2011 budget bulletin final - pwc · the 2011 budget the 2011 budget has been prepared taking into...

Looking ahead2011 Budgetary changes

October 2010

Zambia Budget Review 1


Commentary

A review of the Finance Minister’s speech

At a glance, there are positivemessages we see regarding some ofthe key economic statistics for Zambia.The Minister of Finance reported thatGDP will grow at 6.6% for 2010 in ayear when the world’s economycontinues to recover from the liquiditycrisis. This growth rate surpasses thatof Sub-Sahara Africa which is expectedto stand at 5%. Zambia rose nineplaces in World Banks’ Doing Business20101 and was ranked sixth in sub-Saharan Africa, ahead of notableeconomies such as Ghana and Kenya.

The Minister noted that by end ofSeptember, overall inflation stood at7.7% against a year-end target of 8%and Zambia’s foreign reserves were upto four months worth of import cover.The target is to reach five months ofimport cover by the end of the year.

The strong macro economicperformance is supported by theperformance of the Agricultural, Mining,Tourism, and Construction sectors.Agriculture, due to consistent and welldistributed rain, boasted record maizeproduction of 2.8 million metric tonnescompared to 1.9 million metric tonnespreviously.

With the ramping up of production atLumwana and the resumption ofextraction and processing activities atvarious mines that were on ‘care and

1 http://www.doingbusiness.org/Explore

Economies/?economyid=207

maintenance’, copper production isprojected to exceed 720,000 metrictonnes, the highest production levelssince 1973.

Tourism and Construction industriesare projected to grow by 25% and 10%respectively in 2011.

The Minister of Finance describes the2011 budget as “A People’s Budget,from a People’s Government”. Healso highlighted the need to linkresource allocations, in the budget, tothe Government’s NationalDevelopment Plan. To this end, he willtable a Planning and Budgeting Bill inParliament. This Bill is expected toprovide a framework for strongermonitoring and evaluation system toensure a more results orientatedplanning and budgeting process.

The budget speech did focus on givingthe public an update on constructionprojects (completed, ongoing or newprojects to be undertaken) ininfrastructure development,construction of schools & hospitals, andbuilding of health centres. In 2010 thegovernment completed five major roadprojects and has two in progress. In2011, the Minister has doubled theamounts allocated for road andinfrastructure development, specifyingthe roads, airstrips, and similarinfrastructure projects that will beundertaken.

Zambiacontinues toperform wellwhen comparedto other Sub-Sahara Africancountries.

A ‘People’sbudget thatfocused heavilyon constructionundertaken bythe Government



In his speech, the Minister indicatedthat 33 schools have been completed in2010 and another 57 schools are stillunder construction. He has allocatedK444.2 billion to complete 68 schools in2011. This will result in a total of 101schools being constructed between2010 and 2011.

This year, the Government undertookconstruction and rehabilitation of 26hospitals and 125 health posts. TheMinister has pledged to increaseavailable resources by 30.1% for theconstruction and rehabilitation of nineadditional hospitals, six health centresand 16 nurses’ flats.

Looking forward, the Ministeracknowledges that high commercialbank lending rates continue to be adeterrent for investment by localcompanies. He has identified some ofthe factors contributing to the high costof borrowing, as being:1. Limited information on

creditworthiness of borrowers;2. High loan default rates; and3. High costs of doing business.

Under the Financial SectorDevelopment Plan, the Bank of Zambiais expected to develop action plans toaddress the above matters.

In addition to trying to reduce the costof borrowing, the Minister has set thefollowing overall targets and objectivesfor 2011: Achieving real GDP growth of

6.4%; Reducing inflation to 7%; Maintaining international reserves

of at least four months of importcover;

Revival of the manufacturing,transport and communicationsectors;

Continued growth in the mining,construction and tourism sectors.

Whilst the key instruments drivinggrowth and development will continueto be the use of fiscal instruments andincreased government spending, it isencouraging and commendable that theGovernment sees private sectorparticipation in infrastructuredevelopment through Public PrivatePartnerships.

