TAX EVASION: A CRITICAL ANALYSIS OF THE LAW IN THE MINING SECTOR

IN ZAMBIA.

By

JANET NAMUTE

(005-147)

A Dissertation submitted to the Faculty of Law of the Cavendish University in partial fulfilment
of the requirements for the award of the Degree of Bachelors of Laws (LLB).

2020 CUZ

i
 DECLARATION

I, JANET NAMUTE, do hereby declare that this dissertation is my authentic work, and to the
best of my knowledge, information and belief, no similar piece of work has previously been
produced at Cavendish University Zambia or any other institution for the award of Bachelor of
Laws Degree. All other works in this essay have been duly acknowledged.

…………………………………………………

Candidate’s signature

ii
 I recommend that the Directed Research Essay prepared under my supervision by:

JANET NAMUTE

(005-147)

Entitled:

TAX EVASION: A CRITICAL ANALYSIS OF THE LAW IN THE MINING SECTOR

IN ZAMBIA.

Be accepted for examination. I have checked it carefully and am satisfied that it fulfills the
requirements pertaining to format as laid down in the regulations governing Directed Research
Essays.

SUPERVISOR: MR. VICTOR MWAPE DATE:

…………………………………

iii
 DEDICATION
To my late mother Mrs. Judith Chitala Simute, your unwavering love, prayers, support, and all
resources that you rendered to me during my period of studies and life was an inspiration to me.
There is no greater love than that of a mother. May your soul rest in eternal peace. I love you,
until we meet again.

My sisters, Mable Namute Haklima, Grace Namute Singogo, Mbialesi Namute Mwanakawte and
Eunice Namute, your encouragement, motivation and prayers have kept me going in this
research and studies.

I appreciate you all.

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 ABSTRACT
The purpose of this thesis was to enquire into the possible causes of tax evasion in the mining
sector in relation to the law in its implementations of the legal and policy frameworks, and to
suggest reforms or recommendations, which might be considered by the legislature to limit those
practices. Through the enhancement of tax evasion, penalties in order to deter would be tax
evaders from evading tax, but rather improve tax compliance by taxpayers. This study also
brought about the impact of tax evasion on the revenue collection performance in the mining
sector in Zambia. This research was conducted through the Government Institutions about
mining such as the Ministry of Mines, Zambia Revenue Authority as well as the private sector in
relation to mining, and the Zambia Chamber of Mines provided the study with analytical data,
which was interpreted in the study. It examined specific factors, which led to the increase in tax
evasion by taxpayers and established mechanisms to curb the problem.

Data was collected through documentary analysis, questionnaires and interviews. Quantitative
data were analyzed by means of descriptive statistics Qualitative data were subjected to content
analysis.

Based on the findings and analysis on the data, it can be concluded that there are many factors
rising from tax evasion and its impact on the economy is high in Zambia and mining tax region
in particular. The government must focus on educating citizens as an instrument to guide them to
best understanding to the tax laws and the role of tax to enhance and flourish the society. The
level of income must be taken into account. Furthermore, the government must pay more
attention in the implementations of their policy, legal frameworks in order to create a larger tax
base that will generate tax incomes, and which will be beneficial to the economic development of
the mining industry and Zambia at large. In addition, simplification of tax laws should be taken
into consideration as it has been show in this study that taxpayers find it difficult to understand
the terminologies in the Acts, stiffer penalties on evades and the introduction of personal filing of
taxes, which highlighting the filing of personal income returns by the self- employed and wage
earning employees will improve tax compliance for the enhancement of tax revenue collection in
Zambia

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 ACKNOWLEDGEMENTS
First and foremost, it is my pleasant duty to express profound gratitude to God, for the successful
completion of the research and the paper. Special thanks goes to my mother Mary Chitala
kayumba, for your understanding, prayers and unwavering support rendered during the period of
this research. You are an inspiration and am proud to be your Daughter.

I wish to acknowledge my profound gratitude to my Supervisor Mr. Victor Mwape for the
guidance and direction in the preparation of this work. I am grateful.

I am perpetually grateful to my siblings and friends, Mbialesi Namute Mwanakatwe, Eunice

Namute, Mable Namute Hakalima, Grace Namute Singogo, Naviga Chitala and my friends
Chilufya Mulilo, Leocaida Masanzi, Olivia Chembo Mawere, Rachel Kayame, Halima, and
Annie Kalunga Siafumba for their encouragement, motivation and prayers rendered during my
academic life and family moments.

Special thanks to the Zambia Revenue Authority (ZRA) for providing me with relevant
information during the period I was conducting interviews with their respective personnel.

I further want to extend my well-founded and heartfelt gratitude to Mr. Mike Mwale, who was
there for me inclusive of crucial moments from the time I enrolled into law school until my
completion thank you for your understanding and love during this period. Goodness and Mercy
shall follow you all the days of your life.

May the good Lord bless you All.

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 LIST OF ABBREVIATIONS

ZRA Zambia Revenue Authority

ZCM Zambia Chamber of Mines

MOM Ministry of Mines

MOF Ministry of Finance

TRA Tarzana Revenue Authority

VAT Value Added Tax

ZEC Zambia EITI Council

AMV African Mining Vision

MNC Multinational Corporations

MMD Mines and Mineral Development

ZDA Zambia Development Agency

FDI Foreign Direct Investment

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Table of Contents
DECLARATION.......................................................................................................................................ii
DEDICATION..........................................................................................................................................iv
ABSTRACT...............................................................................................................................................v
ACKNOWLEDGEMENTS......................................................................................................................vi
LIST OF ABBREVIATIONS..................................................................................................................vii
CHAPTER ONE........................................................................................................................................1
GENERAL INTRODUCTION.................................................................................................................1
1.1 Introduction.........................................................................................................................................1
1.3 Statement of the Problem....................................................................................................................4
1.4 Research Objectives............................................................................................................................5
1.5 Research Questions........................................................................................................................5
1.6 Justification of Significance................................................................................................................5
1.7 Scope of Study......................................................................................................................................6
1.8 Outline of Chapters.............................................................................................................................6
Chapter 1: Introduction............................................................................................................................6
Chapter 2: Literature Review...................................................................................................................6
Chapter 3: Research Methodology...........................................................................................................7
Chapter 4: Data Presentation and Data Analysis...................................................................................7
Chapter 5: Conclusion and Recommendations:......................................................................................7
1.9 Conclusion............................................................................................................................................8
CHAPTER TWO.......................................................................................................................................9
LITERATURE REVIEW.........................................................................................................................9
2.1 Introduction.........................................................................................................................................9
2.2Taxes......................................................................................................................................................9
2.3 Taxation Concept...............................................................................................................................12
2.4 Tax Evasion........................................................................................................................................13
2.5 Key Institutions in the Management of Mining Revenue...............................................................16
i. Zambia Revenue Authority.............................................................................................................17
ii. The Chamber of Mines in Zambia.................................................................................................17
iii. Zambia EITI Council (ZEC).......................................................................................................17
2.6 Reasons for Tax Evasion...................................................................................................................18
2.7 Effects of Tax Evasion.......................................................................................................................18

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2.8 Zambian Tax Legislation..................................................................................................................20
2.9 Legal Provisions.................................................................................................................................20
2.10 Laws and Policies Governing Mining and Management of Mineral Revenues...........................21
2.11 Weaknesses in Tax Legislation.......................................................................................................22
2.12 Mining Sector Taxes........................................................................................................................24
2.13 Mechanism to Curb Tax Evasion...................................................................................................26
2.14 Conclusion........................................................................................................................................27
CHAPTER THREE.................................................................................................................................28
RESEARCH METHODOLOGY...........................................................................................................28
3.1 Introduction.......................................................................................................................................28
3.2 Research Methodology and Approach.............................................................................................28
3.3 Research Design.................................................................................................................................30
3.4 Time Horizon.....................................................................................................................................31
3.5 Sources of Data..................................................................................................................................31
3.6 Primary Data.....................................................................................................................................31
3.7 Secondary Data..................................................................................................................................31
3.8 Sampling Frame.................................................................................................................................31
3.9 Sampling Technique..........................................................................................................................32
3.10 Purposive Sampling.........................................................................................................................32
3.11 Dimensional Sampling.....................................................................................................................33
3.12 Data Collection Techniques............................................................................................................33
3.13 Questionnaire...................................................................................................................................33
3.15 Interviews.....................................................................................................................................34
3.16 Reliability and Validity...................................................................................................................34
3.17 Ethical Consideration......................................................................................................................35
3.18 Limitations of The Study.................................................................................................................36
3.19 Conclusion........................................................................................................................................37
CHAPTER FOUR...................................................................................................................................38
DATA ANALYSIS AND INTERPRETATION....................................................................................38
4.1 Introduction.......................................................................................................................................38
4.2 Insight On the Framework and Interpretation of the Questionnaire............................................38
4.3 Presentation, Analysis and Interpretation of the Questionnaire....................................................38
4.4 Zambia Reuven Authority Questionnaire Response Rate..............................................................39

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4.5 Response by taxpayers on measures taken by the ZRA in educating tax payers that do not
understand the importance of tax evasion in the mining sector...........................................................40
4.6 Measures undertaken by ZRA to enhance adequate information on tax compliance and tax
evasion penalties......................................................................................................................................40
4.7 Measures ZRA has put in place to eliminate the barriers identified with it over the past years in
order to prevent tax evasion...................................................................................................................41
4.8 Presentation, Analysis, And Interpretation of Interviews..............................................................42
4.9 Challenges institutions assigned to the collection of revenue face with relation to the law in
regards to tax evasion in the mining sector in accessing its effectiveness in its policy framework....42
4.10 Steps taken by ZRA through its legal and policy frameworks to cooperate with other
institutions to eliminate its barriers.......................................................................................................43
4.11 Implementation of the penalties highlighted in the Zambia Income Tax Act CAP 323 of the
Laws of Zambia.......................................................................................................................................45
4.12 Chamber of Mines Representative.................................................................................................46
4.13 Ministry of Mines Questionnaire Response Rate..........................................................................47
4.15 Tax Payers in The Mining Sector...................................................................................................47
4.16 Reasons as to Why Taxpayers Evade Taxes Response.................................................................48
4.17 Conclusion........................................................................................................................................51
CHAPTER FIVE.....................................................................................................................................53
CONCLUSION AND RECOMMENDATIONS...................................................................................53
5.1 Introduction.......................................................................................................................................53
5.2 Summary of The Major Findings.....................................................................................................53
5.3 Findings..............................................................................................................................................54
5.4 Recommendations..............................................................................................................................55
5.5 Recommendation for Further Studies..............................................................................................56
BIBILIOGRAPHY..................................................................................................................................57
TABLE OF STATUTES...........................................................................................................................57
BOOKS.....................................................................................................................................................57
APPENDICES.........................................................................................................................................64
QUESTIONNAIRE SET 1......................................................................................................................64
QUESTIONNAIRE SET 2......................................................................................................................64
QUESTIONNAIRE SET 3......................................................................................................................65
QUESTIONNAIRE SET 4......................................................................................................................65

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11
 CHAPTER ONE

GENERAL INTRODUCTION

1.1 Introduction

The rational of this thesis is to give a clear understanding on Tax Evasion in Zambia and it will
specify partly onto the Mining Sector in Zambia. Which will mainly focus on the sections that
prohibit tax evasion under the Income Tax Act. This study will go on to outline some of the
ineffectiveness towards the collection of revenue because of tax evasion, affecting a great loss on
the economic development of Zambia. It will further investigate the causes and extent of tax
evasion in Zambia by reviewing the current legal and administrative measures that are used to
minimise tax evasion in Zambia through The Zambia Revenue Authority (ZRA), Ministry of
Mines, Ministry of Finance and other relevant Sectors. This study focused more on the influence
of tax evasion toward revenue collection performance.

Tax evasion hence can be said to be an illegal activity in which a person or entity deliberately
avoids paying a true tax liability1.

1.2 Background

In accordance to the Zambian Law, the Income Tax Act Chapter 323 2 of the Laws of Zambia is
the legislation that governs taxes in Zambia. Taxation can be defined as a process of raising
revenue for the Central Government through levy on income and gains of resident persons3.
While Tax Evasion can be described as the illegal evasion of taxes by individuals, corporations,
and trusts. Tax evasion often entails taxpayers deliberately misrepresenting the true state of their
affairs to the tax authorities to reduce their tax liability and includes dishonest tax reporting, such
as declaring less income, profits or gains than the amounts actually earned, or overstating
deductions4. Tax evasion can as well be said to be the act of not paying taxes that are owed to the

1
Tax Evasion & Whistleblowers: Curious Policy or Durable Strategy? Tax Law: International & Comparative Tax eJournal. SSRN.
Accessed 5 May 2020.
2
Income Tax Act
3
legal-dictionary.thefreedictionary/taxation
4
ibid

1
central government, which is seen to be an underappreciated problem in Zambia, which results to
the gross loss on Zambians economic development.

A number of African countries have implemented comprehensive reforms of their tax legal
administration, which is an important change to improve the efficiency of the tax administration
itself. Part of the exercise has been to establish autonomous revenue authorities, in addressing
the decline in revenues through an Act of Parliament of 1993, the (ZRA) Zambia Revenue
Authority was subsequently formed in 1994 as a quasi- independent Revenue Authority with the
mandate to collect taxes on behalf of the Government of Zambia (Zambia Revenue Authority,
2009). These reforms have resulted in an improvement in the growth of tax revenues. The
standard measure of tax evasion is the “tax gap.” The tax gap is the amount of taxes that are
owed but are not paid in a voluntary manner.

Tax evasion is an activity commonly associated with the informal economy 5. One measure of the
extent of tax evasion is the amount of unreported income, which is the difference between the
amount of income that should be reported to the tax authorities and the actual amount reported.
In contrast, tax avoidance is the legal use of tax laws to reduce one's tax burden. Both tax evasion
and avoidance can be viewed as forms of tax noncompliance, as they describe a range of
activities that intend to subvert a state's tax system, although such classification of tax avoidance
is not indisputable, given that avoidance is lawful, within self-creating systems 6. The incidence
of taxation and the prevalence of tax evasion are vast and cannot be underestimated. Since
centuries past, tax evasion, by its very nature, is difficult to observe7

According to many authors, the level of evasion of income tax depends on the detection
probability and the level of punishment provided by law 8. Tax evasion is a crime in almost all
developed countries, and the guilty party is liable to fines and/or imprisonment. In Zambia, many
acts that would amount to criminal tax evasion in other countries are treated as civil matters.
Civil tax transgressions may give rise to penalties. It is often considered that the extent of
evasion depends on the severity of punishment for evasion.

