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Wednesday, 23 October 2013

Fiscal Incentives for Sports

Government has decided to work out a policy that will give additional fiscal incentives (tax exemptions) to companies that support sports in the country. Sports Minister Chishimba Kambwili recently said that companies are sacrificing a lot to contribute money and even material support into sports and there was need to encourage them to continue doing so. 

What Mr Kambwili is proposing can be argued for any sector of the economy. So one has to be clear about two questions : a) Is this the right approach to support sports development in the country (and other sectors), and, b) should sports take financial priority over other areas of development (e.g. tourism, agriculture)?

The use of fiscal incentives may not be without costs! What is important is to consider the counterfactual (the 'do nothing' world). What would happen if the tax breaks and concessions are not made? Would Zambia get the investment in sports anyway? That is certainly possible if one believes there are credible alternatives to encouraging investment in many sectors divorced from the large tax breaks.  I have previously suggested that what we should focus on is to develop a bureaucratic hands-off approach across all sectors, the freedom to invest across sectors, and promote contestable markets (with import competition, and privately financed infrastructure being two of the key factors).

If the tax incentives genuinely stimulate new 'additional' investment in sports then it is clearly a good idea. But if all that happens is that investors switch from already tax paying activities in one sector to non-tax paying activities in sports sector then the tax exemptions become simply another form of indirect subsidy that reduces tax revenue elsewhere in the economy.

So before this policy is implemented GRZ need to show the projection of investment that would be stimulated. How many jobs would be created and where? What is the additional tax revenue that would generate? We can then decide on the balance whether such incentives are worth pursuing and at what level. At present it, at best it appears to be all guess work. At worst, this may simply be a product of high level lobbying by someone who wants to invest in sports with minimal cost to his/her business.

Chola Mukanga | Economist
Copyright © Zambian Economist 2013

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