Government’s policy of increasing thepublic expenditure programme byconstruction of schools, hospitals,infrastructure development andproviding agricultural support, togetherwith focus on improving the financialsector is expected to continuesupporting the economy. However,caution is required to ensure that realgrowth is maintained in all sectorswithout 1) fuelling inflation, or 2)significantly increasing governmentborrowing. Both these factors couldreverse the gains made over the pastfew years. The higher than projectedwage bill and related increase indomestic borrowing for 2010 should setoff cautionary bells.

As a parting shot, we note that in orderto finance the expenditure, the focus ison increased tax collections. Theintroduction of Value Added Tax (VAT)on residential properties, an increase inproperty transfer taxes from 3% to 5%,and the removing of Mortgage InterestRelief on purchase of residential homeswill negatively affect first time houseowners.

All in all, the verdict is that Governmentshould keep up the momentum oninfrastructure development throughspecific investment in infrastructure,health and education and expeditingfinancial sector reforms.

Going forwardthe Minister hasidentified keyareas that needto be addressedto achievecontinuedgrowth.



The Economy

Comparative analysis – Key Performance Indicators

ECONOMIC PERFORMANCE

Gross Domestic Product (GDP)

Real GDP growth rate for 2010 isestimated at 6.6% (2009: 6.4%), thehighest recorded not only over the lastten years but also within the periodsince the implementation of the FifthNational Development Plan (FNDP)i.e. between 2006 and 2010.

GDP growth over the period of theFNDP has averaged 6.1%.

Zambia’s GDP compares favourablywith that of Sub-Saharan Africa whichis projected to be 5% for 2010 (2009:2.6%).

The key drivers of this growth havelargely been the mining andagriculture sectors:

continued and increasedinvestments in the mining sectorsupported by buoyant commodityprices on the London MetalExchange - the average copperprice reached US $7,202 per m/tbetween January and September2010;

good yields in the agriculturesector, where a record bumpermaize harvest of 2.8 million metrictonnes was achieved (2009: 1.9million metric tonnes). Growth inthis sector for 2010 is expected tobe 7.6%.

0

5

10

15

'06 '07 '08 '09 '10 '11

%

GDP

Other notable contributions to thegrowth of the 2010 economy includetourism and construction which areboth expected to record growths of25% and 10% respectively.

Recovery of the Global Economy

The global economy is expected togrow by 4.8% in 2010, albeit slowly,with emerging economies such asBrazil, India and China continuing tolead the growth.

Although mining continues to be thestrongest sector, gains registered inthe non-mining economy particularly inagriculture, manufacturing and serviceindustries, helped to mitigate theimpact of the global economicrecession on Zambia.

Governmenttargets 2011 GDPto decline to 6.4%compared to 6.6%estimate for 2010

Increased privatesector investmentin all sectorscontributedtowards Zambia’sresilience to theglobal recession



OTHER MACRO ECONOMICINDICATORS

Inflation

Annual inflation slowed down to 7.7%in September 2010 (2009: 9.9%).

Government is hopeful that despitethe inflationary pressures currentlybeing experienced (such as higherfuel and electricity prices and aweaker kwacha during the secondquarter of 2010) the overall 8% targetinflation for 2010 is still achievable.

Exchange Rate

The performance of the Kwachaagainst major convertible currenciessuch as the US dollar was generallymixed but relatively stable despite theturbulence in the internationalmarkets.

The appreciation of the Kwacha in theearlier years of the FNDP period weredue largely to rising copper prices onthe London Metal Exchange, resultingin increased investments in the miningsector.

-

2,000

4,000

6,000

8,000

'06 '07 '08 '09 '10 *

US $/MT

Correspondingly Zambia’s copperproduction, spiralled by growth in Indiaand China, has been on the increasealmost reaching the peak levelsachieved in the 70’s, as shown in thegraph below.

*2010 production is projected to reach 720,000

tonnes. Actual production to June 2010 was

440,000 tonnes.

Government is hopeful that Zambia’scopper production will reach onemillion metric tonnes per annum in themedium term.

Domestic Borrowing

Government increased domesticborrowing in 2009 after a number ofcooperating partners withheld sectorand general budget support to variousministries.

