Fuel Tax Risks Fiscal Gains
By Francis Maingaila ♥️
Lusaka, Zambia24 --- (5-5-2026) - The Zambia Institute of Chartered Accountants (ZICA) has cautioned that the government’s decision to suspend fuel import taxes may undermine recent fiscal gains, as Zambia continues to navigate external shocks linked to global oil price volatility arising from the US–Iran conflict.
Speaking at a quarterly economic briefing, ZICA President Yande Siame Mwenye said Cabinet’s 31st March 2026 decision to zero-rate VAT and suspend excise duty on fuel imports, though intended to stabilise prices, has effectively reintroduced subsidy-like pressures on the national budget.
“The distinction between a tax suspension and a subsidy is minimal,” Mwenye said. “Both effectively redirect government revenue towards stabilising fuel prices.”
She warned that the resulting fiscal gap could threaten key budgetary allocations, including K7.65 billion for social cash transfers, K26.2 billion for health, and K33 billion for education in the 2026 national budget.
Following the policy shift, the Energy Regulation Board adjusted fuel pump prices effective 1st May 2026. Diesel increased to K33.99 per litre from K29, kerosene to K35.05 from K32.16, and aviation fuel to K37.98 from K34.74, while petrol remained unchanged at K27.15 per litre. ZICA noted that without government intervention, fuel prices could have more than doubled.
However, the relief has been uneven. Diesel and kerosene users absorbed the price increases, a development ZICA described as regressive.
Kerosene remains the primary energy source for an estimated 7.5 million people in rural and peri-urban areas without access to electricity, making the impact particularly severe on low-income households.
“Any fiscal interventions that are necessary must be targeted, time-bound, transparent, and prudent,” Mwenye said.
ZICA also raised concern over developments in the domestic bond market, where the April 2026 government securities auction recorded significant undersubscription.
Only K1.285 billion was raised against a target of K6.3 billion, representing roughly 20 percent uptake.
This marked a sharp reversal from January and February 2026, when auctions were oversubscribed by 144.8 percent, attracting bids exceeding K10 billion.
“Undersubscription is not just a technical auction outcome,” Mwenye said. “It is a market signal.”
She said the weak demand reflects growing investor concerns around debt sustainability, rising borrowing needs, and policy credibility.
She further warned that if government is forced to reissue bonds at higher yields, borrowing costs could rise and private sector credit may be crowded out.
On the macroeconomic front, ZICA acknowledged positive developments, noting that annual inflation declined to 7.1 percent in March 2026 from 7.5 percent in February.
The improvement was attributed to a stronger kwacha and a record maize harvest of 3.7 million tonnes.
In response, the Bank of Zambia reduced its monetary policy rate by 75 basis points to 13.5 percent in February 2026. Inflation is projected to edge closer to the central bank’s 6 percent target by year-end.
However, ZICA warned that these gains remain fragile. “Inflationary pressures in Zambia are largely influenced by exchange rate dynamics,” Mwenye said.
She recommended that government prioritise strengthening foreign exchange inflows through mining and agriculture rather than relying heavily on monetary policy adjustments.
She added that rising fuel prices could quickly reverse inflation gains by increasing transport and production costs across the economy.
Zambia’s fiscal deficit has improved significantly, narrowing from 9 percent of GDP in 2021 to 3.1 percent in 2025, with projections of 2.1 percent in 2026. ZICA described this as commendable progress in fiscal consolidation.
However, the Institute cautioned that a pending supplementary budget request to Parliament could disrupt this trajectory. It warned that frequent reliance on supplementary budgets weakens fiscal discipline, reduces transparency, and complicates long-term planning.
Zambia successfully completed its 38-month IMF Extended Credit Facility programme in January 2026, unlocking the final disbursement of US$190 million and bringing total support to US$1.7 billion.
She described the completion as an endorsement of Zambia’s reform path but emphasised that it marks a transition phase rather than an endpoint.
The country has opted not to renew the programme but will instead pursue a successor arrangement to safeguard reform gains.
She also raised concerns regarding the proposed Tax Administration Act, which seeks to consolidate Zambia’s tax legislation under a single framework.
The proposed law would grant the Zambia Revenue Authority expanded enforcement powers, including account freezing, search operations, and personal liability for company directors.
ZICA warned that without independent oversight, the framework could create an imbalance between tax enforcement powers and taxpayer rights.
“A significant power imbalance arises when obligations such as filing and payment are backed by penalties, asset seizures, and criminal prosecution, while rights such as privacy and fair treatment are supported only by internal ZRA customer service mechanisms,” Mwenye said.
The Institute recommended the establishment of an independent Tax Ombudsman, citing models such as South Africa’s Promotion of Administrative Justice Act and the United States’ Taxpayer Bill of Rights.
“For a statutory bill of rights to be effective, violations must trigger actionable remedies,” Mwenye said.
Despite the concerns, ZICA welcomed several recent government policy measures.
The implementation of Local Content Regulations, effective 1st January 2026, was described as a major step toward strengthening domestic participation in the mining sector.
The regulations require mining firms to prioritise local suppliers and maintain detailed procurement records.
ZICA said the policy presents an opportunity to expand local enterprise, create jobs, and broaden the tax base, provided implementation is consistent and effective.
The Institute also welcomed the lifting of export restrictions on maize and mealie meal in April 2026, saying the move will improve access to regional and international markets, increase foreign exchange earnings, and stimulate agro-processing investment.
However, She cautioned that small-scale farmers must be protected from exploitation by intermediaries, given their dominant role in maize production.
She further called for increased investment in the Zambia Agriculture Research Institute and improved early warning weather systems to strengthen agricultural resilience.
She confirmed that its membership amnesty, which ran from 1st January to 31st March 2026, successfully cleared all pre-2026 subscription arrears, allowing members in default to regularise their status.
With the window now closed, the Institute stated that compliance inspections are ongoing and urged employers to ensure all accounting personnel are duly registered and hold valid practising certificates.
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