5
ibid
6
Michael Wenzel (2002). "The Impact of Outcome Orientation and Justice Concerns on Tax Compliance" (PDF). Journal
7
Fisman and Wei, (2001).
8
Allingham, M. G. and A. Sandmo [1972] ‘Income Tax evasion: A Theoretical Analysis’, Journal of Public Economics, Vol. 1, 1972, pp. 323–38.

2
Tax evasion is an illegal activity in which a person or entity deliberately avoids paying a true tax
liability. Those caught evading taxes are generally subject to criminal charges and substantial
penalties. In accordance to the Income Act of 2018, the General Penalty under section 98 of the
act highlights that Any person guilty of an offence against this Act shall, unless any other penalty
is specifically provided therefore, be liable on conviction therefor to a fine not exceeding one
hundred thousand penalty units or to imprisonment for a term not exceeding twelve months, or
to both. And goes further to outline the Penalty for fraudulent returns, as a form of tax evasion
under section 102(1) Any person who willfully with intent to evade or to assist another person to
evade tax- shall be guilty of an offence and on conviction shall be liable to a fine not exceeding
three hundred thousand penalty units or to imprisonment for a term not exceeding three years,
or to both.

Taxpayers use the ambiguity or vagueness in the words of a statute to avoid paying taxes by
interpreting the law to their advantage. Correct interpretation of the law plays an important role
in issues of tax avoidance and evasion. Aside from the penalties for tax evasion, the illegal
income that is associated with the investigation of Revenue can be taxed under the ZRA Code.
The reason for this is that the law applies to the net income of a person regardless of its source.
Which means the same deductions and strictures apply to the funds as the law does not fall under
the title of criminal law. In, Commissioner v. Tellier(1966) 9, it was ruled that an embezzler can
receive tax deductions for the legal fees incurred in the investigation of tax evasion. The
embezzler was still subject to the penalties for tax evasion, but did receive the deduction as the
illegal income was listed as a part of the net income of the defendant.

Taxation as earlier alluded in its definition is the collection of revenue and the revenue collected
from these taxes to be used to increase with the country’s development and economic growth in
all sectors. Tax is a financial issue and its payment is a civil duty. It is the imposition of a
financial burden for the government on individual firm and companies. In general, the word tax
means any contribution imposed by the government upon individual and companies for the use
of government to provide facilities or services as rendered by the state10. It is the view of many
people that the loss of revenue caused by widespread tax evasion in Zambia is due to inefficient
and inept tax legal administration and major tax players taking advantage of the loopholes in the
9
Commissioner v. Tellier 383 U.S. 687 (1966) no. 351
10
Back, Philippa Foster (2013-04-23)

3
tax laws by avoiding paying certain taxes. Thus, besides generating public revenues,
strengthening tax systems in developing countries is equally important from a governance or
state-building perspective. Despite the emphasis on the importance of taxation and the efforts
made at improving its efficiency, citizens’ aversion to taxes have remained a problem that most
tax authorities have to grapple with. This resulting in revenue losses to governments and
ultimately affects their ability to meet their obligations in regards to the development of a nation
through either its infrastructural improvements or economic stand or growth. Other law
enforcement agencies may become involved in the investigation of tax evasion, especially if the
investigation discovers that there is income obtained illegally involved. The full extent of tax
evasion penalties can be imposed in conjunction with the criminal investigation for the method in
which the funds were received.

Therefore, collecting a sufficient amount of revenues is essential for a country to fund pro-poor
programs, built effective government institutions and strengthen democratic structures, stimulate
sustainable economic growth and reach national and international development goals. To reach
these goals it is, however, essential that the tax system is implemented the way it was designed.
Thus, counterproductive activities like tax avoidance practices, that undermine the intentions of
the system, need to be reduced.

1.3 Statement of the Problem

Not only does the law prescribe penalties for late payment of taxes but also Section 102 of the
Income Tax Act Chapter 323 of the laws of Zambia, makes it clear that any person who willfully
with intent to evade or to assist another person to evade tax will be liable to punishment and it
clearly states that, if one is found to be guilty of an offence and upon conviction shall be liable to
a fine not exceeding three hundred thousand penalty units or to imprisonment for a term not
exceeding three years, or to both.

Notably so, however, is that despite having this legislation on the prohibition of tax
incompliance, tax evasion seems to be on increase. The penalties allocated to would-be offenders
are seemingly to be not of much effect as shown in the increased rate of tax evasion due to

4
relaxed penalties placed on tax evaders11. The controversial case of Post V. ZRA12 is just one of
that case in even reference.

Hence, the author in writing this research endeavors to critically examine the law in relation to
tax evasion to find means of curbing this vice. The paper will investigate the adequacy of the
existing legal and policy framework, which further as a result may work to enhancing revenue
collection.

1.4 Research Objectives

1. To analyze the existing legal and policy frame work in regards to tax evasion in the
mining sector in Zambia.
2. To evaluate the effectiveness of the legal and policy framework in the mining sector in
Zambia.
3. To compare the legal and policy frameworks in the Zambia and Tanzania.

1.5 Research Questions

1. What are the existing legal and policy frameworks that excite in the Zambian mining
sector?

2. What is the effectiveness of the legal and policy framework in the mining sector in
Zambia?

3. What are the differences between Zambia’s legal and policy frameworks to Tanzanians
legal and policy framework in both mining sectors?

1.6 Justification of Significance

The Government of the Republic of Zambia, like many other governments in the world,
significantly relies on the revenue to finance both its key infrastructure development and social
service. The purpose or significance of this thesis is to enquire into possible causes of tax
evasion and to come up with suggested reforms, which might be considered by the legislature to
limit these practices or eliminate them. With the need for a review of the legal and administrative
11
ActionAid exposes tax avoidance and evasion by Associated
British Food Group in Zambia’, 14 February 2013,
12
Post V. ZRA

5
measures used to address tax evasion in order to increase compliance levels. The findings of this
study will provide evidence in formulating good tax policies that will create the optimal balance
between tax rates and the tax base and the opportunity that exists in tax systems and laws
motivating influences, which cause taxpayers to refrain from paying tax and uncertainty and
unimplemented penalties.

1.7 Scope of Study

Since no single research can validly cover all areas of the topic the researcher tends that thrust of
this project will be limited within the scope of how taxpayer’s performance on tax are influenced
by the choice of its tax system. The study will focus primarily on Zambia’s Mining sector to be
precise to enable the researcher carryout on extensive investigation on this subject. This study
will as well cover the cause and effects of Tax evasion on the economy through Zambia Revenue
Authority as well as other sectors such as Ministry of Mines, Ministry of Finance as well as other
relevant sectors in relation to the topic and is of the view that this will bear good result. This
research work will try to review the effects, which Tax evasion has directly or indirectly caused
on the revenue generation of the Republic of Zambia and the circumstances that may have given
credence to evade tax and the relevant machinery necessary to check it.

The study was limited to tax revenue generated by the Zambian Government and tax revenue
generated by some selected major sectors of the country. It is worthy to note therefore that in this
study, there is need to also distribute questionnaire to staff members of the various sectors in
order to ascertain the devastating effect of tax evasion scheme on revenue generation of the
country.

1.8 Outline of Chapters

Chapter 1: Introduction

This chapter presents the study on the impact of Tax evasion on revenue collection performance
in Zambia, specifying it to the Mining Sector in Zambia. Other sections include statement of the
problem, general objective, specific objectives, significance of the study, and scope of the study
as well as delimitation of the study

6
Chapter 2: Literature Review

This chapter of the study presents both theoretical and empirical literature reviews on influence
of tax evasion on revenue collection performance as a result of failed tax evasion legislation
implementations and ineffective penalties outlined in both the law and the related authoritative
specific sectors put forward by different Authors. The chapter aiming at identifying existing
literature materials, which formed the basis for further research in terms of data collection and
analysis.

Chapter 3: Research Methodology

This chapter presents research methodology guided this study. It comprises the following
subheadings; the research design, population, sample and sampling technique, data collection
instruments, validity and reliability of the instrument, research procedure and data analysis.

Chapter 4: Data Presentation and Data Analysis

The chapter presents data and findings of the study on effects tax evasion in revenue collection.
The study findings were presented according to the research objectives as stated in chapter one.

Chapter 5: Conclusion and Recommendations:

This chapter contains discussion of the research findings. The discussion relates to the purpose of
the study and questions as well as the research findings. The analysis also draws on theoretical
stances and empirical studies contained in the review of related Literature-Chapter Two. The
researcher’s point of view and comments are also given.

7
1.9 Conclusion

In conclusion, Tax evasion can be viewed as a form of tax incompliance as they describe a range
of activities that intend to subpage the state’s tax system. The goal of taxpayers is to minimize
their financial position, as such they will continue to evade taxes as long as the benefits from
delinquency are greater than the risk of detection and punishment. Tax evasion being an illegal
activity in which a person or entity deliberately avoids paying a true tax liability. Those caught
evading taxes are generally subject to criminal charges and substantial penalties however despite
the levels at which these penalties are being applied or implemented in Zambia in regards to the
Mining sector is that of which this research sits to cub by providing necessary recommendations
its legal capacity in making them effective for the benefit of revenue collection .Thus in regards
to Zambia’s economic development the problem is whether the Commissioner General or rather
Zambia Revenue Authority has effectively implemented this problem given the current rise in
tax evasion and tax avoidance cases as a result of tax payers taking advantage of relaxed
implementation polices. Therefore, ZRA should continually review their systems, strategies and
skills to keep pace with the problem of evasion in Zambia.

8
 CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

This chapter of the study presents both theoretical and empirical literature reviews on influence
of tax evasion on revenue collection performance as a result of failed tax evasion legislation
implementations through its legal frameworks and ineffective penalties outlined in both the law
and the related authoritative specific sectors put forward by different Authors. The chapter
aiming at identifying existing literature materials, which formed the basis for further research in
terms of data collection and analysis.

2.2Taxes

Most taxpayers grumble at having to part with a portion of their hard-earned income to pay taxes
and rates. Taxes form the bulk of a government’s revenue, and it is those taxes, which pay for
public goods, such as the maintenance of law and order, healthcare, and public infrastructure. A
tax can therefore be defined as is a compulsory financial charge or some other type of levy
imposed upon a taxpayer (an individual or legal entity) by a governmental organization in order
to fund government spending and various public expenditures 13 A failure to pay, along with
evasion of or resistance to taxation, is punishable by law. Taxes consist of direct or indirect taxes
and maybe paid in money or as its labor equivalent.

For more than two hundred years, societies have considered, and continued to refine, the
principles which should underpin a fair system of taxation. Efficiency Administration costs for aciency Administration costs for a
government and compliance costs for the taxpayer should be kept to a minimum. Certainty and
simplicity Tax rules should be clear and simple to understand. The taxation regime should
provide certainty so that businesses can plan and make optimal investment decisions.
Effectiveness and Fairness Taxation should produce the right amount of tax at the right time.
Bureaucratic capacity to administer the system and collect taxes is essential to both effectiveness,
and perceptions of fairness within society. Flexibility Taxation systems should be dynamic and

13
Charles E. McLure, Jr. "Taxation". Britannica. Retrieved 3 March 2015.

9
flexible enough to ensure they keep pace with, and are able to adjust to, technological and
commercial developments14.

Taxes are compulsory financial contribution made by a person or body of persons towards the
expenditure of a public authority. Usually is payable in monetary terms. There are two types of
taxes; each type is classified according to the legal and effective incidence to the final payer.
These two types are Direct and Indirect taxes are the main source of government revenue despite
other sources of income, which are subsidiary that are, loan, grants, contribution and public
trading. According to Zambia Income Tax Act CAP 323 15 (2019) taxation is a legal accepted
way of collecting money from qualified source of income.

For a tax to be considered a good tax there are certain criteria’s that need to be followed, which
can be referred to as Principles of a ‘good tax’ criteria.

Many resource rich countries find it difficult to design an ideal taxation regime that responds to
‘good tax’ criteria under today’s competitive conditions that require meeting the differing
interests of the two key stakeholders - government and investors. Smith 16 outlined four principles
of an ideal tax system named as ‘canons of taxation’. These principles are equity, certainty,
convenience and economy. These principles correspondingly noted by Alley are important to the
creation of a tax policy and once upheld, effective taxes are implemented in a manner, which
satisfies the stated purposes of a tax system17.