Copperproduction for2010 isprojected at720,000 metrictonnes - alevel lastachieved in theearly 70’s

2011 year endinflation istargeted at 7%compared to8% estimatefor 2010



The above effects in 2009 had a spillover effect in 2010 where the initialdomestic borrowing limit was revisedfrom 1.8% to 3% of GDP.

In 2011, Government intends to limitdomestic borrowing to 1.4% of GDP.

THE 2011 BUDGET

The 2011 budget has been preparedtaking into account the objectives ofthe Vision 2030 and the Medium TermExpenditure Framework (2010 –2012).

Government proposes to spend K20.5trillion in the 2011 budget and haveset the following targets:

Key Performance Indicator Target

GDP 6.4

Inflation 7.0

Domestic borrowing a % of GDP 1.4

International reserves 4 months

The budget will be financed from thefollowing sources:

PUBLIC PRIVATE PARTNERSHIP

Government continues to becommitted to private sectorparticipation in infrastructuredevelopment and in 2009 enacted thePublic Private Partnership (PPP) Act.

Some PPP projects have beenunderway in 2010 most notably inroad construction, airportsrehabilitation and power generation.Kasumbalesa Border Post in theCopperbelt is the first PPP projectnearing completion.

For 2011, Government has earmarkedadditional infrastructure projects suchas the building of 12,000 houses, roadconstruction and power generationunder PPP's.

SECTOR ANALYSIS

Agriculture

In 2010, Zambia recorded a bumpermaize harvest of 2.8 million metrictonnes.

The Government, in 2011, announcedthat they will continue preparatoryworks at the Luena Farm Block inKawambwa District and complete theongoing infrastructure works at theNansanga Farm Block in Serenje.

In order to further develop thelivestock industry, Government willconstruct livestock service centres in13 districts across the country.

It’s a K20.5trillion budget

82.7% of thebudget will befinanced bydomesticresources,and thebalancethrough grantsand foreignloans

In 2011, 17%of the budgetwill befinancedthrough grantsand foreignloans. In 2010,only 14.5%was financedthroughforeignsources.

Constructionof threegenerationprojects with acombinedgeneratingcapacity ofover 800megawatts tocommence in2011



Energy

The availability of more power willemerge as one of the criticalconstraints for further growth of theeconomy. Government has thereforeincreased allocation to the RuralElectrification Program to K314 billion.

Progress is being made on a numberof projects such as the Kariba NorthBank Extension which is expected tocommence operations in 2013.

Other projects which are expected tocommence in 2011 include theKabompo Gorge and Kalungwishi withcombined power generation capacityof over 250 megawatts.

The Kafue Gorge Lower project is alsoon stream and is expected to be oneof Africa’s largest PPP project in theenergy sector.

Transport and Communication

The Government has doubled thebudget allocation from K1.5 trillion in2010 to K3.1 trillion in 2011 for theconstruction and rehabilitation of theroad network across the country.

In addition, Government has allocatedK28.4 billion towards the rehabilitationand upgrading of airports and airstripsincluding at Kasaba Bay, Mansa, andKasama in the Northern Province andMongu in the Western Province.

Tourism

In the 2011 budget, Government hasproposed to allocate K12.8 billion formarketing activities and K38.6 billiontowards the development of theNorthern Tourism Circuit.

In addition, K37.7 billion has beenallocated to the development ofinfrastructure in the Kafue NationalPark, Lusaka National Park and thecreation of a tourism “One-Stop Shop”facility which will provide a singlewindow licensing platform for tourismoperators.

Governmentintends to embarkon several projectsin partnership withthe private sectorthrough the PPProute

Government aimsto repositionZambia as apremier nature,wildlife and culturaltourism destination



Direct Taxes

Increase in income tax bands for personal taxes

Annual bands for 2011/2012 Annual bands for 2010/2011

Income Taxrate

Income Taxrate

First K12, 000,000 0% First K9, 600,000 0%

From K12,000,001 – K20, 820,000 25% From K9, 600,001 – K16, 020,000 25%

From K20, 820,001 - K50, 400,000 30% From K16, 020,001 – K49, 200,000 30%

Above K 50,400,000 35% Above K49, 200,000 35%

Personal TaxChanges in annual tax bandsThe exempt threshold has increasedby K200,000 each month. Thisrepresents an increase of 25%.

