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Reduce PAYE, VAT and Interest Rates

Last updated on December 16, 2011

I wish to join the Zambia Union of Journalists (ZUJ), National Energy and Allied Workers Union (NESAWU) and the Zambia National Union of Teachers (ZNUT) in calling for a reduction in Pay-As-You-Earn (PAYE) when the Minister of Finance and National Planning, Situmbeko Musokotwane, presents the national Budget on Friday.

In this regard, I also wish to implore the government to expand the tight PAYE income tax bands in order to make them fairer to tax payers by adding K635,000 (calculated by subtracting K700,000 from K1,335,000 in the current band) to each subsequent band, and by narrowing the gap between 0% and 25% as follows:

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Income Bands: Tax Rate:

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K0 — K700,000 per month 0%

K700,001 — K1,335,000 per month 10%

K1,335,001 — K1,970,000 per month 15%

K1,970,001 — K2,605,000 per month 20%

K2,605,001 — K3,340,000 per month 25%

K3,340,001 — K3,975,000 per month 30%

K3,975,001 and above per month 35%

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Eventually, the government should consider the prospect of adjusting the non-taxable income from K700,000 to K1,000,000. And value-added tax (VAT) needs to be reduced from 16% to 12.5%, while the maximum corporate tax should be pegged at 30%.

Zambians have never had any meaningful tax reduction since the country’s independence in 1964. It is high time the government made it possible for them to keep more of their hard-earned incomes for saving, investment and consumption.

There is also a need for the Bank of Zambia to reduce interest rates. The lower taxes and interest rates can function as an effective economic stimulus that can spur economic activity and job creation, as well as create a new class of tax payers.

There is really no other obvious way to stimulate the national economy.    We need to reverse the current emphasis on stabilizing inflation at the expense of job creation and economic growth. By the way, the attainment of single-digit inflation is a target that is appropriate for countries that have already achieved a high level of job creation and socio-economic development. Zambia is clearly not one of such countries!

 

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