A number of authors have categorized fundamental criteria against which any fiscal regime can
be evaluated as attractive. These principles, among others, include; stability; equity;
progressivity; clarity and simplicity; risk sharing, efficiency; and neutrality 18. The tax
instruments and the tax frameworks are used to assess the performance of the fiscal regime in
relation to these attributes of ‘good tax’ criteria in order to meet the Consortia Academia
14
Fraser Institute. 2017. Annual Survey of Mining Companies. Available at: https://www.fraserinstitute. org/sites/default/files/survey-of-
mining-comp anies- 2017.pdf
15
Zambia Income Tax Act CAP 323
16
Smith, A. (1776). An inquiry into the nature and causes of the wealth of nations. Indianapolis: Liberty Classics Edition of 1981
17
Alley, C., & Bentley, D. (2005). A remodelling of Adam Smith’s tax design principles. Law papers, 45, 579-624. Retrieved from
http://epublications.bond.edu.au/law_pubs/45
18
Garnaut, R., & Ross, A. C. (1983). Taxation of mineral rents. Oxford: Clarendon Press,Harman, F., & Guj, P. (2013). Mineral taxation and
royalties. In Mineral economics monograph 29 (2nd ed., pp. 92-213). Victoria, Australia: Australian Institute of Mining and Metallurgy.,Kumar,
R. (2011). Research methodology: A step-by step guide for beginners (3rd ed.). London: SAGE, Publications, In., Nakhle, C. (2008). Petroleum
taxation: Sharing the oil wealth - a study of petroleum taxation yesterday, today and tomorrow (pp. 7-15). London: Taylor and Francis
Group..,Nellen, A. M. (2002). The AICPA's 10 guiding principles. The Tax Adviser 33.2 (pp. 100-107

10
Publishing competing interests of the two key stakeholders19. Baunsgaard evaluated several fiscal
instruments in mineral taxation by employing the ratings approach in order to provide an
overview of the advantages and disadvantages of the most common fiscal instruments in the
mining sector. These were based on seven criteria dealing with: neutrality; stability; project risk;
flexibility; fiscal loss; revenue delay; and administration. Stability reported that because of the
significant up-front capital investments, stability argues that tax liabilities should be predictable
and, ideally, stable over the life of the mine before any proposed mining investment takes
place20. Tissot argued that royalty/tax based regimes have an intrinsic instability since
governments cannot deny future administrations the right to legislate taxation 21. The Natural
Resource Charter affirmed that stability permits project development and operations to take place
in a more efficient and socially responsible manner. However, this is not to say that the regime
should be fixed. Both fiscal and contractual regimes need to be subject to modification and have
built-in flexibility to reflect changing and uncertain circumstances 22. Furthermore, in some
countries, governments offer explicit fiscal stability clauses in contracts, promising
renegotiations or immunity in the event of future tax increases. One problem is the short lifetime
of governments when compared with that of many resource projects 23. Otto24 posited that ‘tax
stabilization has been found to be attractive to companies while many governments are hesitant
to use them. The government has a dilemma because on one hand, stabilization agreements
enhance the potential for mineral development, and on the other, they complicate the tax system
and raise administrative challenges.’ Therefore other authors have approved that tax regimes
should be stable and frequent adjustments avoided as they increase the perceived risk of
investment25.

19
hisakulo, E., & Kambani, S. (2017). Competitiveness evaluation of the Zambian mining taxation system. International Journal of Advanced
Research, 5(9), 359-372. http://dx.doi.org/10.21474/IJAR01/5338

20
Guj, P., Bocoum, B., Limerick, J., Meaton, M., & Maybee, B. (2013). How to improve mining tax administration and collection frameworks: A
sourcebook (pp. 4-16). Washington, DC: World Bank and Center for Exploration Targeting. Retrieved from
https://openknowledge.worldbank.org/handle/10986/16700
21
Tissot, R. (2010). Challenges of designing an optimal petroleum fiscal model in Latin America. Energy Working Paper (pp. 4-5). Washington,
DC: Inter-American Development Bank.
22
Natural Resource Charter [NRC]. (2014). Natural resource charter: Precept 4, fiscal regimes and contract terms. Technical guide
23
Daniel, P., & Sunley, M. (2010). Contractual assurances of fiscal stability. In P. Daniel, M. Keen, & C. McPherson (Eds.), The taxation of
petroleum and minerals: Principles, problems and practice (pp. 410–411). New York: Routledge.
24
Otto, J. M. (2007). Competitive position of Mongolia’s mineral sector fiscal system: The case of a model copper mine (pp. 27-28). North
America–Mongolia Business Council Inc
25
Minnitt, R. C. A., & Cawood, F. T. (1999). Information as an alternative to mineral rights taxation. Journal of the South African Institute of
Mining and Metallurgy, 99(6), 341–350.

11
Equity - Equity principle is a concept, as indicated by which has been used to encourage taxation
based on the ability to pay26. It is an issue concerned with whether a tax is fair on taxpayers.
Harman mentioned that the fairness of equity has a number of dimensions including horizontal
equity which implies equal treatment of equals. Vertical equity also refers to equivalent
treatment of companies or resources with different characteristics 27. Implications are that firms
that exploit more valuable resources have a greater ability to pay and so their tax liabilities can
be greater. Similarly, fields with high profitability can be taxed more heavily than those with low
profitability. This is a principle, which is more satisfied with a progressive tax. Progressivity and
regressively - Progressivity means that a tax regime will yield a rising present value of
government revenue as the pre-tax rate of return on a project increases 28. Fiscal regimes need to
be progressive rather than regressive29. A progressive fiscal regime adjusts to changes in prices,
volumes, and projects’ operating conditions. Such flexibility is particularly important given the
high volatility of oil, gas, and mineral prices. Progressive fiscal regimes linked to the projects’
profitability assist in ensuring that the government and investors share benefits fairly.

2.3 Taxation Concept

Taxation is the process or machinery by which communities or groups of persons are made to
contribute in some agreed quantum and method for the purpose of the administration and
development of the society30. In a similar description, tax as a compulsory exaction of money by
a public authority for public purposes. In further definition, tax is a compulsory levy on privately
held assets, work, transactions and other activities and flows as designated by the parliament and
enacted by the government. These different authors concluded that it is possible for tax payers
not to receive anything identifiable for their contribution but that they have the benefit of living
in a relatively educated, healthy and safe society 31. The parliament designates taxes according to
its understanding of equity, while following the prevailing constitution, which also prescribes the

26
ibid
27
Nakhle, C. (2008). Petroleum taxation: Sharing the oil wealth - a study of petroleum taxation yesterday, today and tomorrow (pp. 7-15).
London: Taylor and Francis Group. https://doi.org/10.4324/9780203927892
28
Daniel, P., Goldsworthy, B., Maliszewski, W., Puyo, D. M., & Watson, A. (2010). Evaluating fiscal regimes for resource projects: An example
from oil development. In P. Daniel, M. Keen, & C. McPherson (Eds.)The taxation of petroleum and minerals: Principles, problems and practice
(pp. 190-194). New York: Routledge.
29
Alba, E. M. (2009). Extractive industries value chain: An integrated approach to develop extractive industries. Extractive Industries for
Development Series # 3, African Region Working Paper, 125 (pp. 4-5). Washington, DC: The World Bank
30
Ogundele 1999Economic of Public Sector, Mackmillan Press, New York. East African Customs Management Act, 2005
31
ibid

12
purpose of taxation and confirms that the rightful ownership of tax receipts ultimately lies with
the citizens32 .In many ways the raising of tax revenues is the most central activity of any state.
Most essentially, revenue from taxation is what literally sustains the existence of the state,
providing the funding for everything from social programs to infrastructure investment.

Taxation, as pre description can be defined as a process raising revenue for the central
government through levy on income and gains of resident persons. The concept of taxation has
been a concern of global significance as it affects every economy irrespective of national
differences33. According to Omotoso, in his definition of the modern taxes, defined tax as a
compulsory charge imposed by a public authority on the income of individuals and companies as
stipulated by the government decrees, acts or cases laws irrespective of the exact amount of
services rendered to the payer in return34. A more recent and comprehensive definition was given
by Dr. Ekenze Oliver of Buitas Consultancy to the effect that tax is “a compulsory levy imposed
by an organization or Government on its member citizens, for the sole purpose of providing
common goods and services for the benefit of all members”35.

He continued:

“tax is designed to raise revenue required for the expenditure authorized in a government budget
expectation. It is also a veritable instrument of promoting social and economic justice and
equality amongst citizens of a state or members of an organization”. As could be alluded from
the above definitions, a tax is not a voluntary payment, it is a compulsory pecuniary burden
placed upon the subjects of a given country to support the people. Thus, taxes constitute the
revenue
principal source of government and the beauty of any government is for its citizen to
voluntarily execute their tax obligations without much coercion and harassment.

2.4 Tax Evasion

Tax Evasion can be described as the illegal evasion of taxes by individuals, corporations, and
trusts. Tax evasion often entails taxpayers deliberately misrepresenting the true state of their
affairs to the tax authorities to reduce their tax liability and includes dishonest tax reporting, such
32
Research Methodology Methods and Techniques. 2nd edition. Wiley Eastern Limited, New Delhi
33
Oboh, C.S; O. Yeye and E.F. Isa (2012) An Empirical Investigation of Multiple Tax Practices and Taxpayers
34
Omotoso, M.O. (2001) Principle of Taxation, (1st Ed.). Ibadan: First Shepherd Investment
35
ibid

13
as declaring less income, profits or gains than the amounts actually earned, or overstating
deductions36. Tax evasion can as well be said to be the act of not paying taxes that are owed to
the central government. Tax evasion is the general term for efforts by individuals, firms, trusts
and other entities to evade taxes by illegal means. Tax evasion usually entails taxpayers
deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to
reduce their tax liability. It also includes, in particular, dishonest tax reporting such as declaring
less income, profits or gains than actually earned; or overstating deductions 37. Tax evasion is
defined as a deliberate and willful practice of not disclosing full taxable income in order to pay
less tax. It is a deliberate violation of tax laws and it is evident in situations where tax liability is
fraudulently reduced or false claims are filled on the revenue tax form.

From all the comparison of various definitions given in the literature, we are able to determine
that paying less tax or not at all than what one is legally obliged to is described as tax evasion
while tax avoidance is an act of doing everything possible within the confines of the tax law to
reduce the tax paid. Therefore, the main difference between them is the legality of the payer’s
action.

Tax evasion is an activity commonly associated with the informal economy38. One measure of
the extent of tax evasion (the "tax gap") is the amount of unreported income, which is the
difference between the amount of income that should be reported to the tax authorities and the
actual amount reported39.

Tax evasion generates billions of dollars of losses in government revenue and creates large
distortions, especially in developing countries. A growing, mostly theoretical literature argues
that information flows are central to understanding effective taxation. Professor Pomeranz has
analyzed the role of information for tax enforcement in the case of the Value Added Tax (VAT)
in Chile. She finds that the paper trail generated by the VAT leads to important spillovers in tax
enforcement along the production chain. These findings confirm the claim that the VAT has self-
enforcing properties, a claim that has contributed to widespread VAT adoption worldwide. They
also point to the important role that firms play as aggregators of information, thereby facilitating
36
ibid
37
Nwachukwu I. (2006) “Institutions indulge in Tax Evasion Despite Huge Profits they make in Nigeria” The Tribune. September: 1
38
Total tax revenues". Our World in Data. Retrieved 7 March 2020.
39
ibid

14
tax enforcement. Failure to pay proper taxes can lead to criminal charges. In order for charges to
be levied, it must be determined that the avoidance of taxes was a willful act on the part of the
taxpayer. Not only can a person be liable for payment of any taxes that have been left unpaid, but
they can also be found guilty of official charges and may be required to serve jail time.
According to other countries inclusive of Zambia, the penalties include jail time, a fine or both
along with the costs of prosecution.

The standard measure of tax evasion is the “tax gap.” The tax gap is the amount of taxes that are
owed but are not paid in a timely or voluntary manner. The Zambia Revenue Authority Service
collects information on the size and composition of the tax gap by conducting periodic studies
that draw on a number of sources. For the major component of the tax gap underreporting of
individual income taxes the ZRA collects information each year from examinations of a random
sample of taxpayers.

Tax evasion is an intentional effort by people, corporate bodies, trust and other institutions to
illicitly refuse to pay their tax and reporting true and fair value of their earnings by a means of
evading40. Tax evasion is characterized as an intentional wrongful attitude, or as a behavior
involving a direct violation of tax laws, norms and ethics regarding citizenry obligation to escape
the payment of tax. The intentional underreporting of income, as well as over-claiming of a tax
deduction, is an obvious example of tax evasion41. It is a violation of tax laws in which the tax
rate due by a taxable person is unpaid after the minimum required period42.

Tax evasion is a clear evidence in a situation where taxpayers are reducing, making or
proclaiming false statement about their liabilities on the revenue tax through exploiting
ineffectiveness in the tax laws and regulations.

Tax evasion typically involves taxpayers consciously misrepresenting or hiding the true position
of their affairs to the relevant tax authorities to ease their tax burden. However, tax evasion can
be classified as fully evasion or partial evasion43. Partial evasion occurs when individual or
40
Edwin, O. (2007), Good Tax Planning and Tax Avoidance as Legal Options to the Illegality of Tax Evasion. A Paper delivered at the Tax
Awareness Forum for the Public Sector and Organized
41
Adebisi, J. F, and Gbegi, D.O (2013). Effect of Tax Avoidance and Tax Evasion on Personal Income
42
Fagbemi. O.T , Uadiale M.O and Noah .O A (2010): The Ethics of Tax Evasion: Perceptual Evidence from Nigeria .European Journal of Social
Sciences – 17 (3) 360-371
43
Fakile A.S. and Adegbie, F. F., ( 2011) Company Income Tax and Nigeria Economic Development: European Journal of Social Sciences 2 (6) 326-
330

15
corporate entity understated its earnings for the purpose of tax and declares low income. While
fully evasion occurs when the person or corporate entity qualifies to pay tax but fails to register
with tax authorities to enroll in the tax system. This act comprises, in specific, fraudulent tax
reporting like declaring less earnings and overstressing deductions. In the face of law, tax
evasion is a crime and subject to execution by way of fine, imprisonment or even both in many
countries of the world. Tax evasion is representing illegal practices by taxpayer to escape his
civic responsibility enforce by the law and generally accepted by the society or nation. Due to
this situation, the taxable income and other tax activities are being concealed, the amount or
sources of income are misrepresented and the reduction, relief or exemption are intentionally
overstated44.

Many countries in Sub-Saharan Africa have experienced considerable difficulties in mobilizing

public revenue, which is key in sustaining development in any country. These difficulties
necessitated the reforms of the nineties which were aimed at alleviating the challenges that these
countries faced with tax administration. The reforms saw a shift in tax system designs as many
tax administrations simplified, modernized and adjusted their systems to meet the new demands
in taxation45. Despite the numerous efforts made to improve tax administration in most of these
countries, public revenues still remain low and Zambia is no exception. Different views have
been advanced for the status quo. One of the causes for Zambia is the challenge posed by a
growing informal sector which has proved hard to tax. In a study that was conducted by Alm and
Martinez on 57 developing countries, it was estimated that revenue losses in this sector account
for up to 40% of the potential public revenue. Another reason for poor revenue collection in
developing countries has been said to be weak administrative and legal frameworks Perhaps one
of the greatest threats to public revenues in the recent years is the phenomenon of tax evasion by
not only small and medium companies but also multinational corporations (MNCs) operating in
developing countries. It has been established that MNCs can artificially shift profits from high
tax rate countries to low income countries by using techniques such as thin capitalization and
transfer pricing1. Individuals also evade taxation on passive income such as interest, dividends
and capital gains earned abroad by not disclosing it to tax authorities in their countries of
residence. Reports that about $100 billion to $160 billion is lost annually due to corporate tax
44
Chiumya, C., (2006). “Counteracting Tax Evasion in Malawi: An Analysis of the Methods and a Quest for Improvement”, Munich Personal
RePEc Archive . 1 – 42
45
Ibid

16
avoidance and evasion schemes. Developing countries are particularly vulnerable to tax
avoidance and evasion due to inadequacies in their institutional framework and the lack of
sufficient expertise and resources for monitoring. Given the far-reaching effect of revenue losses
due to tax non-compliance, Zambia has undertaken tax reforms to improve its tax administration
and has incorporated and implemented various anti-avoidance measures and regulation in the tax
law to combat tax evasion46.