The annual tax bands have alsoincreased from 2010/11. An individualearning K2m per month will now bebetter off by K70,000 each month.Individuals earning above K4.2m permonth will be better off by K75,000each month.

The 20% increase in the tax exemptband should have a positive impact onconsumer spending power, particularlyfor the lower paid. This should createmore demand for goods and services.It is hoped that this demand can beeasily met by local suppliers. If not, itcould fuel inflation and increaseimports.

Termination benefitsThe tax free terminal benefit payableon the cessation of employment is tobe increased from K25m to K35m..

Persons with disabilitiesThe tax credit applicable to personswith disabilities is increased to K3mper annum from K1.92m per annum.

Corporate TaxRate of tax chargeableThe standard rate of corporation taxremains at 35%. However forcompanies in the telecommunicationsector this will increase as follows:

First K250m per annum at 35%. Profits above K250m at 40%.

The stepped increase in corporate taxrates will reduce the return oninvestment for mobile phoneoperators. This could result in reducedinvestment in infrastructure, productand service development and delivery.If there is insufficient competitionbetween the operators, the increase incost could be passed on to consumersin the form of increased charges.

Exemptthresholdincreased by25%

All annual taxbands increased.

Terminationbenefitsincreased

Tax creditsincreased forpersons withdisabilities

Corporate taxrate increasedon telecomcompanies



Interest paid on mortgagesInterest paid on mortgages onresidential properties will be nondeductible for tax purposes. This willmake the cost of purchasing/buildingresidential homes more expensive. Itis assumed that this measure will notapply to businesses that trade inresidential homes or businesses thatconstruct residential properties. If itdoes, it will severely affect the supplyand development of suitableresidential accommodation in Zambia.

Effective date

All of the above measures take effectfrom 1 April 2011.

Housekeeping measures

The requirement to submit auditedaccounts to the Zambia RevenueAuthority (ZRA) is being removed forsmall and medium enterprises.Clarification is required on the natureand format of accounts that must besubmitted. For instance, willcompanies be required to submitaccounts prepared in accordance withInternational Financial ReportingStandards, or will they require anaccountants report?

Whilst this measure is welcome theabsence of specific guidance on thenature, format and content of accountscould lead to additional costs arisingfrom ZRA audits, investigations andextensive queries on account ofinsufficient information.

Currently there are no specificpenalties for non compliance with latepayment of the tax on mineralroyalties. In future penalties will be

charged in accordance with thepenalties charged on non compliancewith corporate tax. This implies thatthe late payment of mineral royaltieswill be subject to interest (levied at 2%above the Bank of Zambia base rate)and penalties of 5% for each month orpart of a month that the tax remainsunpaid.

Property Transfer Tax

Property transfer tax is payable whenproperty or shares are sold ortransferred. The tax is charged on themarket value of the assets transferred.The Minister proposes to increase therate of property transfer tax from 3%to 5% with effect from 1 April 2011.

As part of the housekeepingmeasures, the Minister proposes toextend the current anti-avoidanceprovisions that are contained in theIncome Tax Act to the PropertyTransfer Tax Act. Therefore if there isa view that the taxpayer has enteredinto any scheme, or transaction, themain purpose of which is theavoidance of tax, then the anti-avoidance provisions may be appliedto recoup any tax underpaid or any taxdeemed to be underpaid. We awaitthe actual wording of the legislativeprovisions to determine the level ofauthority and discretion that may beexercised by ZRA.

Miscellaneous measuresMotor vehicle licence fee

The motor vehicle licence fee is to beincreased from 1 January 2011 by50%. This will increase transport costsfor both businesses and individuals.

Interest onresidentialmortgages willnot be taxdeductible

Removal ofrequirement tosubmit auditedaccounts forsmall/mediumsized entities

Specificpenalties formineral royalties

Property transfertax rateincreased

Anti-avoidancelegislation toapply to PropertyTransfer Tax.

