Direct income tax relief by 10 percent is comfort to a fool

Dear Editor,
Allow me space in your online paper that is so popular. Thank you for publishing the 2013 budget address by Hon. Alexander Chikwanda, Minister of Finance, delivered to the National Assembly on Friday 12th October, 2012.
Hon. Chikwanda said that in order to maintain the value of the tax-free threshold of Pay-As-You-Earn (PAYE), government will increase the current exempt amount per month by 10 percent, from K2 million to K2.2 million. This 10 percent change is at a rate higher than the expected inflation target of 6 per cent for 2013. Therefore all tax bands will be adjusted upwards by K200, 000.
My concern is that at present the rising food costs and non-alcoholic beverages are already pushing Zambia’s inflation high. The inflation rate is already higher than 6 percent the expected inflation target for 2013. The inflation rate has been increasing due to the revised minimum wage imposed by the Patriotic Front (PF) government through a statutory instrument decree by Labour Minister Fackson Shamenda. It will be very challenging to the government to keep the inflation rate at 6 percent the expected inflation target next year.
Besides, in August 15, 2012 the Zambian Watchdog published a revision of the Zambia Electricity Supply Corporation Limited (ZESCO) electricity tariffs that will come into effect on November 1, 2012. The high ZESCO figures published are not exactly what electricity will cost because they do not include taxes.
Government’s increase of electricity bills will push the cost for services up and labour unions are already demanding higher wages after learning that President Michael Sata and his ministers quietly increased their salaries and allowances by more than 100 per cent.
Therefore, Zambia’s inflation rate could rise but stay in single digits and average 7.9 percent next year.
This means that the budget delivered that offers direct income tax relief for ordinary Zambians is and will be far below the rate of inflation. Hon. Chikwanda has increased the bite the State takes from the working person’s pay cheque through increased indirect taxes. Income tax has remained the highest contributing R5 trillion, and value added tax contributing K6 trillion. Another way that Hon. Chikwanda wants to increase revenues is through fuel levies. This affects everyone even the poorest people on welfare since fuel is an input cost for anything we buy.
Let us consider a few of the highlights in turn: ‘income tax’; with looming electricity price hikes and fuel levies, and taxpayers are paying more and getting less in return it will make the budget adjustment of the normal tax table notably less than the inflation rate. That alone means the average salaried employee will be poorer come 2013, unless he or she gets an increase that is higher than the consumer price index this year which is unlikely.
If you are a low income earner of K2.2 Million or below, the switch from a tax deduction to a rebate, is good news for you. You will get a little more money in your pocket.
It is not good news at all for suburban households already struggling to make ends meet.
With regards ‘capital gains tax’: the effective rate of capital gains tax has increased. Contrary to what Hon. Chikwanda appears to believe, this will not just hurt the rich, but also many ordinary people who are trying to provide for the future by investing in property and shares. It is yet another disincentive for saving.
Cooking the golden goose I pull no punches when I warn against Patriotic Front (PF) cadres’ perception of the 2013 budget as ‘Robin Hood’ budget that takes from the rich to give to the poor.
On the contrary, the budget leaves nearly everyone in Zambia poorer, including the working poor and the middle class.
With electricity bill hikes, indirect taxes and taxpayers getting less return, reduction of the normal tax table by 10 percent will not make any noteworthy difference in people’s lives. It is a good sounding piece of budget that will not move the poor an inch from their pits of poverty.
J. Zulu

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