2.5 Key Institutions in the Management of Mining Revenue

Institutions that have a role to play in mining, collection and management of mining revenue in
Zambia include:

The mining industry is administered by the Ministry of Mines and Minerals Development,
previously called Ministry of Mines Energy and Water Development, The (MMD) Geological
Survey, Mines Development, Mines Safety, Water and Energy.

i. Zambia Revenue Authority

As explained above, the collection of taxes, levies, fees, duties etc including revenue from the
mining sector is a shared undertaking by the Zambia Revenue Authority (ZRA), municipal
bodies and specially commissioned agents. Of those, ZRA is by far the largest and most
important institution. The ZRA was established on 1 st April 1994 as a corporate body, under the
Zambia Revenue Authority Act, Chapter 321 of the Laws of Zambia enacted in 1993. Pursuant
to this Act, the Authority is charged with the responsibility of collecting revenue on behalf of the
Government of the Republic of Zambia under the supervision of the Minister of Finance47.

ii. The Chamber of Mines in Zambia

The Chamber of Mines derives its legitimacy primarily from its members. It aims to promote the
interests of its members, and encourage, protect and fosters the Mining Industry of Zambia.48

46
Oxfam 2013
47
Nalishebo, S., & Halwampa, A. (2014). Uncovering the Unknown: An Analysis of Tax Evasion in Zambia. Lusaka: Zambia Institute for Policy
Analysis & Research
48
Zambia Chamber of Mines. http://mines.org.zm/

17
 iii. Zambia EITI Council (ZEC)

Zambia subscribes to EITI and thus the ZEC is a multi-stakeholder group made up of
representatives from government, civil society and extractive companies responsible for the
implementation of EITI in Zambia.49

While in comparison to Tanzania, Tanzania Revenue Authority was established in 1995 and
became operative in 1996. Which is the main legislative authority that collects revenue on behalf
of the central government. The TRA’s main functions are to administer, assess, collect and
account for all revenues due under Tanzania's tax laws, and to advise the Government both on
changes to those laws and fiscal policy in general.

TRA is organized under the general supervision of the Minister of Finance (URT 2006). The
President appoints the chief executive of the TRA with advice from the Finance Minister. This
way of appointing the Commissioner General is meant to secure that the TRA can be run
independently of the political sphere50.

2.6 Reasons for Tax Evasion

Different reasons are the causal that encourage and make taxpayers acting toward evasion has
been identified by various studies and authors51. Magesa stated that, the reasons for tax evasion
can be categorized into two. The first category comprises factors that negatively affect taxpayers’
compliance with tax legislation. These factors can be subsumed either contributing to a low
willingness to pay taxes (low tax morale, tax system and perception of fairness, low transparency
and accountability of public institutions) or high costs to comply with tax laws 52. The second
category contains the reasons for the low ability of tax administration and fiscal courts to enforce
tax liabilities53. These factors can be summarized as resulting from insufficiencies in the
administration and collection of taxes as well as weak capacity in auditing and monitoring tax
payments which limit the possibility to detect and prosecute violators. Other reasons that given
49
International Council on Mining and Metals. (2014). Enhancing Mining’s Contribution to the Zambian Economy and Society. Mining:
Partnerships for Development
50
Fjeldstad 2003:165 cited in von Soest, 2008:13-14
51
Kirchler. E, Stephan. M, Barbara .K and Ingrid .W(2007).Why Pay Taxes? A Review of Tax Compliance
52
Magesa, A. M (2014) The Impact of Tax Evasion on Revenue Collection Performance in Tanzania (A case study of Tanga tax region)
Unpublished Dissertation Submitted in Partial/ Fulfillment of the Requirements for Award of the Degree of Master of Business Administration
(MBA) in Corporate Management of Mzumbe University
53
ibid

18
rises to tax evasion includes: corruption in public office, inadequate tax education and
awareness, misappropriation of taxes collected, ignorance of the tax authority, lack of adequate
enforcement for default, proliferation of taxes, loopholes in the tax laws, inequitable distribution
of income, absence of ‘Quid Pro Quo’ i.e. something of value given in return (by the
government) for taxes paid, high level of illiteracy and high tax.

2.7 Effects of Tax Evasion

According to Fjeldstad he says tax evasion has had a variety of fiscal effects and there are at least
three reasons responsible for this, in the first place, revenue losses from noncompliance and
corruption become significant at a time of substantial budget deficit54. Second, horizontal and
vertical equity suffer because the effective tax rates faced by individuals may differ because of
different opportunities for tax evasion55. Again, Shome stressed that, an important adverse effect
of tax evasion is perhaps on equity. There is horizontal and vertical inequity where in both forms
of inequity, the higher-taxed person pays for the lower-taxed person since, had there been no tax
evasion; the tax rates would have been lower under the premise of revenue neutrality 56. Third,
there is a growing concern about the expanding underground economic activities, and how these
activities affect economic policies57. Acts of corruption by tax collectors often play a role in
promoting or sustaining underground economic activities and in facilitating tax evasion 58.Tax
evasion and fiscal corruption thus contribute to undermining the legitimacy of government.
Furthermore, citizens' disrespect for the tax laws may expand disrespect for other laws. Toby 59
affirmed that, tax evasion has undoubtedly affected adversely the government revenue generation
capability and the economy as a whole and observed that, the taxpayer indulges in evasion by
resorting to various practices. These practices erode moral values and build up inflationary
pressures.

54
Fjeldstad .O (1996), Tax Evasion and Corruption in Local Government in Tanzania: Alternative Economic Approaches
55
Alm, J., Martinez-Vazquez, J. (2001), Societal Institutions and Tax Evasion in Developing and Transitional Countries, A Paper Prepared for
Public Finance in Developing and Transition Countries: A Conference in Honour of Richard Bird International Studies Program Andrew Young
School of Policy Studies, Georgia State University
56
ibid
57
ibid
58
Tanzi.V (1995), Corruption, Governmental Activities and Market: Finance & development (32Dec 24-26
59
Toby, R. (1983) The Theory and Practice of income Tax, Lagos: Macmilian Press Ltd.

19
Another effect of tax evasion is discussed by Matsaganis stressed that, tax evasion raises
significant issues from the point of view of efficiency 60. Shome added that tax evasion distorts
economic efficiency. In sectors that are less subject to the administrator’s scrutiny as in the
informal economy, there will be more investment. Inefficiency leads to lower revenue intake for
government, its functional capacity, efficiency and effectiveness suffer because of tax evasion.
Capacity suffers due to lower availability of resources61. Efficiency declines since important
functions may have to be given less priority than others. It is noted that, effectiveness declines as
compliant taxpayers realize that government is unable or unwilling to take corrective action, and,
therefore, feel increasingly comfortable in joining the rest in the act of tax evasion 62and stated the
possible solutions to tax evasion in Nigeria among are; Taxpayers should be educated about their
civil responsibility; Strengthen taxpayer recruitment; Bureaucratic documentation should be
reduced to avoid forgery; The activities of tax officials should be monitored to minimize the
incidence of fund embezzlement; Establishment of Revenue Court; Tax policies and tax laws in
Nigeria should be made consistent as well as stiff penalty for contravening any section of the
law. Also, the following strategies employed by tax revenue authority officials in reducing tax
evasion problem in Oyo states include: Enforcement of penalties; Door to door visit in all areas,
Priority on tax education, Introduction of taxpayer identification number, Computerization of tax
administration; Prosecution and penalty and enhance taxpayer registration and de-registration.

2.8 Zambian Tax Legislation

Presumptive tax legislation in Zambia are an important alternative for Zambia due to the severe
constraint that ZRA faces in terms of resources and skills, and the tradeoff that it has to make
between pursuing large taxpayers as opposed to the small ones. There’s however, growing
evidence (revenue statistics) to support the notion that presumptive taxes especially base tax and
presumptive. Zambia’s current tax legislation dealing with presumptive taxes is similar to
legislation that is found in most countries that have legislation that wants to tax the informal
sector. The characteristics of the informal sector in most developing countries are similar and
require legislation that usually departs from the norm in terms of equity and neutrality. In

60
Matsaganis . M and Flevotomou. M(2010), Distribution implication of Tax Evasion In Greece. Hellenic Observatory Papers on Greece AND
southeast Europe, GreeSE Paper No 31
61
ibid
62
Oyebanji (2014), Principle and Practice of Taxation in Nigeria’ 5th edition. Published by frontline Publishers, Adesola, Ibadan, Oyo State

20
designing a good tax system, it is universally accepted that the tax system must be equitable and
neutral.

Equitable and neutral in that it must be fair and it should not be discriminatory. It must not
prescribe a different tax regime for one group of citizens and another regime for others. The tax
system must also not unduly influence the consumption behavior of citizens 63. However, when
dealing with taxation of the informal sector, tax authorities are forced to depart from the norms
of equity and neutrality because of the characteristics of the sector.

2.9 Legal Provisions

Regulations for dealing with tax evasion and avoidance are provided for in the Zambian tax law
in Part IX of the Income Tax Act64. These provisions address issues of transfer pricing and thin
capitalization. Part X of the same Act prescribes penalties for default in payment, filing and
registration. The VAT Act has additional enforcement regulations all aimed at mitigating tax
evasion. The Income Tax Act allows the Commissioner General:

i) In the case of change of ownership of shares in a company, not to allow a set off or
refund of tax deducted as dividend or payment to non-resident contractor where he
determines that the reason for doing so is to obtain some tax advantage. This
provision is meant to protect revenue from abuse by shareholders of avoiding paying
taxes on dividends under the guise of having changed ownership of the company by
taking advantage of the law that allows tax set off or refund where there is a genuine
variation in ownership.

In the same breath under Section 98 65 the Act goes on to state the general Penalty that one is
likely to face if found guilty of the offence:

98. Any person guilty of an offence against this Act shall, unless any other penalty is
specifically provided therefore, be liable on conviction therefor to a fine not exceeding one
hundred thousand penalty units or to imprisonment for a term not exceeding twelve months,
or to both.
63
Nhekairo, W. A. (2014). The Taxation System of Zambia. Lusaka: Jesuit Centre for Theological Reflection.
64
ibid
65
Ibid

21
In addition to the foregoing, the Act provides for penalties for willful or fraudulent returns of up
to 52.5 % of the amount understated or a prison term in some instances. ZRA officers have
powers to inquire into the affairs of any person where there is reasonable suspicion that the
person has committed an offence under tax law by warrant of the court. The powers include
entering any premises to search for money or documents or electronically stored data; to open, or
remove from the premises and open, any article in which money or documents or electronically
stored data may be contained; to seize any documents or electronically stored data which may be
necessary for assessment or any criminal or other proceedings and retain them for as long as they
are required for such purposes66.

2.10 Laws and Policies Governing Mining and Management of Mineral Revenues

Zambia has a Mines and Minerals Development Act of 201567 that repealed and replaced the
Mines and Minerals Development Act, 200868. The MMDA, 2015 represents the law relating to
the exploration for, mining and processing of minerals and mineral resources in Zambia.
MMDA, 2015 revitalized some of the mechanisms to enhance government revenue accruing
from the mining industry whilst at the same time encouraging investment in the capital intensive
sector.

Other than the Mines and Minerals Development Act, the other laws and policies governing
mining and management of mineral revenues include:

. Mining Policy of 2015

. Mines Acquisition (Special Provisions) Act;

. Petroleum (Exploration and Production) Act No. 10 of 2008

. Income Tax, the Valued Added Tax Act

66
Chileshe, P., Manley, D., & al. (2011). The Taxation System in Zambia.
Lusaka: Jesuit Centre for Theological Reflection
67
ibid
68
Minerals Development Act, 2008

22
. Articles 114 -121 of the national Constitution

. Public Audit Act and the Finance (Control and Management) Act

2.11 Weaknesses in Tax Legislation

While the measures in place may seem good to address the issues that they were designed for,
there are more areas that need to be addressed to seal some of the loopholes that are driving tax
evasion tendencies.

i) The Zambian Income tax structure has multiple rates applicable to different categories of
income

streams. Agricultural income for instance is currently taxed at 10% while income earned from

manufacturing and other activities are taxed at 35%; income from non-traditional exports is
taxed at 15%. Some studies show that differentiated rate structure to some degree foster evasion.
When one group begin to see the other as paying less tax than they should due to the tax
structure differences, opportunities are created for the evasion of tax. Furthermore, the multiple
rate structure of the Zambian system (deviate from the standard 35%) for instance, may
encourage arbitrage with revenue leakages.

ii) Through the Zambia Development Agency (ZDA) and tax laws, the country has a lot of tax
incentives to specific classes of investors. The incentives include exemptions, tax holidays,
credits and reduced Company Income Tax (CIT) rates among others which have been justified
on the basis of attracting foreign investments. However, not all incentives can be said to provide
for legitimate societal benefits. There are some that are given as a result of lobbying by
influential entities or individuals and in the case of MNCs, tax incentives can be as a result of
preceding lobbying activities and the incentives eventually only help these MNCs not only to
avoid taxes but give rise to illegal evasion activities for domestic companies for instance by re-
labelling the domestic investment as Foreign Direct Investment (FDI) (round tripping) or by
selling subsidiaries in the guise of new foreign investors (double dipping).