Motor vehiclelicence fee to beincreased by50%



Indirect Taxes

Highlights based on the Finance Minister’s speech

Value Added Tax (VAT)

VAT on fee-based banking services,property and casualty insurance

Currently fee-based banking servicesare exempt for VAT purposes.

The Minister proposes to charge VATon fee-based banking services at thestandard rate. This means that otherthan interest on lending, fees chargedfor specified banking services willattract VAT. This will increase the costof banking services for individuals andcompanies that are not registered forVAT purposes. However, this measureshould benefit financial institutions asit should improve the scope forclaiming a greater proportion of inputVAT on overheads incurred onbusiness expenditure.

The provision of insurance is currentlyexempt for VAT purposes. TheMinister proposes to charge VAT atthe standard rate for the provision ofproperty and casualty insurance.Whilst this measure will increase thecost of insurance for non commercialcustomers, insurance companiesshould benefit as they will now be ableto claim a portion of input VATincurred on the goods and servicespurchased for business purposes .

VAT on hammer mills to be zerorated

The Minister proposes to zero ratehammer mills for VAT purposes. Thismeasure is aimed at encouraging

small scale farmers and familiespurchase hammer mills to reducedependce on commercial entities toprocess their grain for domestic use.

Effective date

The above measures are effectivefrom 1 January 2011.

Housekeeping measuresVAT on developing dwelling housesfor sale to be standard rated

The sale of domestic buildings iscurrently exempt for VAT purposes.As part of the housekeeping measuresthe VAT Act will be amended tostandard rate the sale of of dwellinghouses by developers.

This measure will increase the cost ofacquiring dwelling houses byindividuals and is likely to beinconsistent with the aspirations of themajority of individual’s that hope toown their own home.

Commercial developers of residentialhouses should now be entitled toreclaim input VAT on expenditureincurred for business purposes. If theydid not pass on all of the cost ofunclaimable input VAT on to the finalcustomer in the past, they will benefitfrom the new measure as they willnow be able to reclaim input VATincurred on business expenditure.

Fee-basedbankingservices,property andcasualtyinsurance to besubject to VAT

Hammer mills tobe zero rated

Development ofdwelling housesto be standardrated



Increase of the threshold fromK25,000 to K100,000 for gifts orpromotional materials

The threshold for the supply of gifts orpromotional materials VAT free will beincreased from K25,000 to K100,000.

Specification of goods and servicesqualifying for exemption underfuneral services

Currently, the VAT Act does notspecify the goods and services thatquality for VAT exemption in theprovision of funeral services.

Under the proposed housekeepingmeasures, the VAT Act will nowspecify those goods and services thatwill qualify for exemption in theprovision of funeral services.

Gifts andpromotionalmaterialsthresholdincreased

Exempt funeralservicesspecified



Indirect taxes

Highlights based on the Finance Minister’s speech

Customs & Excise Duty

Customs Duty

Energy

The Minister proposes to remove the15 % customs duty on the importationof electricity by Zesco and other powerutility providers.

This measure should reduce costpressures on utility service providersand it is hoped that even if theimmediate benefits are not passed onto consumers, there will be limitedincreases in electricity tariffs goingforward.

ManufacturingEncouraging local manufacturing

To encourage local manufacturing theMinister proposes to introducecustoms duty on cold-rolled coils andgalvanised cold-rolled coils of 15%and 25% respectively. The Ministeralso proposes to introduce 25%customs duty on deformed bars whichare used by the construction industry.

This measure is aimed at supportinglocal industry and making localproducts more competitive.This measure will be effective to theextent that local manufacturers areable to satisfy customer demand.

Encouraging non-traditionalexportsDuty Drawback Scheme

The Minister proposes a review of theduty drawback scheme with a view tosimplifying the procedures so thatexporters of non traditional productscan benefit from it. This Schemeallows exporters of non-traditionalgoods to reclaim duty paid on inputsused to produce the exported goods,provided certain conditions are met.

