IMPLEMENTATION LEVEL

National

AFFECTED FLOW

Inflow

ANNOUNCED AS TEMPORARY

No

NON-TRADE-RELATED RATIONALE

No

ELIGIBLE FIRMS

all

JUMBO

No

TARIFF PEAK

No
← back to the state act
Inception date: 31 Jan 2009 | Removal date: open ended
Still in force

Tax or social insurance relief

In the 2009 Zambia Budget address, the minister of finance and national planning proposed changes in some taxes and VAT treatment of certain items to stimulate growth and ensure the availability of adequate funds for government. These include:
 
Direct taxes
130. Increase in income tax rate on profits from export of cotton to 35% from 15%. This is to encourage local value addition and improve supply to local producers. Where local processing capacity has been reached, the government will, under permit, allow income tax rate on profits from export of cotton at 15%.
The measure took effect on 1 April 2009.
The tax is expected to discourage the export of raw cotton in order to stimulate local value added processing for which local capacity exists. The parliamentary committee on estimates stated that care should be taken not to drive out local farmers from cotton production to other crops.
 
 Customs Duties and Excise Tax
135. To promote a strong manufacturing sector and reduce dependency on imports, goods such as crude vegetable oils, gray fabric and packaging materials have been reclassified and recategorised to lower customs duty rates.
136. To encourage investment and reduce the cost of doing business, customs duties on capital equipment including survey and geophysical instruments, earth working and levelling equipment, scrapers, coal and rock cutters, track laying bulldozers, fork lift trucks have been removed.
138. Reduction of excise duty on clear beer from 75% to 60% to prevent tax evasion.
139. Increase in export levy on cotton-seed from 15% to 20% in order to encourage local value addition.
140. Increase in customs duty on cellular phone handsets from 5% to 15% to encourage local production of handsets.
All the above measures were effective from 31st January 2009
Zambia has a local handset manufacturing plant which produces handsets for both the local and regional markets such as the Common Market for East and Southern Africa.
 
Concessions for the mining sector
143. a) Remove the windfall tax and retain the variable profit tax which will capture any windfall gains that may arise in the sector.
b) Allow hedging income to be part of mining income for tax purposes.
c) Increase capital allowance to 100% as an investment incentive.
These measures came into effect on 1st April 2009
 
For 143, the Committee on Estimates noted that the government did not know the actual cost of production in the mining industry and wondered how the government can evaluate the genuineness of claims by mining companies that mines are unprofitable at the prevailing metal price level. They felt that since the windfall tax is self-adjusting, it did not place an extra burden on the mining companies when metal prices were below the threshold at which windfall taxes become applicable. Also, the proposal to allow hedging income to be part of mining income for tax purposes was not supported because without proper monitoring of transfer pricing, Zambia will have little revenue from the sector.
 
145. Reduce customs duty on heavy fuel oil from 30% to 15% and to remove customs duty on copper powder, copper flakes and copper blisters. Also, copper and cobalt concentrates were included in the VAT import deferment scheme. Effective from 31st January 2009.
It is reported that the Government of Zambia removed these customs duties so as to reduce the operating costs of mining companies and encourage the utilization of local smelting capacity. The parliamentary Committee on Estimates said the removal of customs duties could result in increased job losses in the mining industry.
 
Concessions for developers and investors in the Multi-Facility Economic Zones (MFEZ) and Industrial parks.
To expand the country's manufacturing base and enhance national competitiveness, the minister proposed the establishment of industrial parks and extension of tax incentives under the Zambia Development Agency (ZDA) act to developers and investors in MFEZs and industrial parks. He also proposed the following:
146. a) Removal of withholding tax on management fees, consultancy fees and interest re-payments to foreign contractors
b) Zero rate supplies to developers of MFEZ and industrial parks
c) Exempt foreign suppliers to the MFEZ and industrial parks from reverse VAT charge
d) Exempt equipment and machinery imported for the development of MFEZ and industrial parks from customs duty
The report of the parliamentary Committee of Estimates appointed to scrutinizethe tax amendments expressed concerns that the amendments were primarily targted at non-Zambians. Though the purpose of the tax concessions was to expand the country's industrial base and increase competitiveness, the developers and investors would be foreigners and very generous tax concessions had been granted to them. They also commented on the possible problem of transfer-pricing if the MFEZs and industrial parks are foreign dominated. In addition, they found the measures that the measures discriminate against Zambians who will provide consultancy and management services in the MFEZs. The committee asked for a review of the proposal to extend the exemption to Zambian contractors.
 

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