Jump to Content Kanyama lauds NCC move to exempt benefits from tax

LUSAKA economist Chibamba Kanyama

By Kabanda Chulu in Kitwe

LUSAKA economist Chibamba Kanyama has said the adoption of the proposal by the National Constitutional Conference (NCC) to exempt pension, gratuity and retrenchment benefits from tax will have a positive impact on national economic development and investment growth.

Commenting on the matter yesterday, Kanyama said the development would mean that the allocation and management of resources would shift from government to individual households.

He said the adoption would also help workers from experiencing double taxation given that they would have spent the entire working career paying taxes and later receive pension from which they would have paid tax already.

"This decision evens out this anomaly and helps an ordinary retiree to be on a better platform so as to maximise these resources without suffering undue loss. I also urge the National Constitution Conference to make further adoptions that will totally transform the management of pensions in Zambia," Kanyama said.

"The high levels of inefficiency governing pensions have lowered the value of these funds. In view of this, it is recommended that pension funds be regulated on how they invest these funds so that any such yields that grow the fund should not seem to benefit the fund manager only.

The administrative costs and chargeable rates on investment gains are far more than the declared fund bonuses so that at the end of each actuarial year, various pension schemes have lower values than perceived to declare to individual pensioners."

He observed that in every country, pension funds and other post-retirement benefits had accounted for the huge investments in infrastructure and other businesses.

"Though these resources are managed and allocated by pension funds on behalf of individuals, they underline the importance of this money in economic growth. Taxing pensions is a misallocation of resources from areas where they could have a direct impact on the economy to government that will distribute them across the board, at times in less effective channels of growth," said Kanyama. "In addition, there should be provision for employees to borrow against pension funds so that they can use alternative sources of funding to undertake personal investments while they are still working. As at now, the law prohibits employees to access these funds by offering them as collateral.

The problem is that within most companies, employees on gratuity are able to access funds as their contracts get renewed while the majority will have to wait until they are 55. Given that the life expectancy rate has reduced significantly, the law should allow for employees to benefit from their pension while they are working and have the opportunity to invest in competitive areas."