Taxation and Infrastructure Financing

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Taxation and Infrastructure Financing

• Presentation by
• Danies K. Chisenda

Lusaka, Zambia
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Presentation Outline

• Introduction
• Financing for Development
• Taxation versus Infrastructure Development
• Some Challenges
• Conclusion

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Introduction

• The Zambian Government has approved and launched
  the Vision 2030 and the Fifth National
  Development Plan (FNDP) 2006 - 2010 (Five year
  Plan).
• Emphasis in the FNDP is mainly on infrastructure
  development due to its pivotal role in supporting
  private sector investment (economic growth).

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Introduction (Contd)

• In order to undertake this development, there is
  need for resource mobilisation both domestically
  and internationally
• Many big infrastructure projects have largely
  been financed by borrowing from multilateral or
  international institutions.

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Introduction (Contd)

• In Financing the Budget (Resource Mobilisation)
• Tax revenue
• Direct taxes - income tax, corporate tax,
  withholding taxes, etc.
• Indirect taxes - VAT, import taxes, excise
  duties, etc.
• Non-Tax Revenue
• Fees, fines, levies and others
• Grants from cooperating partners
• Budget Support and project Grants

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Introduction (Contd)

• Domestic financing
• - Bank and non bank borrowing
• Foreign financing
• - Project and programme loans

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Introduction (Contd)

• Spending of Resources (Expenditure)
• Recurrent Expenditure
• - Personal emoluments and operations of
  Government.
• Capital expenditure
• - Fixed Assets - Infrastructure (roads,
  railways, dams, building, power stations,
  water supply plants, etc.
• - Movable Assets - motor vehicles, equipment,
  etc.

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Financing for Development

• This mainly involves fixed assets
  (Infrastructure). In Zambia, financing for
  infrastructure is by both domestic and foreign
  resources
• Domestic resources not adequate to finance major
  infrastructural projects
• Hence reliance on foreign borrowing and grants

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Financing for Development (Contd)

• Some new ideas or innovations
• - Earmarking of some Domestic revenues for
  infrastructure i.e. portion of excise duty
  (fuel levy) for road maintenance, and excise
  duty on electricity also earmarked for rural
  electrification.
• But resources not adequate.
• Other alternatives
• - Public Private Partnership (PPP)
• BOT (Build Operate Transfer)
• - Private sector investment
• - user charges

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Taxation versus Infrastructure Development

• Some questions/Issues
• Should infrastructure projects be exempt from
  taxation?
• In practice, infrastructure projects financed by
  co-operating partners are tax exempt.
• Reasons advanced-
• - infrastructure projects will be too costly
• - mainly Government projects, not taxed.

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Taxation versus Infrastructure Development
(contd)

• Should privately undertaken infrastructure
  projects also be exempt from tax?
• Tax Exemptions are bad because
• - distortionary
• - unfair
• - reduce revenues/ reduce tax base

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Some Challenges

• Tax policy and administration must be tailored in
  such way that they yield adequate resources to
  Government but must be fair and effective in
  order to promote economic growth.
• Some problems in tax administration
• - Transfer pricing, tax sparing, smuggling,
• non-tax compliance have negative impact
• on total revenue,

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Some Challenges (Contd)

• Tax exemptions have an effect of shrinking the
  tax base i.e. less revenue to Government.
• Taxing infrastructure projects financed by
  multilateral institutions or cooperating partners
  may face problems as they may not provide extra
  resources and they will ask recipient country to
  find extra money.
• User charges as a means of financing may be
  ineffective if services are rendered to the poor.

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Some Challenges (Contd)

• Financing of infrastructure for developing
  countries involves colossal amounts of money,
  hence the multilateral institutions and
  cooperating partners will continue to play an
  important role.
• The private sector involvement in infrastructure
  financing is very much needed especially in
  sectors that are commercially viable i.e. energy
  sector.

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Conclusion

• Financing access to basic utilities is a costly
  venture requiring huge amount of resources and
  the challenge for tax policy and administration
  is to mobilise adequate financial resources.
• The linkage between taxation and infrastructure
  financing is not always direct for developing
  countries because of the pooling of different
  resources in one basket.

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• I thank you for your attention.
• ___________