of the Kenneth Kaunda International airport as part of the effort to make Zambia an air transport hub given its geographical location. We must be ambitious enough to transform Zambia’s geographical location into a strategic advantage in as air transportation in the region is concerned;
  • Increasing the use of off balance sheet financing models such as public private partnerships to implement projects which have the capacity to generate future income on a sustainable basis.

The fifth concern expressed calls into question the adequacy of the proposed domestic resource mobilisation strategy. Against the background that the estimated level of tax compliance in Zambia is somewhere around 58%, there is a lot room for increased revenue collection by addressing tax compliance and administrative challenges using automation provided by emerging technology. Accordingly the budget proposes a number of measures which aim to increase tax compliance and therefore increase tax revenue. These include;

  • Upgrading tax online system within ZRA for domestic taxes and linking them to the customs systems to ensure all import VAT claims or refunds are validated through the system based controls against data in the customs system;
  • Implementing a service platform and payment gateway to create efficiencies in service delivery and tracking of revenues ;
  • Making it mandatory to use electronic fiscal devices (EFDs) for all consumption tax related transactions which will include VAT and turnover tax;
  • Enforcing a mandatory capture on invoices tax payer’s identification number and names of the buyer and seller of goods and services among businesses and government transactions;
  • Ensuring that VAT claims are timely audited and verified;
  • Enhancing data analytics and bulk data matching with third party institutions such as PACRA, Ministry of Lands and Natural resources, NAPSA and ZPPA;
  • Appointing more VAT withholding agents, such as mining contractors who can collect VAT at source;
  • Using the electronic tax clearance certificate especially in public procurement in order to avoid incidents of forgeries associated with manual tax clearance certificates;
  • Dealing with the challenge of transfer pricing by providing for price premium adjustment.

The budget in addition introduces a number of tax related measures with the view to increasing revenue by proposing to

  • Limit input VAT claims on consumables, such as stationary, lubricants and spare parts for all entities except where these are stock in trade;
  • Charge customs duty at 10% on specialized mining capital equipment and machinery which currently are duty free or attract duty at 5%;
  • Limit input VAT claims from mining companies on diesel at 70% from the previous 90%;
  • Limit input VAT claims from mining companies on electricity at 80% from the current 100%.

In combination the last three measures will enhance revenue collection from mining companies which is in response to the view that the country needs to collect more tax from mining companies than it is currently collecting. These tax related measures will be supplemented by specific non tax measures including revaluation of properties following the enactment of the Rating Act and the modernization and automation of revenue collection processes and provision of government services.

Yet another concern expressed in the debate relates to how wastage and abuse of resources in the public sector will affect the performance of the budget. In response the budget proposes to use automation in the delivery of government services in order to bringing about efficiency gains which should reduce the cost of running government and remove wastage. A number of specific measures that the budget proposes to implement include:

  • Effective management of public service wage bill and other expenditures;
  • Revising the Public Procurement Act to provide for reference pricing and strengthening oversight for high value procurement;
  • Implementing a comprehensive system for the appraisal of projects in order to strengthen the management and implementation of public investments.
  • Reforming the Farmer Input Support Programme by ensuring that the FISP register is electronically verified using the Zambia Integrated Agricultural Management Information System (ZIAMIS) is effected and thus remove duplicates and ghost farmer beneficiaries.

The above concerns are by no means exhaustive, but they capture in a greater part the key talking points around the budget. We think that the budget is realistic and it does not raise false expectations. A combination of such measures as bringing debt to sustainable levels, enhancing domestic resource mobilisation, effectively managing expenditure, increasing efficiency of government and reducing on wastage in the public sector which are all contained in the 2020 budget can deliver the necessary adjustments that can put us on the path to sustainable growth even with the current backdrop of a limited fiscal space. Madam Speaker, I therefore, urge this House to look at proposals contained in this budget with abundant favour.

I thank you!