Tax incentives should be reviewed continuously to ensure those which no longer serve or have
served their purpose are phased out. Maintaining incentives which appear to be
23
disproportionately favoring a sector of the economy at the expense of tax revenue deters tax
morality in the rest of the sectors and therefore encourages tax evasion. Tax incentives should
only be awarded to firms or sectors that add value in terms of employment creation, skills
transfer and foreign exchange earnings.

iii) Another seemingly legitimate practice but has the potential to be used as an avenue for
avoiding

taxation is the double taxation and avoidance agreements ironically being used to usurp the
purposes they are entered into69.

One of the main ways by which wealth from the mining sector get shared and used to
promote growth throughout the economy is through taxation, investment and redistribution of
tax revenue70. In minerals taxation policy, the aim is to enable governments to collect a
reasonable return from the extraction of the community’s mineral resources, while ensuring that
industry outcomes remain efficient and administrative costs are not excessive Hogan 71,
Designing such fiscal regimes also requires that unique characteristics72 .

Zambia still has exceptionally high level of macro-economic dependence on mining when
compared to international standards. Mining also makes an unusually large contribution to total
national investment and to total foreign direct investment when compared to other countries
Zambia Extractive Industries Transparency Initiative 73. The national contribution of mining in
Zambia for the year 2012 as estimated by ICMM 74 was 86% of foreign direct investment (FDI)
and 80% of export earnings. The contribution, however, was progressively low in other macro
areas with less than 25% of government revenue, less than 12% of GDP and only 1.7%
contribution to gross employment. Mineral taxation is important to both government and mining
companies. Andrews-Speed75 indicated that taxation to the government presents aspects like
69
ibid
70
Korinek, J. (2013). Mineral resource trade in Chile: Contribution to development and policy implications. OECD Trade Policy Papers 145 (pp.
20-22). OECD Publishing
71
Hogan, L. (2008). International minerals taxation: Experiences and issues. In the Conference Paper Proceedings (pp. 27-28). Canberra,
Australia: Australian Bureau of Agricultural and Resource Economics.
72
Calder, J. (2014). Administering fiscal regimes for extractive industries: A handbook (pp. 2-16). Washington, DC: International Monetary Fund.
73
Zambia Extractive Industries Transparency Initiative [ZEITI]. (2014). Fifth reconciliation report based on the financial year 2012 (pp. 18-19).
Lusaka, Zambia: Moore Stephens.
74
ibid
75
Andrews-Speed, C. P. (2000). Mineral and petroleum taxation, study guide. Centre for Energy, Petroleum, Mineral Law, and Policy (pp. 1.7-
2.4). University of Dundee.

24
raising money to pay for expenditures, promotion of certain social and economic policies,
promotion of certain industries, and control of sector development by using it to influence
development of Zambia.

2.12 Mining Sector Taxes

Zambia has a long history of mining with copper being the main mining product from the
country. Mining has played a key role in the social and economic development of Zambia and
continues to play a critical role in the economy with the production of metallic minerals
dominating the mining sector. The policy and legal regime governing mining industry in Zambia
has always been changing with government trying to optimize revenue and rents from the sector
whilst striving to maintain its spot as a top copper producer in the continent.

The mining fiscal regime in Zambia has largely been volatile as seen in the various amendments
to the Mineral Royalty Tax system, as well as enactment and reversal of some Statutory
Instruments related to financial requirements affecting the mining sector76. The Zambian
government tried to introduce the windfall tax in an effort to maximize revenue from the
extractive sector but was withdrawn before it was effected. There was also a proposal in 2014 to
increase royalty rates and introduce a one-tier tax regime where expenses did not appear to be
taken into account. This amendment was short-lived and revoked before the government returned
to a two-tier royalty and profit tax system in mid-2015 as mining companies struggled to remain
profitable under the all-royalty system in light of the falling copper prices77.

Zambia adopted a new Mines and Minerals Development Act 201578 which shifted from
contracts and presented licensing as the primary governance regime for the sector. The new
legislature speaks to issues of revenue administration and management. In this regard, since 2014
Zambia has been receiving support through the World Bank’s Public Financial Management
Reform Programme. Zambia still needs to revisit its fiscal regime relating to mining to ensure
optimization of minerals rents and improve on revenue administration and management as
prescribed by the Africa Mining Vision (AMV).

76
Simpere, A.-S. (2010). The Mopani copper mine, Zambia. Counter Balance, (December). Retrieved from
https://www.urgewald.org/sites/default/files/mopani.pdf
77
Simutanyi, N. (2008). Background: Mining in Zambia.
78
Mines and Minerals Development Act 2015

25
International experience has demonstrated that a properly structured and administered minerals
industry has potential to generate substantial benefits to individual economies and regions. Apart
from being a direct source of foreign exchange, mining generates substantial direct revenues to
government through corporate taxes, royalties and employee taxes from miners. In addition, Tax
revenue from the mining sector has over the last 5 years shown an upward trend due to increased
mining activities, increased production and favorable metal prices. Despite the efforts that are
being made at ZRA, the level of contribution of the mines in Zambia remains at a level that does
not satisfy the general public. A review of the current mining tax regime in comparison to
previous regimes does not show major differences.

What may have escaped policymakers is the unintended ways these tax changes will affect the
economy. For example, the removal of VAT in order to eliminate refund payments to the mining
sector will affect businesses and consumers outside of the mining sector acutely. VAT replaced
sales tax in the majority of countries precisely to eliminate the negative effects of sales tax.
These effects include an increase in prices for consumers due to price cascading 79, a distortion in
production efficiency with firms vertically integrating to minimize the effect of the tax 80, and a
reduction in tax revenue due to a rise in collusive evasion among firms81.

The Mining taxation policy in Zambia can be said to be unstable, in that Zambia’s policymaking
in the area of mining taxation has been characterized by frequent policy changes and reversals.
In the 2019 budget, slightly over half of the revenue measures proposed were directed at the
mining sector representing yet another seismic shift in mining taxation policy. By one estimate,
Zambia on average has had one tax change every 18 months since 200182.

It is, however, easy to cite policy instability as a major problem in developing countries which
can easily become a simplistic description of a complex problem. The Natural Resource
Governance Institute, for instance, reports that in many resource rich countries, frequent policy
changes are common in their tax regimes. Further, at times these changes do not always have a

79
Gerard, F and Naritomi (2018),Value added Tax in developing countries.
80
Keen, M (2016) “ Taxation and Development” International Monetary Fund, Fiscal Affairs Development.
81
ibid
82
Zambia Chamber of Mines (2018) “Taxing the mining sector A Report” Lusaka

26
negative impact on variables such as investment. The evidence on Zambia is mixed. In Zambia,
the mining sector dominates FDI inflows accounting for about 60% of Zambia’s FDI inflows and
investment into the sector has continued to flow83 . Sachs find that in the countries they study,
investment continued rising despite the rhetoric of companies in the face of tax increases 84.
Manley85 surmises that Zambia’s case may be similar with an indication of increased investor
confidence over the period until 2015 although it is unclear as to whether this will continue to be
the case.

The mining taxation regime in Zambia has evolved in important ways since the government’s
privatization of the mines. The authorities have changed elements of the regime in response to
changing market conditions, evolving public policy needs, and as the authorities have developed
experience with regulating private businesses after the years of state ownership 86. Zambia has
made changes to the fiscal regime since privatization of the mines as a means to optimize the
country’s benefits from the copper mining sector87.

2.13 Mechanism to Curb Tax Evasion

Shome summed up the modalities in order to keep tax evasion in check, the tax administration
must: (i) incorporate genuine threat of penalty but ensure due process; in order to do this, of
course the tax administration should be adequately financed and structured; (ii) computerize as
many administrative processes as possible to minimize the interface between taxpayer and tax
official; and (iii) not remain aloof from tax policy but assist in every way possible to help design,
in reflection of its field experience, a simple tax structure and its commensurate tax law88.

The simplification on how to control tax evasion in his research on the topic ‘What Is Wrong
with Tax Evasion?’ stating that, there are presumably many potential fixes for the state of affairs
and they are:

83
Phiri, W (2011), “FDI in Zambia’s mining and other sectors. Macroeconomic and Financial Management Institute Of Eastern And Southern
Africa, Harare
84
Sachs, L T Perrine and M Jacky(2013), Impacts of fiscal reforms on country attractiveness.
85
Manley (2013), “ a guide to mining taxation’ , Zambia institute for Policy Analysis and Research, Lusaka
86
World Bank (2015), “ Zambians economic brief : Making mining work in Zambia “ The World Bank Washington
87
ibid
88
ibid

27
a) Simplify the tax code, making clearer the distinction between lawful and unlawful behavior;
and distinguish more clearly between what constitute criminal and civil violations of the code;

b) Change our political rhetoric, attempting to educate people about the importance of tax
revenues; and modify priorities for government spending

c) Make the Code more equitable, from both a vertical and horizontal perspective; and
distinguish more clearly between choate and inchoate violations;

d) Rethink the requirements of menswear (criminal intent; the thoughts and intentions behind a
wrongful act (including knowledge that the act is illegal); and increase enforcement and make
the level of enforcement more uniform.

2.14 Conclusion

The legal framework and policy framework that deals with tax administration is provided for
under the Income Tax Act. This chapter hence provide for both theoretical and empirical
literature reviews on influence of tax evasion on revenue collection performance as a result of
failed tax evasion legislation in both the law and authoritative specific sectors by different
Authors.

In general, a tax system should be responsive to the growth of the economy. As economic
activity grows, tax revenues should also increase, as the country’s tax base often closely follows.
Hence, some of the reasons and effects of tax evasions written on by various authors inclusive of
the legal provisions as indicated that evasion amounts to in relation to the mining sector.
However, though these legal provisions do not adequately address tax evasion. The interest rate
for fraud should be above market rate and the implementation of jail sentence should be
enhanced as a deterrent to tax evasion. Tax incentives should only be given to worthy businesses
involved in value addition and employment.

28
 CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction
Measuring tax evasion in both the developed and developing countries is difficult due to data
limitations. The extent of tax evasion is hard to estimate as this practice poses observation
challenges and therefore precise data is lacking89. Since we are trying to estimate the unknown,
different approaches to estimating tax evasion will be employed. Due to the data challenges, the
study employed indirect methods including a field survey, comparative analysis of Zambia’s tax
revenue performance with countries in the region.

Chapter three discusses: the research methodology and approach, research design, sources of
data, sampling frame, sample size, sampling techniques, data collection techniques, reliability
and validity, ethical considerations, and limitation of the study.

3.2 Research Methodology and Approach

This study is a mixed methods study, which combines the qualitative and quantitative research
methods. Mixed methods research is a research design with philosophical assumptions as well as
methods of inquiry. As a methodology, it involves philosophical assumptions that guide the
direction of the collection and analysis of data and the mixture of qualitative and quantitative
data in a single study or series of studies. Its central premise is that the use of quantitative and

89
Deutsche Gesellschaft fur Internationale Zusammenarbeit(GIZ) GmbH. (2010). Addressing Tax Evasion
and Tax Avoidance in developing countries. Eschborn: GIZ Sector Programme Public Finance,
Administrative Reforms

29
qualitative approaches in combination provides a better understanding of research problems that
either approach alone90. It is important to note the difference between mixed methods and
multiple methods. The distinction between these is described by Leech et al91. as follows:

mixed methodologies is distinguished from multiple methodologies, wherein mixed

methodologies refers to approaches in which quantitative and qualitative research
techniques are integrated into a single study, whereas multiple methodologies refer to
approaches in which more than one research method or data collection and analysis
technique (including two or more methods within the same paradigm) is used to address
research questions.

The origins of mixed methods lie in the two major research paradigms: quantitative and
qualitative. Qualitative studies rely on description and interpretation, instead of making
measurements like in quantitative studies92. Qualitative purists support a constructivist
(construction of a personal reality or realities) or interpretivist (understanding based on
interpretion) paradigm93. Qualitative research is usually described as allowing a detailed
exploration of a topic of interest in which information is collected by a researcher through case
studies, survey, interviews, and so on. Quantitative research as a type of research that is
`explaining phenomena by collecting numerical data that are analyzed using mathematically
based methods (in particular statistics) 94.

Purists call for researchers to “eliminate their biases, remain emotionally detached and
uninvolved with the objects of study and test or empirically justify their stated hypotheses” 95
Integral to this approach is the expectation that a researcher will set aside his or her experiences,

90
Creswell JW, Plano Clark VL. Designing and conducting mixed methods research. 2nd ed. Thousand Oaks, CA: Sage; 2007 at
p.5
91
Leech N, Onwuegbuzie A, Hansson T and Robinson P. Teaching Mixed Method: Call for Papers. International Journal of
Multiple Research Approaches: http://mra.econtentmanagement.com/archives/vol/4/issue/1/call/ [Accessed 13/07/17]
92
M. Q. Patton. Quantitative research and evaluation methods, 3rd Edition. Thousand Oaks (2002), CA: sage.
93
Johnson, R. B. & Onwuegbuzie, A. J. (2004). Mixed-methods research: a research paradigm whose time has come. Educational Researcher,
2004 at p.14
94
Creswell, J.W., Research Design: Qualitative & Quantitative Approaches, London: SAGE Publications, 1994.
95
Johnson, R. B. & Onwuegbuzie, A. J. Mixed-methods research: a research paradigm whose time has come. Educational Researcher, 2004 at
p.14

30
perceptions, and biases to ensure objectivity in the conduct of the study and the conclusions that
are drawn.

The research performed through mixed methods implies the adoption of a strategy that involves
more than one research method. Creswell speaks about three types of strategies of mixed
methods: sequential mixed methods, concurrent mixed methods and transformative mixed
methods96.

Sequential mixed methods are procedures in which the researcher seeks to elaborate on or
expand on the findings of one method with another method. This may involve beginning with a
qualitative interview for exploratory purposes and following up with a quantitative, survey
method with a large sample so that the researcher can generalize results to a population.
Alternatively, the study may begin with a quantitative method in which a theory or concept is
tested, followed by a qualitative method involving detailed exploration with a few cases or
individuals97.

Concurrent mixed methods are procedures in which the researcher merges quantitative and
qualitative data in order to provide a comprehensive analysis of the research problem. In this
design, the investigator collects both forms of data at the same time and then integrates the
information in the interpretation of the overall results, 98. Transformative mixed methods – the
researcher uses a theoretical objective as a global perspective in a design that contains both
quantitative and qualitative data. This objective provides a frame for the topic, data collection
methods and results anticipated through the study. Such an objective could comprise a method of
data collection that involves a sequential or a concurrent approach99.

