“Fuel Tax Suspension Threatens Zambia’s Hard-Won Fiscal Gains, ZICA Warns” 

(ZICA PRESIDENT MS. YANDE SIAME MWENYE)

By Daily News Reporter

The Zambia Institute of Chartered Accountants (ZICA) has warned that the government’s suspension of fuel import taxes could erode hard-won fiscal gains, as the country grapples with global oil price volatility linked to the US–Iran conflict.

Speaking at a quarterly economic briefing in Lusaka, ZICA President Ms. Yande Siame Mwenye cautioned that Cabinet’s March 31 decision to zero-rate VAT and suspend excise duty on fuel imports, while aimed at stabilising pump prices, has effectively reintroduced subsidy-like pressures on the national budget.

“The distinction between a tax suspension and a subsidy is minimal. Both effectively redirect government revenue towards stabilising fuel prices,” Ms.  Mwenye said. 

And following the policy shift, the Energy Regulation Board (ERB) adjusted fuel prices effective May 1. Diesel rose to K33.99 per litre from K29, kerosene to K35.05 from K32.16, and aviation fuel to K37.98 from K34.74, while petrol remained unchanged at K27.15.

Ms. Mwenya also noted that without government intervention, prices could have more than doubled. Yet the relief has been uneven: diesel and kerosene users absorbed steep increases, a development the institute described as regressive. 

And for Kerosene remains the primary energy source for an estimated 7.5 million rural and peri-urban residents without electricity, making the impact particularly severe on low-income households. 

Ms. Mwenye warned that the resulting fiscal gap could threaten allocations in the 2026 national budget, including K7.65 billion for social cash transfers, K26.2 billion for health, and K33 billion for education.

The warning comes amid troubling signals in the domestic bond market. Government securities auction raised only K1.285 billion against a target of K6.3 billion — a sharp reversal from oversubscriptions earlier in the year.

“Undersubscription is not just a auction outcome. It is a market signal,” Mwenye said, pointing to investor concerns over debt sustainability, rising borrowing needs, and policy credibility. 

On the macroeconomic front, Zambia has seen encouraging progress. Annual inflation fell to 7.1 percent in March from 7.5 percent in February, aided by a stronger kwacha and a record maize harvest of 3.7 million tonnes. The Bank of Zambia responded by cutting its policy rate by 75 basis points to 13.5 percent.

But ZICA warned that these gains remain fragile. Rising fuel costs could quickly reverse inflationary improvements by driving up transport and production expenses.

“Inflationary pressures in Zambia are largely influenced by exchange rate dynamics,” Mwenye said, urging government to strengthen foreign exchange inflows through mining and agriculture rather than relying heavily on monetary policy.

Zambia’s fiscal deficit has narrowed dramatically — from 9 percent of GDP in 2021 to 3.1 percent in 2025, with projections of 2.1 percent in 2026. Yet ZICA cautioned that credibility and discipline are key to sustaining this trajectory. 

“Any fiscal interventions that are necessary must be targeted, time-bound, transparent, and prudent,” Mwenye stressed.  As Zambia navigates external shocks and domestic pressures, the government faces a delicate balancing act: stabilising fuel prices without undermining fiscal stability, investor confidence, and social spending priorities.