A simple, non bureaucratic systemwhich enables exporters to easilyaccess and realise the duty refundsshould make our exports morecompetitive.

Customs duty on “palm olein” oil

The Minister proposes a specific tariffclassification for “palm olein” oil of 5%in order to align this with the tariffapplicable to “palm stearin”.

All Customs andExcise changesare effectivefrom 1 January2011

Removal of 15%customs duty onimport ofelectricity

Introduction ofcustoms duty oncold-rolled coilsand deformedbars primarilyused inconstruction

Review andimprovement ofDuty Drawbackscheme

5% excise tariffon “palm olein”oil



Changes to import proceduresand other measures to reduce thecosts of doing business

Customs duty removal on firefighting equipment

In order to encourage fire safety andreduce the cost of doing business, theMinister proposes to remove customsduty on fire-fighting equipment of 15%.

This should be welcomed by mostorganisations as it should reduce thecost of complying with fire safetyregulations.

Increase of the minimum thresholdfor the appointment of a clearingagent

The Minister proposes to increase theminimum threshold at which animporter of goods is required toappoint a clearing agent from USD500 to USD 2,000. We understandthat this measure is directed atreducing the cost of doing business forsmall scale cross border traders.

It is questionable as to whether theincrease in threshold is sufficient tohave any measurable impact.

Removal of requirement to applyfor pre-clearance of imports

The Minister proposes the removal ofa pre-clearance application to theCommissioner-General of ZRA forentry of goods. This should reduceadministrative procedures forimporters.

New provision for the registrationand submission of entries

Whilst the requirement to make anapplication for pre-clearance of goodsto be imported has been removed,importers will now be required toregister/notify ZRA and submit entries

subject to customs duties at least 7days prior to importation of goods of acommercial nature, or 24 hours wherethe goods are accompanied by theimporter.

This measure should enable ZRA toexpedite clearance of goods subject tocustoms duties.

It is hoped that the new procedureswill indeed quicken clearanceprocedures and reduce congestion atcustoms border posts.

The measure may however, impedethe importation of goods required atshort notice or in an emergency. Thiscould hamper industry and in certaininstances actually increase the cost ofdoing business.

Excise Duty

Introduction of Excise duty onplastic bags

The Minister proposes to introduceexcise duty of 10% on plastic bags.The duty will not apply to paper bagswhich are bio-degradable.

This measure aims to changeconsumption and behaviour patternsand seeks to discourage use of plasticbags which harm the environment andblock public drainage systems.

Effective date

All the above customs and excise dutychanges will be effective from 1January 2011.

Duty remissionon miningmachinery,equipment andspecial purposevehicles

Removal ofservice providerlicenserequirement

Alignment ofmanual andautomatedprocessing feesfor bills of entry

Customs dutyremoval on fireequipment

Increaseminimumthreshold to US$2,000 forappointing aclearing agent

Pre-clearance ofimports notrequired

10% excise dutyon plastic bags



Housekeeping measuresSpecific tariff lines for dangerouschemicals

Specific tariff lines will be introducedfor dangerous chemicals in line withthe World Customs Organisation(WCO) recommendations.

The measure is intended to prohibitthe development, production,stockpiling and use of chemicalweapons and their destruction in linewith the WCO requirements. It willalso enable the government to captureand collect data and information tocompile appropriate statistics to assistdecision making.

Mining machinery, equipment andspecial services motor vehicles

Regulation 96 of the Customs andExcise (General) Regulations is to beamended to specify the machinery,equipment and special purpose motorvehicles that qualify for dutyremission.

This measure is intended to removeambiguities by specifying the itemsthat qualify for duty remission. Theseinclude:

i. Dump trucks-off highwayii. Mine –Locomotivesiii. Transmission or conveyor beltiv. Conveyors

Increase of fees for manuallyprocessing bills of entry

The fees for manually processing billsof entry will be aligned with fees forautomated processing to K50,040.

Removal of requirement to applyfor licence for services subject toexcise duty license requirement

The requirement for service providersto apply for a licence for provision ofservices liable to excise duty is to beremoved. This will primarily affectmobile phone companies.

