Zero rating implies that goods are taxable but at a 0% rate. What would be the point of this? The significance of zero rating is that it allows businesses claim back their input taxes in acquiring these goods from suppliers for sale. In light of the financial reforms preventing use of foreign currency in Zambian trade, this may be a necessary measure to prevent the agricultural sector from suffocating from the effects of high production costs.
High costs of production are partly attributable to the high cost of inputs, 90% of which are imported. The instability of the Zambian Kwacha has meant that to minimise price fluctuation in the consumer market, agro-suppliers have in the past conducted trade with exporters in more stable foreign currencies. Anti-dollarisation has implied a need to buffer consumer prices by higher percentages to minimise losses attributable to inflation. This has seen food prices rise astronomically and the trend is set to continue if mitigating measures are not put in place.
A proposed mitigating measure might be a zero rating tax policy for agro-suppliers. The proportion of the market price that is buffered to account for currency valuation fluctuations would be significantly reduced by the ability of the suppliers to reclaim taxes paid on importing the goods in the first place. The buyer, who in this case is the farmer, also wins because such an instrument implies that they too pay no value added tax on
these goods. These lower prices then trickle down to the rest of us in the form of lower food prices.
A caveat exists in that zero rating reduces revenue for the government so it has to be used in conjunction with alternative revenue sources. The policy has been tried in South Africa's agricultural sector and has so far proved to improve the welfare of the poorest in society without impacting negatively on other households. It has also lent itself to a transformation of a retrogressive Value Added Tax on other goods to the creation of a more progressive structure.
Granted, the economic structure of South Africa is greater advanced than that of Zambia but there is no harm in mapping and modifying best practice to suit our own economic climate. Now this in my opinion would do a better job of putting 'more money in our pockets' without robbing others blind.
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The issue, from my layman understanding is that the government is all about gain not loss..As much as this will benefit the population through cheaper food and a reduction in inflation in the long run.
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