Finance minister Alexander Chikwanda

Government lacks fiscal discipline to manage mine VAT refunds – JCTR

The Jesuit Centre for Theological Reflection says government lacks the fiscal discipline required to manage VAT refunds to mining companies and other exporters.

Last Thursday, finance minister Alexander Chikwanda announced in Parliament that the government had realigned the provisions of VAT Rule 18 on proof of export requirements to ensure that mining companies and all exporters are not unduly inconvenienced by general administrative rules that he said could affect their cash flows and operations.

Government owes mining firms and other exporters over US$800 million in accumulated VAT refunds.

But in an interview, JCTR programmes officer Andrew Simpasa said while this would be a welcome move for mining companies and exporters, concerns remained as to whether the government can meet its obligations, given their lack of fiscal discipline and low resource base.

“It is pretty much true that the PF government lacks fiscal discipline and there has been a lot of fiscal indiscipline on account of unplanned expenditure,” he said.

Simpasa said given the realigned VAT refunds, there was a high likelihood of the government experiencing a default on some sectors in the 2015 national budget.

“Given that we have just started the fiscal year and the budget has been approved, it is very likely that during the course of the year, on the issue of the VAT refunds, we might experience a default which is likely to deepen our fiscal deficit as a nation. We are likely to experience either funding gaps to critical social sectors if it [VAT Rule 18] is honoured given our low resource base, or some companies owed money are likely to experience a default from the side of the government,” he added.

He further said the government needed to urgently improve its fiscal discipline and reduce wastage of resources because the country was in a delicate financial position.

“In light of VAT Rule 18, we will continue to insist on caution on the side of government,” said Simpasa.

According to the Auditor General’s report for 2013 released last month, government exceeded its budgetary allocation by over K500 million.

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