This is in line with the government'sregulatory reforms aimed at reducingthe number of licenses required to dobusiness in Zambia.

Simple interest on late payment ofcustoms and excise duty

The Customs and Excise Act will beamended to disallow the use ofcompound interest when calculatingcharges.

Equipmentqualifying forduty remissionspecified

Simple intereston late paymentof customs andexcise duty



Corporate Tax rates

Standard rate 35%Banks and Telecommunication companies

Income not exceeding K250 million 35%Income exceeding K250 million 40%

All other companies except mining companies 35%Farming 15%Export of non-traditional products* 15%Foreign earnings of Sun International Limited 15%

New listings on LuSE** 2% discountNew listings on LuSE> 33% shares taken up by Zambians 7% discount

Turnover tax levied on small business with turnover< K200 million (excludes income earned from consultancyservices and mining operations) 3%

Advanced Income Tax 6%

Capital Deductions***

Investment allowance on industrial buildings**** 10%Initial allowance on industrial buildings**** 10%Industrial buildings allowance 5%Commercial buildings allowance 2%Implements, machinery and plant

Used for farming, manufacturing, tourism and leasing 50%Implements, machinery and plant- Other 25%

Motor vehiclesCommercial 25%Non-commercial 20%

FarmingFarm improvement/Farm works allowance 100%

Trading lossesCarry forward of losses No. of years

Non -mining companies 5Hydro and thermo power generation companies 10

* With the exception of minerals, electricity, services and cotton lint exported without an exportpermit from Minister of Commerce.** Discount applicable to corporate tax rates and only available for the first year.*** Capital allowances are computed on a straight line basis.**** Investment and Initial allowance granted in the charge year in which the industrial buildinghas been put into use.

Income Tax- Companies



Company rateBasic rate 30%Variable profit tax* Up to 15%

Capital deductionsCapital allowance on capital equipment 100%

Trading lossesCarry forward of trading losses No. of years

Konkola Copper Mines plc 20All other miners of base metals 10Prospecting and exploration companies 5

* Applicable when taxable income from mining operations exceeds 8% of the gross sales.

Canada, China, Denmark, Finland, Germany, India, Ireland, Italy, Japan, Kenya, Netherlands, Mauritius*,Norway, Romania, South Africa, Switzerland, Tanzania, United Kingdom, Uganda, Yugoslavia*,Zimbabwe*.

* The treaties have not been ratified

Annual income bands

Income Income Tax Tax on Cumulativefrom to rate band tax on

income

K K % K K

First 0 12,000,000 0 0 0Next 12,000,001 20,820,000 25 2,205,000

2,205,000Next 20,820,001 50,400,000 30 8,874,000

11,079,000Over 50,400,000 35

Housing Benefit taxable in the hands of the employer

Rate at which employees annual gross emoluments disallowed 30%

Income Tax- Mining Companies

Income Tax Tax Treaties

axIncome Tax- Individuals



Tax on car benefit is payable by the employer at the corporate tax rate based on thefollowing scale charges:

Engine size < 1,800 cc: K9,000,000 p.aEngine size > 1,800 cc, < 2,800 cc: K15,000,000 p.aEngine size > 2,800 cc: K20,000,000 p.a

Dividends from Lusaka Stock Exchange

Dividend income earned by individuals on shares listed on the LuSE is exempt fromincome tax

Medical Levy

Banks or financial institutions paying interest on savings or deposit accounts, treasurybills, government bonds or similar financial instruments deduct medical levy of 1%.

Resident Non-resident

Dividend 15% 15%Interest …15% 15%Management or consultancy fee 0% 15%Royalties 15% 15%Rent from a source within the Republic 15% 15%Commissions 15% 15%Non-resident construction and haulage contractors N/A 15%Non-resident entertainers/sports persons fees N/A 15%

Payments made by companies carrying on mining operations

Dividend 0% 0%Interest to any lender 15% 15%Management fees to shareholders 0% 15%

axWithholding Tax



Taxable supplies- rate

Supply of goods & services in Zambia 16% / 0%Import of goods & services into Zambia 16% / 0%Export of goods & services from Zambia 0%

Registration

Threshold K 200m p.a.

