Develop own double tax treaty model to maximise benefits, Zambia urged

ZAMBIA, which has signed 22 double taxation treaties (DTT) with various nations has been urged to develop its own model that suits particular circumstances to maximise benefits.
Double taxation is levying of taxes on the same income (or capital) of the same tax payer in the same period.
According to a joint policy brief by Centre for Trade, Policy and Development (CTPD) and Actionaid on double taxation agreements made available to the media in Lusaka last week, there is need to renegotiate several ‘out dated’ tax treaties to make profits taxed in country of source and residence more balanced.
“For example, a renegotiated United Kingdom-Zambia tax treaty, which since 1955 has continued to restrict source country taxing quite heavily, has just been signed awaiting ratification. These treaties take political will on both sides,” the brief said.
Generally, the division is between economic double taxation (same income taxed twice e.g. profits, then dividends, wages [and] then value added tax and juridical double taxation (same income taxed in two different countries, for instance, profits taxed in country of source and residence).
Currently, Zambia has DTTs with China, Denmark, Canada, Finland, France, Germany, India, South Africa, United Kingdom and Poland.
Other countries included Kenya, Mauritius, Sweden, Tanzania, Uganda, and Switzerland among others.
The brief notes that at a minimum, the United Nations (UN) model that emphasises taxation at source of the income would be a more advantageous basis for negotiating tax treaties.
The Organisation for Economic Cooperation for Development (OECD) model treaty is widely used in drafting many DTTs across the globe despite promoting residence taxation, which benefits developed countries since it is mainly established in countries where investors invest in developing countries, not the other way round.
The brief, however, says vast majority treaties concluded between developed and developing nations limit source based taxation, which means that developing countries can only collect tax revenues from foreign investors to a limited extent in exchange for anticipation of increased foreign direct investment.

The brief notes that the juridical double taxation can represent an obstacle or barrier to foreign investment, thus distorting the efficient allocation of scarce financial resources across countries of the world.
It says there is also need to standardise and harmonise tax concessions included in the DTTs to be able to maximise benefits from them and avoid exploitation.
The publication recommends that Government should close loopholes in national tax codes and tax treaties that allow tax havens transactions.
“Donor and developed countries have a particular responsibility to ensure that their own tax regimes and treaties do not make it easier for corporate profits to be siphoned out of developing countries.
“…companies, stronger tax authorities, better tax laws and critically public action and scrutiny all have a part to play in protecting the revenues that Zambia and many other countries need,” it reads.

Credit: Daily Mail