Planning a Change Strategy for Tax Planning a Change Strategy for Tax Administration: What are the Administration: What are the

Ingredients & Support Systems Ingredients & Support Systems ––the case of Zambiathe case of Zambia

A Paper Presented at a Workshop Jointly A Paper Presented at a Workshop Jointly Organized by the World Bank Institute Organized by the World Bank Institute –– PRMPSPRMPS

Cape Town, South AfricaCape Town, South Africabyby

Berlin MsiskaBerlin Msiska, , BA ( Ed Math), FCMA, BA ( Ed Math), FCMA,

MaBFDMaBFD, , Commissioner General.Commissioner General.

Zambia Revenue AuthorityZambia Revenue Authority

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BACKGROUND BACKGROUND

•• Revenue Collection PreRevenue Collection Pre--ZRAZRA–– In the 1970In the 1970’’s, public revenue collection in Zambia was s, public revenue collection in Zambia was

30.0 percent of GDP30.0 percent of GDP,, of which 11.0 percent of which 11.0 percent camecame from the from the mining sector mining sector

–– 1990s Revenue collection fallen to 13 percent of GDP. Main 1990s Revenue collection fallen to 13 percent of GDP. Main reasons: decline in copper revenue and poor tax reasons: decline in copper revenue and poor tax administration by Government departments.administration by Government departments.

–– Consequences: heavy dependence on donor support. Consequences: heavy dependence on donor support.

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•• Government ResponseGovernment Response–– 1992 embarked on reforming the tax system. 1992 embarked on reforming the tax system. –– Reform to address Reform to address tax policytax policy and and tax administrationtax administration..–– In May 1992 Tax Policy Task Force constituted by Minister In May 1992 Tax Policy Task Force constituted by Minister

of Finance to deal with tax reform.of Finance to deal with tax reform.–– 1993/94 Parliament approved the major reforms1993/94 Parliament approved the major reforms

BACKGROUND Cont…

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BACKGROUND ContBACKGROUND Cont……

1.1. Tax Policy reforms such as:Tax Policy reforms such as:--–– Introduction of VAT to replace Sales Tax. Introduction of VAT to replace Sales Tax. –– Simplified personal income tax structure.Simplified personal income tax structure.–– Elimination of Elimination of ““nuisancenuisance”” taxes, which raised little revenue at high cost.taxes, which raised little revenue at high cost.

2.2. Tax Administration ReformTax Administration Reform–– Creation of Creation of a quasia quasi--independent Revenue Authority through the 1993 Act of independent Revenue Authority through the 1993 Act of

Parliament. Parliament. –– In 1994 the Zambia Revenue Authority established:In 1994 the Zambia Revenue Authority established:-- mergemergerr of the of the

Department of Income Taxes and the Customs and Excise departmenDepartment of Income Taxes and the Customs and Excise department. t. VAT incorporated as an operating division.VAT incorporated as an operating division.

–– ZRA to operate as an autonomous body.ZRA to operate as an autonomous body.

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BACKGROUND ContBACKGROUND Cont……

•• RESULTS OF 1993 REFORMSRESULTS OF 1993 REFORMS–– Increase in Revenue to Increase in Revenue to GDP from 13.0 percent GDP from 13.0 percent

to 18.0 percent to 18.0 percent –– Tax effort ratio (18.0% of GDP) maintainedTax effort ratio (18.0% of GDP) maintained as as

economy growseconomy grows..–– Tax effort ratio (18% of GDP) maintained as Tax effort ratio (18% of GDP) maintained as

concessions are given to our large mining sector concessions are given to our large mining sector and other areas.and other areas.

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ESTABLISHING OF ZAMBIA REVENUE AUTHORITY

•• Engaged consultant to structure its Engaged consultant to structure its creationcreation

•• Address Governance. i.e. composition of Address Governance. i.e. composition of Governing board Governing board

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Secretary to Treasury Secretary to Treasury ––Ministry of Finance & Ministry of Finance & National PlanningNational PlanningGovernor Governor –– BOZBOZPermanent Secretary Permanent Secretary ––Ministry of JusticeMinistry of JusticeBankersBankers’’ Association of Association of ZambiaZambia

LawyersLawyers’’ Association of Association of ZambiaZambiaZambia Institute of Zambia Institute of Chartered AccountantsChartered AccountantsZambia Association of Zambia Association of Chambers of Commerce Chambers of Commerce & Industry& Industry2 Members appointed 2 Members appointed by Ministerby Minister

ESTABLISHING ZRA … continued

Composition of Governing boardComposition of Governing board

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ESTABLISHING ZRA … continued

–– Top management option: All Zambian vs. Top management option: All Zambian vs. ExpatriateExpatriate

–– Chose expatriate optionChose expatriate option–– Time frame given to expatriate to Time frame given to expatriate to

Zambianise the positionZambianise the position–– February 2002 Zambianisation program February 2002 Zambianisation program

completed.completed.

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ESTABLISHING ZRA … continued

–– Donor supportDonor support–– Approached DFID (British)Approached DFID (British)–– DFID Support DFID Support

1.1. Technical supportTechnical support•• Paid expatriatesPaid expatriates•• Engagement of consultants to assess training, business Engagement of consultants to assess training, business

process and legislation process and legislation 2.2. Financial supportFinancial support•• Modernisation mainly ITModernisation mainly IT

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ESTABLISHING ZRA … continued

–– Engagement of staffEngagement of staff•• Former employees of Government department made to Former employees of Government department made to

apply in ZRAapply in ZRA•• Engaged technical staff on contract basisEngaged technical staff on contract basis•• Engaged support staff on permanent basisEngaged support staff on permanent basis

–– Introduced minimum qualificationsIntroduced minimum qualifications–– Initially worked with a hybrid of old experienced Initially worked with a hybrid of old experienced

and new qualified technical staff. VAT staff were and new qualified technical staff. VAT staff were new graduatesnew graduates

–– Currently predominately qualified staffCurrently predominately qualified staff–– Competitive remuneration offeredCompetitive remuneration offered

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ESTABLISHING ZRA … continued

–– Integrity perceptionsIntegrity perceptions•• Established Internal Affairs UnitEstablished Internal Affairs Unit•• Disciplinary codeDisciplinary code

–– Sustenance of autonomySustenance of autonomy•• Support from politician through performance Support from politician through performance

support of the executivesupport of the executive

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CHALLENGES

•• Improvement of the Corporate ImageImprovement of the Corporate Image•• Capturing into the tax net the Capturing into the tax net the

informal/shadow/cash economyinformal/shadow/cash economy•• Tax Payer Education improvementTax Payer Education improvement•• Intelligent exploitation of data (data Intelligent exploitation of data (data

mining and predictive analysis)mining and predictive analysis)•• Challenge of changing from tax focus to Challenge of changing from tax focus to

taxpayer focustaxpayer focus

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CONCLUSION

ZRA is committed to continuous ZRA is committed to continuous improvement in its operations by improvement in its operations by sharing information with other Tax sharing information with other Tax administrations.administrations.