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Zambian 2017 Budget Targets Fiscal Consolidation

by Lorys Charalambous,, Cyprus

18 November 2016

Zambia's 2017 Budget seeks to expand the taxpayer base by tackling non-compliance.

Introduced on November 11 by Minister of Finance Felix Mutati, the Budget aims to improve the nation's budget performance prior to meetings with the International Monetary Fund early next year to discuss an aid facility. A fiscal deficit of up to seven percent of gross domestic product (GDP) is budgeted for 2017, from the more than 10 percent projected for this year. Tax revenue next year should reach a total of ZMW42.9bn (USD4.3bn), representing 18.4 percent of GDP.

With the aim of improving compliance and curbing the under-declaration of taxes by some small taxpayers, especially in the retail and wholesale sectors, the current three percent turnover tax regime for businesses with an annual turnover of less than ZMW800,000 is being restructured by introducing bands and presumptive amounts.

In addition, revenue from businesses or individuals whose tax compliance status has not yet been established should be improved by raising, from six percent to 15 percent, the Advance Income Tax rate payable on the importation of goods. The tax is refunded at the end of the year upon proof that the importer is a compliant taxpayer.

It will be made mandatory for financial institutions to require all bank account holders to obtain a taxpayer identification number. In that way, it should be easier for the Zambia Revenue Authority (ZRA) to identify individuals that do not declare their income, particularly foreign dividends and interest.

Every person changing ownership of a motor vehicle will also have to obtain a tax clearance certificate from the ZRA.

In the area of value-added tax, the Budget proposes to:

  • Make input VAT non-recoverable for all supplies acquired by an entity prior to their registration for VAT;
  • Make input VAT on petrol non-recoverable and limit the claimable threshold on diesel to 90 percent;
  • Make input VAT on domestic refrigeration equipment, air conditioners, mobile phones, motor vehicle parts, digital satellites, television sets, decoders, video players, curtains, and construction of dwelling houses for staff, non-recoverable.
  • Add copper concentrates to the import VAT deferment schedule, to promote local mineral processing; and
  • Abolish the VAT Group registration scheme.

Among other measures, the Budget proposes to increase the exempt threshold for pay-as-you-earn income tax in 2017 from ZMW3,000 to ZMW3,300 per month, adjust the tax bands accordingly, and increase the top marginal tax rate from 35 percent to 37.5 percent. The measure is intended to give relief to low wage earners and increase the progressivity of the individual income tax code.

Further, the excise duty on mobile network airtime will be hiked from 15 percent to 17.5 percent; customs duty on spare parts for various machinery and equipment will be raised from five percent to 15 percent; and the specific excise duty on cigarettes will be increased from ZMW200 to ZMW240 per mille.

A five percent surtax is proposed on selected imported goods that are also locally produced, and motor vehicle carbon tax rates have been revised upwards.

TAGS: individuals | compliance | tax | business | value added tax (VAT) | tax compliance | fiscal policy | banking | budget | excise duty | tax authority | tax rates | carbon tax | Zambia | import duty | dividends | retail | individual income tax | Tax

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