For the purposes of this study, the concurrent mixed methods approach will be used to provide a
comprehensive analysis of the research problem. Quantitative data on the number of cases that
are reported to the police or the Zambia Revenue Authority where persons who have committed
the criminal act of tax evasion and how many of these cases proceed to trial. A qualitative
analysis of the experiences of tax payers who turned to evade taxes and officials in the mining

96
Cresswell, J.W, Research Design. Qualitative, Quantitative and Mixed Methods Approaches, SAGE Publications,2009.
97
ibid.
98
ibid
99
ibid.

31
sector of reasons as to why they think tax payers evade tax, a qualitative analysis of the measures
put in place by the criminal justice institutions to ensure there is advisable penalties in the legal
framework and policy for tax administrators to put in place high penalties for tax evasion and
publicize such information so as to deter evasion. After the researcher collects both forms of
data, it will be integrated and interpreted to form a comprehensive analysis.

3.3 Research Design

A research design as “a blueprint for conducting a study with maximum control over factors that
may interfere with the validity of the findings” 100 describes a research design as “a plan that
describes how, when and where data are to be collected and analyzed”. This study, qualifies to
be referred to as a descriptive study. Descriptive research is devoted to the gathering of
information about prevailing conditions or situations for the purpose of description and
interpretation101.

This type of research design is not simply amassing and tabulating facts but includes proper
analyses, interpretation, comparisons, identification of trends and relationships. The present
study was undertaken to critically evaluate the law in relation to tax evasion in Zambia
specifying it to the mining sector. Hence, the descriptive survey research method was adopted.

3.4 Time Horizon

This study has been done over a period of five months from the identification and formulation
stage in February 2020 to its conclusion in June 2020. The research problem was identified and
formulated in the area of Income Tax law. It involved the critical analysis of the legal and policy
framework governing Tax evasion in Zambia under the mining industry or sector as compared to
other regions such as Tanzania in implementing its frameworks

100
Parahoo K. Nursing research: principles, process and issues. Basingstoke: Macmillan; 1997 at p.145
101
Salaria, N. Meaning of the term-descriptive survey research method. International Journal of Transformations in Business Management
http://www.ijtbm.com/ (IJTBM) 2012, Vol. No. 1, Issue No. 6, Apr-Jun accessed on 13/07/17.

32
3.5 Sources of Data

In this study, a survey was conducted using a self-administered Questionnaire, and oral
interviews with various stakeholders. To adequately address the study, both primary and
secondary data are used.

3.6 Primary Data

Primary data refers to the information collected by the researcher who will also examine that
102
data . Researchers collect primary data through interviews, questionnaires, focus groups,
observation, the examination of primary sources such as writings or speeches, or a variety of
other collection methods103. For purposes of this study, a self-administered Questionnaire and
one on one interviews with various stakeholders and persons with physical disabilities were used
to collect primary data.

3.7 Secondary Data

Secondary data in this study, referrers and information collected in the past for other uses by a
party which is not related to this study, but is beneficial to a researcher 104. This sources may
include governmental publications, books, journal articles, internal records etc. For purposes of
this study, literature review was the main source of secondary data from books, journals, reports,
Zambian statutes, and international instruments.

3.8 Sampling Frame

A sampling frame is any material or device used to obtain observational access to the finite
population of interest105. A population is a complete set of all items and possible observations of
the type that is being investigated, such as among others, individuals, institutions, households or
items from which a sample is taken106. A sample is the actual group selected for a study using
any appropriate sampling techniques and, it must be of sufficient size to allow the research have

102
Vartanian, P.T. Secondary Data Analysis. Oxford Press, USA, 2011 at pp.3
103
ibid
104
S. B. Merriam. (1998). Qualitative research and case study applications in education. San Francisco: Jossey-Bass.
105
Sarndal, C & Wretman, J. Model Assisted Survey Sampling. Springer Science and Business Media, 2003 at pp. 9
106
S. J. Taylor and R. Bogdan (1998). Introduction to qualitative research methods: A guidebook and resources. 3 rd Ed. New York: John Wiley &
Sons.

33
confidence in the inference, while the sampling technique is the process of drawing a sample
from the population107.

To carry out a critical evaluation on the impact of the law in relation to tax evasion in the mining
sector in Zambia, regard was had to the Zambia Revenue Authority (ZRA) as a suitable body to
provide the population to which this research is relevant.

3.9 Sampling Technique

A sampling technique is the process of drawing a sample from the population 108. The two
sampling techniques were applied to the members of the population in this study.

3.10 Purposive Sampling

In purposive sampling (sometimes called judgmental sampling), the researcher specifies the
characteristics of a population of interest and then tries to locate the individuals who have those
characteristics109. Once the group is located, the researcher asks those who meet the inclusion
criteria to participate in the research study. In short, purposive sampling is a nonrandom
sampling technique in which the researcher solicits persons with specific characteristics to
participate in a research study.

In this study, the characteristics of the population of interest comprises of people with a good
understanding of the tax system in Zambia. This interest comes because the study is critically
evaluating the challenges faced by authorized bodies of the Central Government assigned to the
to collection of revenue through its legal framework and policy framework for the enhancement
of revenue. The members of a sample who were selected from the Income Tax system and
Mining system for this study, had a special relationship with the phenomenon being studied, with
relevant work experience in the taxation system or an active involvement in the justice and
mining system.

107
N. K. Denzin and Y. S. Lincoln. Collecting and interpreting qualitative materials. Thousand Oak: sage Publication, 1998.
108
A. Strauss and J. Corbin. (1990). Basics of qualitative research: grounded theory procedures and techniques, Newbury Park, CA: Sage
Publications, Inc.
109
Johnson, B & Christensen, L. Educational Research: Quantitative, Qualitative and Mixed Approaches. SAGE, 2010 at pp.231.

34
3.11 Dimensional Sampling

This is the type of selection where various factors assumed to be of importance in a survey are
incorporated by the researcher into the sampling procedure in a manner that allows at least one
representative of every possible combination of these factors to be included 110. For this study, the
factors assumed to be of importance when selecting members of the sample from the population,
were that the sample should include:

 Representatives of the various mining institutions that have knowledge, relationship and
expertise regarding the research subject.
 Representatives from Zambia Revenue Authority
 Representatives from Ministry of Mines
 Representation from Ministry of Finance
 Persons who have come in contact with the Income tax system legislation on tax evasion.

3.12 Data Collection Techniques

The data collection procedure in a mixed method research will vary depending on the type of
mixed method design adopted. In concurrent data collection, the quantitative and qualitative data
are collected at roughly the same time111. This study used two data collection techniques, namely;
face-to-face interviews as the main data collection technique, and a self-administered
Questionnaire.

3.13 Questionnaire

A questionnaire is a set of questions that are asked as a basic way of getting information on a
topic of interest112. Questionnaires are doubtless one of the primary sources of obtaining data in
any research endeavor. However, the critical point is that when designing a questionnaire, the
researcher should ensure that it is “valid, reliable and unambiguous”113 Both generic and specific
closed-ended and open-ended questions were covered in the questionnaire. Specifically, the three

110
S. K. Verma and M. A. Wani (2001). Legal Research and Methodology. Ed. Indian Law Institute.
111
ibid
112
M. Q. Patton (2002). Qualitative Evaluation and Research Methods, 3 nd Ed. Thousand Oaks, CA: Sage Publications, Inc.
113
Richards, J. C. & Schmidt, R. Longman dictionary of language teaching and applied linguistics. Third ed. London: Longman 2002 at p.438

35
questionnaires were administered to serve the purpose of extracting generic and specific
information concerning the objectives of this research.

 A Questionnaire for representatives of the various Taxation agencies.

 A Questionnaire for representatives of Income tax institutions.

3.15 Interviews

The third main type of data collection method used in this research is the interview 114contends
that “Interviews are a popular and widely used means of collecting qualitative data.” To this end,
the researcher wants to get firsthand information directly from some knowledgeable informants.

There are many types of interviews, the common being structured interview, unstructured
interview, and semi-structured interview. Structured interview consist of a series of pre-
determined questions that all interviewees answer in the same order. Unstructured interview is
the opposite, in that the flexibility of this type is wide open. Interviewees can elaborate, leading
in unpredictable directions. In this type of interview the order of the questions can be changed
depending on the direction of the interview115. This research adopted a semi-structured interview
approach. This type is a mix of the two types mentioned above, where the questions are pre-
planned prior to the interview but the interviewer gives the interviewee the chance to elaborate
and explain particular issues through the use of open-ended questions 116.

A number of people were interviewed in this study, these include, representatives from the
Zambia Revenue Authority (ZRA), Ministry of Mines(MoM) and Ministry of Finance(MoF) as
well as other related sectors.

114
Burns, A. (1999). Collaborative action research for English language teachers. Cambridge: CUP at pp.118.
115
Bryman, A. Social research methods. Oxford university press, 2008.
116
ibid

36
3.16 Reliability and Validity

Reliability and Validity are important concepts in research as they are used for enhancing the
accuracy of the assessment and evaluation of a research work117. They have different meanings
under the different types of research i.e. quantitative and qualitative research, Creswell 118. Under
quantitative research, reliability refers to the consistency, stability and repeatability of results i.e.
the result of a researcher is considered reliable if consistent results have been obtained in
identical situations but different circumstances119 .

Validity is the extent to which any measuring instrument measures what it is intended to
measure120. It is possible for a measurement to be reliable but invalid; however, if a measurement
is unreliable, then it cannot be valid 121. Under qualitative research, reliability is referred to as
when a researcher’s approach is consistent across different researchers and different projects,
Yin122. Validity is when a researcher uses certain procedures to check for the accuracy of the
research findings123. In order to strengthen the validity of the research data and instruments, the
researcher applied the method of triangulation. This involves the process of collecting data
through several sources: questionnaires, interviews and classroom observations etc 124. Gathering
data through one technique can be questionable, biased and weak. However, collecting
information from a variety of sources and with a variety of techniques can confirm findings125.
Therefore, if the researcher obtains the same results, he/she can become sure that the data is
valid. Certainly, through triangulation we can gain qualitative and quantitative data in order to

117
Tavakol, M. & Dennick, R. Making sense of Cronbach’s alpha. International journal of Medical Education, 2, 2011 at p.53 viewed on
16/07/17.
118
Creswell, R. Research design: qualitative, quantitative, and mixed methods approaches. USA: Sage Publications, 2014 at pp.201.
119
Twycross, A. & Shields, l. Validity and reliability - What's it all about? Part 2 Reliability in quantitative studies. Paediatric Nursing, 2004 at p.
36
120
Thatcher, R. Validity and reliability of quantitative electroencephalography (qEEG). Journal of Neurotherapy 2010, 14, at pp. 125, viewed on
16/07/17
121
Thatcher, R. Validity and reliability of quantitative electroencephalography (qEEG). Journal of Neurotherapy 2010, 14, at pp. 36, viewed on
16/07/17
122
Yin 2009, cited in Creswell, R. Research design: qualitative, quantitative, and mixed methods approaches. USA: Sage Publications, 2014.
123
Gibbs, 2007 cited in Creswell, R. Research design: qualitative, quantitative, and mixed methods approaches. USA: Sage Publications 2014,
p.201
124
Zohrabi,M. Mixed Method Research: Instruments, Validity, Reliabilityand Report Findings; Theory and Practice in Language Studies, Vol. 3,
No. 2, pp. 254-262, February 2013 © 2013 ACADEMY PUBLISHER Manufactured in Finland, at pp.258 viewed on 16/07/17.
125
Zohrabi,M. Mixed Method Research: Instruments, Validity, Reliabilityand Report Findings; Theory and Practice in Language Studies, Vol. 3,
No. 2, pp. 254-262, February 2013 © 2013 ACADEMY PUBLISHER Manufactured in Finland, at pp.258 viewed on 16/07/17.

37
corroborate our findings126. This study adopted two data collection methods, namely; interviews
and self-administered questionnaire.

3.17 Ethical Consideration

 Respondents were informed in advance of the research and what it sought to achieve.
 Confidentiality of information was emphasized to the respondents to do away with the
fears of victimization to allow free disclosure of information.

The researcher communicated the ethical issues to the various respondents and made an effort to
create a climate of comfort for the respondents; letting the respondent know that participation is
voluntary.

The respondents were assured that their responses were treated as confidential and used only for
academic purposes in this study. A letter of introduction from the Faculty of Law, Cavendish
University Zambia was presented together with the questionnaire and before the start of any
interview to all respondents to ensure that they participate in the study voluntarily and from an
informed point of view.

3.18 Limitations of The Study

The following limitations among others, are those generic to qualitative research which were
experienced during this study:

 Some respondents selected for the study had to be persuaded into opening up as they
were either suspicious of the use of information being gathered or they thought that the
study would work against them to provide much needed information because they were
afraid of being implicated after responding.

 Due to financial constraints and time constraints, the study was limited to Lusaka,
without looking at the other sectors in relation to the policy framework and legal
framework of other institutions in other parts of Zambia.

126
Zohrabi,M. Mixed Method Research: Instruments, Validity, Reliabilityand Report Findings; Theory and Practice in Language Studies, Vol. 3,
No. 2, pp. 254-262, February 2013 © 2013 ACADEMY PUBLISHER Manufactured in Finland, at pp.258 viewed on 16/07/17.

38
  Accessibility to information was the biggest challenge as the Ministry of Mines being the
major key institute in the mining sector couldn’t provide any information as the
institution has little or complete no knowledge on tax evasion as the institution doesn’t
have a legal department.

3.19 Conclusion

In conclusion Chapter three, has discussed the methodology used in conducting this research.
Which adopted a mixed method research where both qualitative and quantitative data was
collected to make a comprehensive analysis of the research findings. The research used
purposive and dimensional sampling techniques and adopted the following data collection
methods: Questionnaire, and Interviews. The research further discussed ethical considerations,
which is one of the most important parts of the study.

39
 CHAPTER FOUR

DATA ANALYSIS AND INTERPRETATION

4.1 Introduction

This chapter presents data and findings of the study on the effects of tax evasion in relation to
law in the mining sector and its effects on revenue collection. The study findings were presented
according to the research objectives as stated in chapter one.

