Minister Musokotwane defends targeted tax incentives amid IMF concerns

Finance and National Planning Minister, Situmbeko Musokotwane, has defended Zambia’s selective use of tax incentives, insisting they should be understood within the broader economic context.
His remarks follow concerns raised by International Monetary Fund (IMF) Country Representative Eric Lautier, who warned that Zambia’s wide-ranging tax exemptions were complicating the tax system and weakening domestic revenue collection.
Speaking at the Economic Outlook 2026 forum hosted by FNB Zambia in partnership with the American Chamber of Commerce, held in Lusaka on Tuesday at Radisson Blu Hotel, Musokotwane argued that incentives were necessary to restore competitiveness in key sectors.
He explained that Zambia’s previous mining tax regime had been uncompetitive, causing the country to fall behind regional rivals such as the Democratic Republic of Congo.
“Mining taxation in Zambia was way out of line. We corrected that, brought stability, and now the industry is growing,” he said.
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Musokotwane also highlighted reforms in the manufacturing sector, noting that taxes on imported raw materials had been removed to help local producers compete more effectively within regional trade blocs such as COMESA.
“What we have seen is an explosion in the manufacturing sector,” he said, pointing to the increasing availability of Zambian-made products in South African supermarkets.
Earlier, Lautier stressed the need for sustained reforms aimed at simplifying the tax system and strengthening revenue mobilisation.
While acknowledging that incentives are often introduced to attract investment, he cautioned that their cumulative impact had made Zambia’s tax framework complex and less predictable.
“Tax exemptions continue to erode the tax base to some extent,” he said, adding that the Tax Expenditure Report published in December 2024 marked an important first step in measuring the fiscal cost of such incentives.
He urged authorities to go further by evaluating which tax expenditures still delivered meaningful economic benefits.
“The objective is to ensure a fairer, simpler and more predictable tax system,” he said.
The IMF, he explained, had recommended harmonising corporate income tax rates, reducing exemptions in personal income taxation, and ensuring fringe benefits were fully included in the tax net to promote equal treatment of taxpayers.
Lautier also called for reforms to the Value Added Tax (VAT) system, noting that numerous exemptions and zero-rated items have complicated administration, undermining compliance and delaying refunds.
In addition, he pointed out that property tax, capital gains tax and rental income tax — largely administered by local authorities — remain under-collected despite their strong potential to support public spending.
“Without durable domestic revenue gains, it becomes very difficult to sustain fiscal adjustment,” he said, noting that domestic revenues remained the most reliable and affordable source of government financing, particularly amid volatile global conditions.
Meanwhile, FNB Zambia Head of Corporate and Investment Banking, Luyanga Mufungulwa, said the Zambia–United States economic relationship continued to grow in significance.
He noted that the forum brought together policymakers, financiers and business leaders to discuss Zambia’s economic prospects for 2026, against the backdrop of ongoing fiscal reforms, debt restructuring efforts, and strategies to stimulate private-sector-led growth.
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