REGULATORY IMPACT ASSESSMENT REPORT ON THE PENALTIES IMPOSED BY NAPSA ON LATE SUBMISSION OF MONTHLY CONTRIBUTIONS

The National Pension Scheme Authority (NAPSA) was established in 2000 under the National Pension Scheme Act, 1996. This followed the closure of the Zambia National Provident Fund (ZNPF) after the responsible Act under which it was formed was repealed.

The Act mandates NAPSA to provide income security against the risk arising from retirement (old age), death and invalidity with a focus on adequacy of benefits and monthly receipt of pension contributions. This is achieved through the payment of different kinds of benefits to its members

In order to ensure compliance on pension contributions, the National Pension Scheme Act provides for offences and penalties for avoidance and late submission of pension contributions. These include the following:

1. Evading payment of contributions (section 51 (1) (a)) – This happens when employers do not pay the required social security contributions. It may also include late remittance of contributions. Section 12 of the Act defines who a contributing employer is and this includes any person, association, Institution, firm registered as a tax payer or a tax payer with a contract of service with an employee. It also includes the Government of the Republic of Zambia, Local Authority or Parastatal or Statutory Body.
2. Failing to register within the period specified (section 51(1) (b) – An employer should apply for registration within one month of commencing business. The period of one month begins on a date when the person/employee/member concerned becomes a contributing employee.

Section 13(13) of the Act obliges and empowers a contributing employer to register every person who becomes an employee in his service and also obliges him to provide the particulars of such employees. An employer is required to submit a duly completed Employer Registration Form number NPS 411 and accompanied with Member Registration Forms. Section 15(2) of the NPS Act prescribes that penalties will be charged on all late or unpaid contributions. It states as follows:

“if any contribution is not paid within the time stated under subsection (1) a sum equal to twenty per centum of the amount unpaid shall be added as a penalty for each month or part thereof after the date the payment is due and the amount of the penalty shall be recoverable as a debt owing to the Scheme by the employer”. The foregoing section prescribes that a 20% cumulative penalty shall be charged on all unpaid or late contributions.

This penalty is charged on two major grounds:

1. It is compensation to NAPSA for the lost investment gains which would have been made and eventually passed on to the pensioner. At the time of retirement, the pensioner will have to be paid as though the money was received in the month it was deducted/due irrespective of whether NAPSA received it on time or not. In order to make it possible for such good payments to be sustained, NAPSA needs to invest all the funds received and to do so on time. Any delays may result in a situation where NAPSA’s obligations may outweigh its capacity to pay. The penalty therefore acts as compensation for the lost investment earnings; and
2. as a penal measure to deter would-be defaulters

 The Business Regulatory Review Agency is mandated to contribute to improving the business regulatory environment and reducing the cost of doing business. The Agency undertakes monitoring activities on the business environment. The Agency is also mandated to undertake Regulatory Impact Assessments on any regulation in any sector of the economy and advise Government as the need may be. The Agency through its monitoring activities received submissions from the private sector regarding the impact of NAPSA penalties on businesses. The contention by businesses is that the penalties imposed by NAPSA for late submission are punitive in nature and have caused closure of some businesses in some cases.

In view of the above, the Agency has commissioned a RIA to enquire into the imposition of penalties and their impact on businesses and how NAPSA can ensure business friendly administration of regulation on pension contributions without being overly burdensome on businesses.

The Agency now invites comments from stakeholders on the impacts of NAPSA penalties on businesses and recommendations on what Government must do to help the private sector on this matter.