Chapter four presents, the data which has been collected under this study, its quantitative and
qualitative analysis and interpretation. Interviews and self-administered questionnaires were

40
issued to representatives of the various mining sector regions and to persons in relation to tax
evasion to collect the relevant data.

4.2 Insight On the Framework and Interpretation of the Questionnaire

A self-administered questionnaire was used in this study. The main purpose for using a
questionnaire was to collect primary data that would complement data collected through
document review technique. This strategy was used firstly to identify the different legal and
policy frameworks used in accessing the tax system, secondly to analyze the experiences of
persons implementing these polices in relation to tax evasion and lastly to critically analyze the
measures taken by the Ministry of Mines and Zambia Revenue Authority to Review and
strengthen the law in order to address tax evasion.

4.3 Presentation, Analysis and Interpretation of the Questionnaire

A total of 5 questionnaires each were distributed to respondents in two institutions which are
considered to be key in taxation laws in Zambia in regards to the mining sector. And 5
questionnaires were distributed to members of the public in relation to tax evasion in the mining
sector.

4.4 Zambia Reuven Authority Questionnaire Response Rate

Table 4.4.1: Frequency of reports of Tax Evades reported to ZRA

Variable YES NO

Respondents % Responde %
nts

Do you receive reports from 1 20 4 80

persons who have evaded taxes in
the mining sector that need to be

41
 trailed and procured?

Table 4.4.1 shows that 80% of the respondents representing the Zambia Revenue Authority
Service providers provided a response to the questionnaire and said No to reports from persons
who evade taxes in the mining sector and 20 % said Yes.

Table 4.4.2: Level of frequency

Variable Very Often Often Rare Very Rare

Respondents % Respondents % Respondent % Respondents %

s

If Yes, how 0 0 0 0 1 20 4 80
often?

How often do 0 0 0 5 100

these matters
proceed to trial?

Table 4.4.2 shows that the frequency of crime reports by persons who evade taxes in the mining
sector is very rare. It also shows that the cases reported rarely proceed to trial.

4.5 Response by taxpayers on measures taken by the ZRA in educating tax payers that
do not understand the importance of tax evasion in the mining sector.

Variable Type of
response

Does ZRA Negative Positive Vague

service providers
respond to tax
payers who

42
 don’t understand
tax evasion and
its penalties?

Response % 60 Response % 10 Response % 30

Table 4.5 shows that 70% of the respondents had a limited amount of knowledge of the tax
system and the tax penalties in relation, which was due to lack of knowledge and sensitization
from ZRA. When prompted about how much they knew about the tax system and taxes in
Zambia, the majority of the respondents indicated that they had a limited amount of knowledge,
while 30% of the respondents indicated that they knew of the implications of tax evasion. And
10 % had the adequate or complete knowledge on tax evasion.

Suggesting that in Zambia, a larger proportion have only fair knowledge of the tax and tax
evasion in regards to the mining sector. However, as regards to the general public, studies have
shown that the general understanding of tax policy concepts is inadequate and the public’s
knowledge of taxes and tax policy is remarkably low.

Furthermore, suggested that a taxpayer should be given better tax knowledge to improve
perceptions of fairness, tax ethics and attitudes to others’ tax evasion. A successful means of
preventing tax evasion is to provide more tax knowledge to a larger segment of society.

4.6 Measures undertaken by ZRA to enhance adequate information on tax compliance and
tax evasion penalties.

“1st Respondent “

43
ZRA has put in initiatives acknowledgment in its taxpayers through door to door campaign,
Radio and TV programs and audits127

“2nd Respondent”

ZRA is putting in place training programs for its taxpayers, it has hence put in place a
mechanism to educate its taxpayers in various issues aimed at increasing compliance levels
through Tax Payer Education and Advisory Services (TEAS). Which was drawn by lessons from
other countries such as the Tanzania where various programmers such as Public Information to
educate small business owners and other self-employed individuals through workshops are
conducted128.

“3nd Respondent”

The introduction of vital training programs to improve on initiatives already under

implementation such as TEAS specifically targeting taxpayers with the view of enhancing tax
literacy129.

4.7 Measures ZRA has put in place to eliminate the barriers identified with it over the past
years in order to prevent tax evasion.

127
ZRA Respondent 1
128
ZRA Respondent 2
129
ZRA Respondent 3

44
“1rd Respondent”

All tax payers evading tax are charged with stiff penalties and risk losing their trading licenses130.

“2nd Respondent”

Through the establishment of the Investigation Division dedicated to investigating fraud and tax
evasion cases. In 2017 alone at the inspissation of the mechanism about 120 cases of malpractice
were investigated. Out of these cases, additional taxes of K23.6 million were collected131.

“3nd Respondent”

In order to reduce compliance costs for the taxpayers thereby improving voluntary compliance,
ZRA developed an automated system called Tax-Online that facilitate e-registration, e-filing and
e-payment132

“4th Respondent”

130
ibid
131
ibid
132
ibid

45
ZRA is working with the (Norwegian) Government to develop capacity in mineral resource
taxation in audit techniques which prior to this, posed challenges in auditing complex mining
accounts133.

4.8 Presentation, Analysis, And Interpretation of Interviews

The interview approach adopted for this study was a semi-structured interview and was
conducted face to face. Representatives of various government taxation institutions were
interviewed for this research. A number of key issues emerged from the interviews conducted
with agencies involved in, or related to, the tax system in Zambia.

4.9 Challenges institutions assigned to the collection of revenue face with relation to the law
in regards to tax evasion in the mining sector in accessing its effectiveness in its policy
framework

 Policy framework

Lack of response in regarding contacts of ZRA initiated by the taxpayers as many of these tax
payers submit their taxes online, as there is a lesser number of taxpayers doing it online, the
majority still relies on personal visits, phone or letter thereby increasing the workload from
physical tax payer service providers. Thereby creating a shortfall of labor to implement its policy
framework.

 Legal framework

While under the implementation of ZRAs legal framework, it was said that the challenge raised
was that of having a shortage of staff in the legal department specified for tax evasion in the
mining region hence an increase in the legal workforce resulting in its ineffectiveness in
implementation.

The Mines and Minerals Development Act of 2015 presented a paradigm shift from contracts to
a statutory model of governance, the new legislation presents licensing as the primary
133
ZRA Respondent 4

46
governance regime for the sector. This also allows for improved administration and enhanced
mining revenue by providing a level playing field for all mining projects, also backed by policies
and laws for broad-based development of the mineral sector in Zambia134.

4.10 Steps taken by ZRA through its legal and policy frameworks to cooperate with other
institutions to eliminate its barriers.

“1st Respondent’’

By the creation of the Registration system, which was an effort to ensure that taxpayers
continued with the registration of their Registration Numbers saw the number of taxpayers
receiving their Tax Identification Pin to have or is continually on the increase since its
introduction.

Advice Services, Taxpayer education is high on the agenda of ZRA and a number of outreach
initiatives towards the population have been undertaken. Furthermore, ZRA undertakes tax
audits in order to ensure that there is compliance with the tax law of the country. In 2014 “the
number of audits increased by 26.9 percent to 8,366…The ZRA office conducted 5,030 audits
while 184 audits were conducted under the Mining sector in LTO, yielding K 1,013.3 million out
of which K 172.6 million was deferred tax. Further ZRA charged penalties amounting to K 828.9
million in the same period of time for noncompliance to tax regulations.” 135

“2nd Respondent”

The Block Management System (BMS) emerged from the so-called “physical surveys”, where
tax authority personnel went out whenever personnel and money was available. This system was

134
Dymond, A. (2007). Undermining development? Copper mining in Zambia
135
Ibid

47
neither cost effective nor did it enhance compliance. The BMS is not periodic, but permanent
and continuous and is therefore easier to integrate into ZRAs operations136.

The Block Management System of the Tanzania Revenue Authority being one of the
mechanisms Used.

The Block Management System (BMS) consists of areas of trading concentrations that are
mapped

up in small territories/segments, defined on the basis of geographical or administrative set up, or

a

combination of a few streets to form a block. Each Block is mandated to operate all the tax

functions of registering, assessing, collecting and accounting for revenue collected. Each Block
is

allocated staff to carry out those functions, subject to rotation after a certain length of stay in one

Block. To measure performance, each Block is allocated targets, including revenue collection

targets, measured against set time frames and benchmarks. To enable smooth functioning, each

Block has a leader who is answerable to an Assistant Manager and assisted by a number of

subordinates.

The advantages of BMS are evident. The system is highly potent for widening the tax base by

capturing new taxpayers and evaders137.

“3, 4, 5 Respondent”

136
Ibid
137
Tanzania Revenue Authority (2011b)

48
Incorporations of ZRA with a number of other national (PACRA, CSO, ZABS) and international
(Norwegian Government) institutions has been one of the ways of which the enhancement of
both the legal and policy frameworks have been implemented. It is a complex and interlinked
system of reports from the mines, sampling of ore with independent laboratory testing, the use of

weighbridges for the establishment of quantities, and the use and comparison of trade and
declaration information. This being an essential instrument to keep track with tax avoidance and
tax evasion attempts by the Mining Industry, such as via transfer pricing or trade mispricing and
misinvoicing138.

4.11 Implementation of the penalties highlighted in the Zambia Income Tax Act CAP 323
of the Laws of Zambia.

Perception on penalties and deterrence on tax evasion can be argued that if known penalties
applicable to tax evaders are deemed to be harsh, then would-be tax evaders would stay away
from this crime, and vice-versa. Standard economic theory stresses that tax compliance solely is
the result of punishment and of threat detection. This approach is based on a few but restrictive
assumptions, like rationality and individual utility maximization. According to this paradigm, it
is expected that taxpayers weigh the expected utility of benefits from successful tax evasion with
the uncertain prospect of detection and punishment139.

It is therefore advisable for tax administrators to put in place high penalties for tax evasion and
publicize such information so as to deter evasion. For instance, as indicated in the data collected
by the researcher that a lesser % of taxpayers in the mining sector have little or complete no
knowledge of the implications of tax evasion. While as the % of the number of taxpayers who
have knowledge on tax evasion and its penalties under Section 98 and 102 of the Income Tax
Act CAP 323 of the Laws of Zambia are seemly not to be enhance as tax payers feel it’s an
offence that one is able to get away with, without being held accountable as the penalty not
effective. Which indicates no deterrence in the illegal act.

138
ibid
139
Kirchler E. et al, 2001

49
In line with this, the study examined the sample’s awareness of the prevailing penalties for tax
evaders and their rating of severity of these penalties as show in its finding implies that,
generally, Zambian taxpayers only have a little or fair amount of knowledge about the penalties
applicable to tax evaders. This finding provides ZRA with an opportunity to come up with
strategies in enhancing tax education and sensitization efforts with emphasis on penalties
applicable to tax law breakers.

4.12 Chamber of Mines Representative

An interview was carried out with the CEO of the Chamber of Mines, Mr Sokwani Chilembo,
and he highlighted some of the challenges faced and policies in line with the mining sector in
understanding tax evasion and its penalties.

The Zambia Chamber of Mines (ZCM) is registered as an association for mining and allied
companies both large and small. The Chamber is governed by a constitution while the policy
making body is the Council drown from member companies. Membership to the Chamber is
voluntary and is classified into four categories i.e. Class A, Class B, Class C and Associate.
These are based on the type of mining license that a particular mine possess, large, small,
exploration, service provision140.

Misconceptions about Tax Planning and Tax Evasion.

The difference in tax evasion and tax efficiency planning has been one of the major challenges
that the mining businesses owners turn to face, as per indicated under its policy framework.
ZCM mainly focus on large scale mining businesses. Tax evasion is mostly mistaken for
“Disputed Assessment” and because of this there is a lot of miscommunication in what is
considered illegal and what is legal. Hence there is need to broaden the tax base literacy
programs and make clear differences in tax planning and tax evasion so as to lessen the
misconception among tax payers.

140
The Zambia Chamber of Mines
50
Some of the measures that have been implemented by the ZCM in achieving tax literacy is the
introduction of campaigns and training session for the benefit of educating the taxpayers in the
mining sector to raise awareness of the importance of tax compliance and implications of tax
evasion and to what extent is it damaging to the company’s reputation.

Most of the cases under tax evasion in relation mining takes long for them to be trailed, as the
court sessions are very slow. Resulting to a failed legal framework system by the authorized
bodies in that regard. Despite penalties being highlighted in the Laws most companies still turn
to evade taxes as the penalties are seen not to be stiff or effective but however these penalties
come with a huge reputation risk and can greatly affect the business operations of a company141.

4.13 Ministry of Mines Questionnaire Response Rate

Table 4.13.1: Level of frequency

Variable Yes No

Registration of Mining
Business

Scale Type Small scale Large scale

% Rate 20 80

Compliancy of Mining
Regulations % Rate

Table 4.13.1 shows the rates of both the small scale and large scale mining businesses that
register with the Ministry in relation to its regulatory framework and the % at which tax
compliance is excessed.

141
Interviewee 1

51
However, the Director the Ministry of Mines representative and the Department didn’t have
adequate information in regards to tax evasion in the Mining sector Zambia, which was one of
the main challenges as there was no access of information.

4.15 Tax Payers in The Mining Sector

Persons that are into both small scale mining and large scale mining were interviewed for this
study. This interview was aimed at collecting direct feedback from the target population, achieve
the objectives of this study. A sample of 5 tax payer’s persons were selected and interviewed. A
bigger number could have been selected but due to other constraints such as time and costs, it
was not possible to select a large number, as people in the mining business live in isolated areas.

Variable YES NO

Respondents % Respondents %

Have you ever been a victim of 4 80 1 20

tax evasion?

If, yes have there been an follow 1 20 4 80

up by the relevant authorities ?

Are you aware that tax evasion is 3 60 2 40

a punishable offence by law?

Are you aware that evasion of 3 60 2 40

taxes is subject to a fine or
imprisonment?

Do you have any knowledge of 3 60 2 40

the importance of tax revenue
collection?

52
Table 4.6.4: Level of frequency of tax evaders who have evaded tax before.

Variable Very Often Often Rare Very Rare

Respondents % Respondents % Respondents % Respondent %

s

If Yes, how 0 0 1 20 4 80 0 0
often?

