Taxation and Infrastructure
Financing
Presentation by
Danies K. Chisenda
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Lusaka, Zambia
Presentation Outline
Introduction
 Financing for Development
 Taxation versus Infrastructure
Development
 Some Challenges
 Conclusion
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Introduction
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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).
Introduction (Cont’d)
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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.
Introduction (Cont’d)
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 (Cont’d)
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Domestic financing
- Bank and non bank borrowing
Foreign financing
- Project and programme loans
Introduction (Cont’d)
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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.
Financing for Development
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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
Financing for Development (Cont’d)
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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
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 (cont’d)
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
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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,
Some Challenges (Cont’d)
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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.
Some Challenges (Cont’d)
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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.
Conclusion
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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.
I thank you for your attention.
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