Abstract

Zambia faces persistent fiscal pressures that require stronger domestic resource mobilisation. Although the tax-to-GDP ratio stood at 17.3% in 2020, excise duty performance remains below potential. Excise taxes contributed 1.1% of GDP and 8.1% of total revenue, but collections have been volatile, with declining yields from cigarettes, motor vehicles and hydrocarbon fuels, pointing to underlying structural and administrative challenges. This study applies a tax gap approach to assess excise performance from 2016 to 2020 using national statistics data and tax administration data. While overall excise gaps are below 1% of GDP, significant gaps appear in soft drinks, non-alcoholic beverages and tobacco. Compliance issues, especially in the soft drinks industry, have worsened since 2019, with over 70 million litres not captured in the tax net. The study recommends broadening the tax base, introducing ad valorem rates, and adopting automatic indexation to enhance revenue and strengthen excise duty sustainability.