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Zero-rating on petrol and diesel to cost government ZMW 3bn in lost taxes

January 14, 2021by Nicholas Kabaso0
  • Zambia Revenue Authority Commissioner-General Kingsley Chanda was on the wires yesterday stating that the zero-rating on petrol and diesel will cost the government around ZMW 3bn in lost taxes. Looking back to last year, Chanda noted that the tax authority’s net collection was ZMW 57.7bn, 2.2% lower than the ZMW 59bn target lawmakers had approved. For 2021 the revenue authority has set a revenue target of ZMW 59.3bn, but Chanda warned that the target will be harder to achieve given the contraction of the economy in 2020 and the modest projected real GDP growth for 2021.
  • Meanwhile, Zambia paid ZMW 8.5bn in value-added tax refunds to mining companies in 2020, equal to about 3.5% of the external debt the country is struggling to repay. According to Chanda, the VAT refunds to the mining sector represent 67% of the total of such refunds made was “in line with the desire to dismantle all outstanding refunds”.
  • Moody’s Investor Service yesterday noted that the negative 2021 outlook for Sub-Saharan African sovereigns reflects the “severe economic challenges” the region will grapple with in the fallout from the coronavirus shock.  Most Sub-Saharan African governments’ debt burdens are seen as stabilizing at materially higher levels this year, with the average debt burden for the region at around 64% of GDP in the near-to-medium term. With revenue generation expected to remain weak, Moody’s does not see debt burdens falling in the foreseeable future. Moreover, Moody’s indicated that Higher debt loads, lower government revenue, and higher interest costs will increasingly challenge debt affordability.
  • Data out of China this morning highlight how copper imports hit a fresh record high in 2020 despite the global pandemic. Its annual exports of alluminium on the other hand, fell to their lowest levels since 2017. The sizeable copper imports were due to the state, reserve stockpiling as well as solid domestic demand as China’s economy recovered quickly from the pandemic that resulted in an arbitrage between the London and Shanghai markets. Given that the arbitrage opportunity has now closed, the copper demand from China might very well subside to reflect a better picture of international demand. Base metal prices have come in for some correction recently, driven by the Chinese lockdowns, which at the margin could detract from global growth dynamics.
  • US President Trump was impeached for a second time, setting a new record that will prove difficult to surpass. It is unlikely that he will be convicted before his term in office ends, which means that the early phases of Biden’s administration will be held up by his impeachment trial in the Senate. Recall that the Senate can only convict on a successful trial that generates more than 2/3rds support. The Democrats, even with a bit of help from dissenting republicans simply do not carry that level of support and so ultimately this will not amount to much and will not pre-vent Trump from campaigning for the next elections.
  • There has also been a significant amount of blow-back both domestically and internationally to the private sector censorship that has transpired, in the wake of last week Wed’s storming of the Capitol. Companies of different industries, from the social networking platforms, the media, banking, and even money transfer transaction companies have sought to distance themselves from President Trump and his allies for fear of being targeted as supporters of an insurrectionist movement. Although one can appreciate the need for swift action to be taken from the police and other relevant judicial authorities, censorship of this nature might not be the desired course of action to take, and potentially sets a precedent where narrow private sector interests might dictate the broad-based political narrative.
  • Biden’s top economic advisor has confirmed that he will push Congress to deliver immediate pandemic rescue efforts, before turning the focus towards an economic revival plan. Biden’s transition team has already started to brief all lawmakers on the proposal to be unveiled today. The proposals will include direct payments to affected households, ramping up the vaccination efforts, conducting more testing and tracing and of-fer funding to get most schools to reopen quickly.
  • Impeachment proceedings have done little to change sentiment in the USD that has consolidated its slight gains from last week. Clearly the USD is still struggling to gain any meaningful traction with many structural headwinds still in play. Data out of China this morning showed that the US deficit to China remains large at nearly $30bn per month, despite Trump’s best efforts. It goes to highlight that it is difficult to out-regulate exceptionally loose monetary policy that promotes a strong credit cycle which in turn fuels demand for consumption and imports. The outlook for the USD remains bearish.
  • Locally, a broader bearish bias remains entrenched on the Kwacha, which extended its journey north of the 21.000 mark yesterday.  Note, the Kwacha has started the year in the red, down by -0.49% on a YTD basis. Losses are, however, modest when compared to its regional peers South Africa and Botswana.

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Nicholas Kabaso

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