4.16 Reasons as to Why Taxpayers Evade Taxes Response.

“1st Respondent”

The respondent perceive company income tax to be too high. With regards to the perception on
tax rates applicable to key tax types, results depicted in table above were obtained. With the view
from the respondent that rates are high142.

Company income tax was regarded to be the most complicated and therefore more vulnerable to
tax evasion than the others. Simplifying the tax code is necessary to make application of tax
simple and readily usable

About two thirds of respondents perceived penalties as severe. Focusing only on those with some
amount of knowledge on tax penalties, the research went on to establish perception of severity of
penalties by the large taxpayers and the findings are shown in table 4.6.2. Generally, the
penalties were perceived to be severe by 40% of the respondents while 20 % felt that the
penalties were both mild and just adequate respectively. Interestingly 40 % of the respondents
said they did not know whether the penalties were severe on not143.

These findings imply that, generally, Zambian taxpayers only have a little or fair amount of
knowledge about the penalties applicable to tax evaders.
142
Interviewee 1
143
Interviewee 2, 3, 4 ,5

53
“2nd Respondent”

The respondent felt that paying a penalty slightly more than half the amount is severe as amounts
involved could be large enough to paralyze an organization. And the respondents pointed out that
what is termed fraud is basically calculation errors made during filing of tax returns144.

These views are in line with the earlier previous section on assessment of the legal framework
reinforcing the need to streamline the tax incentives in order to address issues of tax morality.
These findings agree with earlier studies in economic literature that tax rates are positively
correlated with tax evasion145. However, the results also provide an insight into the issue of tax
rates and the need for comprehensive studies to be undertaken driven by major tax policy
reforms.

“3rd Respondent”

Monetary fine as a deterrent to evasion is the most preferred, the knowledge of the existing
penalties on tax evasion is low among the respondents. With the level of knowledge on the
penalties.146

As currently the monetary fine of 52.5% of the amount evaded plus interest at the Bank of
Zambia rate of 5% is applied with an option for a jail sentence. Monetary fine as a deterrent to
tax evasion is preferred to blacklisting of company directors, revoking operating licenses and
prison sentences.

“3, 4, 5 Respondents”

The survey revealed that the respondents interviewed had limited knowledge of tax and the tax
system in Zambia. The majority of respondents have not received any training in tax literacy
indicating that ZRA has limited programs on increasing tax literacy among taxpayers147.

144
Interviewee 2
145
Tanzi V. , 1980
146
Interviewee 3
147
Interviwee 3, 4, 5

54
However, despite putting in place the Taxpayers Education and Advisory Services program and

a Taxpayer Charter. This gap provides the ZRA with the opportunity to develop training and
dissemination strategies in order to increase tax literacy.

The respondents observed that in order to increase tax literacy among the taxpayers in Zambia,
ZRA should undertake the following measures.

 Carrying out regular sector specific workshops and seminars on tax. Only 60% of
respondents indicated that they had fair knowledge of tax evasion and penalties which
could indicate limited availability of training programs. Therefore, ZRA should increase
the number of call centers as way of decentralizing remitting of taxes. However, call
centers should also be used for conducting free workshops to the general public interested
in learning about the tax system and taxes in all the ten provinces. These could also take
the form of trade visits to large taxpayers whose operations are highly complicated.
 Improve ZRA website and explain various tax types and processes of filing returns
clearly. It is commendable ZRA has introduced a tax online programme, which is aimed
at reducing the cost of tax administration and increasing taxpayer compliance through e-
registrations, e-returns and e-payments. However, the website needs continuous
redesigning if taxpayers are to fully benefit from this innovation. The website should
educate the general public about the tax system and taxes in Zambia in simple and
attractive terms. The South Africa Revenue service is a good example of a well-designed
and information packed website aimed at increasing tax literacy levels
(www.sars.gov.za).

 The unintentional incompleteness of submitted declarations or data entered in forms

which can occur, for example, if there were confusions regarding completing complex
forms, errors concerning unfamiliar online procedures or if incomplete documentation
has been submitted etc. These kinds of error occur easily, not the least because many
procedures, especially those online, are subject to frequent reforms and changes.
Therefore, there is need for a simpler tax law to start with, better by information and

55
 education and a good tax payer’s advice and counselling service and/or well explained
electronic collection systems.

4.17 Conclusion

In conclusion, this chapter presented, analyzed critically and interpreted the data collected for the
purposes of achieving the objective of this study. The main objective of this study was to
critically analyze the law in relation to tax evasion in the mining sector taking into consideration
its legal framework as well as its policy framework in evaluating the challenges faced by
government instituted tasked with the collection of revenue, such as ZRA and the Ministry of
Mines through the Chamber of Mines in relation to the taxation system of Zambia. From the
research findings, The survey revealed that the respondents interviewed had a fairly limited
knowledge of tax and the tax evasion in the mining sector in Zambia. The majority of
respondents have not received any training in tax literacy indicating that ZRA has limited
programs on increasing tax literacy among taxpayers. This is despite putting in place the
Taxpayers Education and Advisory Services programs and a taxpayer Charter.

It has been seen that most of the tax payers in the mining sector know of less information in
regards to mining taxation policy frame works and the general view of what the penalty
implications on both small scale and large scale mining. Hence the majority would be taxpayers
result in evading tax and there are no stiff penalties to would be tax evaders. The following
challenges have been identified in this study as observed from literature review, questionnaire
responses and interviews: Lack of platforms or training sessions on the tax systems, lack of
sensitization and awareness by higher tax institutions, luck of proper interpretation of the tax
laws and its penalties in regards to tax evasion onto taxpayers. Furthermore, there is lack of
implementation on the cost benefits on tax compliance, once there is a clear understanding on the
purpose of one paying tax it makes it easier to comply.

It has also been observed that agencies related to the taxation system in Zambia have not
effectively carried out their mandate to implement there polices in order to adequately carry out
their responsibilities. As some of the barriers that were identified above can be curbed by
enhancing its legal and policy frameworks in there specified sectors or regions. Which will
therefore, increase compliance through embarking on taxpayer education to improve tax literacy.
56
 CHAPTER FIVE

CONCLUSION AND RECOMMENDATIONS

5.1 Introduction

The general objective of this study was to critically analyze the law in relation to tax evasion in
the mining sector in Zambia. The study specifically identified the challenges faced by the
government institutions in conducting or carrying out its mandate in regards to its legal
framework as well as is policy frame work in relation to the tax systems. it evaluated the roles
that the taxpayers in the mining sector need to abide to. A general conclusion will be drawn in
this chapter on the challenges that these institutions face as a result of tax evasions in Zambia.

Based on our findings and analysis, it could be concluded that, there are many effects of tax
evasion on government revenue generation of which typically results in revenue loss. It is shown

57
that, as estimated revenue increase, invariably tax rates also increase so as to boost IGR
consequently, the rate of currency holdings which in monetary approach manifest the rise in tax
evasion. Furthermore, the study also found that, perceived government corruption can make
respondents to evade tax. The implications of these results may cause inevitable distraction to the
potential performance of government in the public sector.

5.2 Summary of The Major Findings

Based on the analysis, it was indicated that the study was centered on three factors such level of
tax evasion, measures of controlling evasion and its effectiveness. In order to achieve the
objectives, set for the study.

 It was found that there was high tax evasion in Zambia in the tax mining region and tax
compliance attitude was very low.
 High rate of tax evasion was associated with several factors including lack of education
on tax, tax laws being too complex and not simplified for easy understanding, and high
tax rate.
 Tax evasion had negative impact of revenue collection performance as it caused low
revenue collection, lack of social service, budget deficit and failure to meet revenue
target through its legal framework and policy framework.
 In curbing tax evasion problem, it was found that ZRA officials from the Zambia tax
region employed several measures ranging from imposing penalty, door to door visit,
education, using TIN to computerization of tax system but none of aforementioned
measure was effective.
 Other institutions such as the Ministry of Mines do not have legal frameworks of which
they are able to relay on in regards to tax evasion in the mining sector in Zambia and
how there are able to cub this problem moving forward.

5.3 Findings
The legal frameworks and the policy landscape regulating to mining in Zambia are always
changing as the government keeps searching for the ultimate strategy to maximize on revenue
from the mining sector. As elaborated in this analysis, Zambia has made considerable efforts in

58
aligning its mining legislation and policies Tax evasion in the mining sector is extensive, always
has been, and almost certainly always will be.

Differences in educational level and the capacity to calculate tax returns can explain some of the
across individual causes of evasion. But differences in compliance rates is an individual's
knowledge of the uses of tax revenue by the government, publicity and the education of the
general public on their tax obligation and its effects on the national economy and the penalties on
the default on non-compliance.

Thus, if tax payers agree that taxes are used for meaningless ventures by government and the
system of tax collection is fraught corruption, they would devise innovative ways of evading tax.
And secondly, if tax payers lack the necessary information and the capacity to compute tax
appropriately, there would be reluctance to comply and motivate evasion. Finally, the study
characterized the importance of publicizing penalties on defaulting tax payment and enforcing
punishment, tax defaulter would be inclined to fulfill their obligations to avert punishment and
shame.

5.4 Recommendations

Zambia Tax administration needs to continually review its systems, strategies and skills to keep
pace with the problem of violations of tax law. This study hereby suggests the following
recommendations

1. The study after the findings seeks to recommend that the ZRA should ensure an enforcement
of penalties for tax default, and these penalties should be made clearer and public. This will
create real threat and actual carrying out of audit, inspection, inquiry, penalty and punishment for
an errant taxpayer.

2. Taxpayer Registration and De-registration procedure should be improved as there should be

stiffer punishment to companies in the mining sector that turn to evade taxes for their own
income benefit.

59
3. ZRA should use amnesties. The basic idea of an amnesty is to encourage taxpayers to come
forward and pay their long-past-due obligations and can be used to bring new taxpayers into the
tax net.

4. In all the institutions aligned with tax evasion in relation to the mining sector need to ensure
the legal framework there is more transparency agencies so that they can inspect and collect
taxation relevant some efforts such as entering information about land and share ownership as
well as other wealth assets into data bases are a big effort beginning and, once data is in place
requires less effort to maintain it on an up to date basis. The justified private and corporate data
privacy interests are adequately protected by the high level of tax secrecy which prevents
leakages of the law in its implementations. Unlike as highlighted on of the major challenges was
with the collection of data as the Ministry of Mines does not have a well explained legal
framework as the ministry lacks a legal department. Hence causing a high risk on the
ineffectiveness of the collection of revenue

5. ZRA should adopt an effective mechanism that ensures the updating of a taxpayer’s
registration information whenever changes occur in the status of the taxpayer particularly in
changes in contacts and location.

6.Adequate utilization of tax revenues on public goods to discourage tax evasion and also the

reduction in tax rate. Efforts should be made by government at sensitizing the populace on the

seriousness of tax evasion and the penalties attached to tax violators. The tax system should

be computerized to ensure efficiency and quality delivery, and also, tax agents or on collectors
must be rotated in order to avoid corrupt practices.

7. Have a competitive tax regime. The tax burden in the mining sector should be comparable to
other copper producing countries, after accounting for differences in other investment factors
like political stability; The tax regime should balance the need for optimal tax policies with the
need to minimize the costs and technical challenges associated with tax administration efforts.
8. There is need to improve the capacity of ZRA to deal with the complex issues of mining
taxation. There is need to increase funding to the Authority so that it can train its staff in key

60
areas of mining audit. There is also need to seek external assistance in form of technical
assistance from countries that have dealt with this problem

5.5 Recommendation for Further Studies

This study was conducted in Zambian mining tax region hence it covered small area. Thus
another study is recommended in another area for comparative purposes.

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Mines Acquisition (Special Provisions) Act No 2

Petroleum (Exploration and Production) Act No. 10 of 2008

Valued Added Tax Act CAP 331

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68
APPENDICES

QUESTIONNAIRE SET 1
QUESTIONS FOR INTERVIEWS WITH MEMBERS OF THE ZRA OFFICERS

1. How many cases of nun compliance through tax evasion do you receive?
2. How often are such cases?
3. How often do these cases proceed to trial?
4. What measures does ZRA put in place to ensure adequate information on tax compliance
and tax evasion penalties is explained to such parties?
5. What measures has ZRA taken to eliminate the barriers identified with it over the past
years?

QUESTIONNAIRE SET 2
QUESTIONS FOR INTERVIEWS WITH A REPRESENTATIVE OF THE MINISTRY
OF MINES

1. Do persons with small scale and large scale mining businesses come in contact with
the Ministry to rightfully register their mining business and comply with the tax
mining regulations?
2. If yes, how often?
3. What challenges does the Ministry face in advocating for tax compliance among tax
evades and tax payers?
4. What measures has the Ministry put in place to enhance tax compliance and nun tax
evasion through its policy framework to tax payers in the mining sector?
5. Does the Ministry face any specific challenges in providing tax evasion services to
tax payer applicants?
6. What steps has the Ministry taken to eliminate these challenges?

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QUESTIONNAIRE SET 3
INTERVIEW QUESTIONS FOR TAX PAYERS IN THE MINING SECTOR

1. Have ever evaded taxes before?

2. If yes, has any authorized institutions ever followed up your compliance to paying tax?
3. If No, please explain your reasons?
4. Are you aware of the penalties of tax evasion by law?
5. Do you have any knowledge of tax evasion?

QUESTIONNAIRE SET 4
QUESTIONNAIRE TO BE COMPLETED BY MEMBERS OF THE ZAMBIA
REVENUE AUTHORITY

1. Do you receive reports of nun compliance of tax evasion?

Yes No

2. If yes, How often?

Very often Often Rare V Very Rare

3. How often do these matters proceed to trial?

Very often Often Rare Very Rare
4. What measures has ZRA put in place to ensure adequate information on tax
compliance and tax evasion penalties is explained to such parties?
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………

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5. What measures has ZRA taken to eliminate the barriers identified with it over the past
years?
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………

6. What challenges has ZRA faced in implementing its policy framework measures?

…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
………………………………………………………………………………….

7. What challenges has ZRA faced in implementing its legal framework measures?
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………
…………………………………………………………………………………………

71