Payment- due date

Supply of taxable goods & services 21 days following the endof the VAT accounting period*

Repayment - due date

Standard 30 days after submission of VAT return

*accounting period means the month following the month of registration and each succeedingcalendar month.

Incentives for companies in priority sectors/Multi-facility Economic Zones(MFEZ) under the Zambia Development Agency Act:

No tax on profits for a five year period from the first year of assessable profits. Only 50% of profits taxable in years 6 to 8. Only 75% of profits taxable in years 9 to 10. Deferment of VAT on machinery and equipment including trucks and specialised motor

vehicles. 0% custom duty on raw materials and capital goods, machinery including trucks and

specialised motor vehicles for a five year period. No withholding tax on dividends, management fees and interest, and payments to

foreign contractors for a period of five years from the first date that the payment is due. 100% improvement allowance for tax purposes on capital expenditure for improvement

and upgrading of infrastructure. 0% VAT on supplies to developers of MFEZ and industrial parks. Exemption from customs duty on equipment and machinery imported for the

development of MFEZ and industrial parks. MFEZ are located in Chambishi, parts of Lusaka, and Lumwana.

VAT

Income TaxConcessions for priority sectors



Note:Chambishi is fully functionalLusaka and Lumwana are declared but not fully functional

An annual carbon tax is payable on all motor vehicles as follows:

Engine size < 1,500 cc K50,000 p.aEngine size > 1,500 cc, < 2,000 cc K100,000 p.aEngine size > 2,000 cc, <3,000 cc K150,000 p.aOver 3,000cc K200,000 p.aVehicles propelled by non pollutant Nilenergy sources

Note:

Validity period of the carbon emission tax certificate is 90 days for vehicles in transit and thosethat enter for short periods only.

Land and buildings, shares 5% of open market value

Income Tax Carbon Tax

Income Tax Property transfer tax



Deadline/Obligation Immediate penalty InterestIncome Tax- Companies

Provisional tax/returnLate payment

Underestimation of tax

Late filing of return

Final tax/ returnLate paymentLate filing of return

4 quarterly instalments on 30June, 30 September, 30December & 30 March

2/3 of the total tax liabilitypayable in 4th quarter

End of every quarter on thedates as stated above whereapplicable

30 September30 September

5% per month or part month

25%

K360,000 per month or part month

5% per month or part monthK360,000 per month or part month

2% + DR

N/A

N/A

2% + DRN/A

Income Tax - Individuals

Final Tax returnLate paymentLate filing of return

30 September30 September

5% per month or part monthK180,000 per month or part month

2% + DRN/A

Withholding TaxLate payment

Payroll (PAYE)Late payment

VAT

Late lodgement

Late payment

Within 14 days after the end ofthe month of accrual / payment

Within 14 days after the end ofthe month of accrual / payment

21 days after the end of theaccounting period**

21 days after the end of theaccounting period**



Daily penalty- higher of K180,000and 0.5% x tax payable

Daily penalty- 0.5% x tax payable

2% + DR

2% + DR

N/A

2% + DR

KeyDR= Bank of Zambia discount rate** accounting period means the month following the month of registration and each succeeding calendar month.

Income Tax Deadlines and Penalties



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The information in this budget bulletin is based on the budget pronouncements of 8 October 2010. The specific legislative provisions toeffect the budget pronouncements are subject to enactment by Parliament. We therefore caution that the information highlighted in thisbudget bulletin may be subject to change. Accordingly, you should confirm the current tax position as necessary.

We emphasise that the information in this budget bulletin is generic and may be subject to update/amendment. Accordingly, you shouldseek specific advice and should neither act nor refrain from acting solely on the basis of the information provided in this budget bulletin.PricewaterhouseCoopers, its affiliates and/ or network firms shall have no liability for any action taken (or omitted) on the basis of theinformation provided in this budget bulletin.

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2011 budget bulletin final - pwc · the 2011 budget the 2011 budget has been prepared taking into...

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