Global Tax Alert | 23 October 2013

Zambia issues 2014 Budget Proposals

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Executive summary

On 11 October 2013, Zambia’s Minister of Finance presented the 2014 Budget (the Budget) to Parliament. The theme of the budget is “Moving Forward to Consolidate Growth and Social Justice in Peace and Unity.” The Minister appeared to tie the theme to the peace that Zambia has enjoyed for almost 50 years.

The 2014 Budget was presented against the background of challenges faced by the global economy. Despite the failure to reach the target GDP in the previous fiscal year, the country’s GDP growth is projected to remain strong at above 6 percent. Therefore, the 2014 budget is part of the Government concrete policies and programs to accelerate broad based growth, diversify the economy and entrench social justice for the benefit of all Zambians, hence the theme “Moving Forward to Consolidate Growth and Social Justice in Peace and Unity.”

Detailed discussion

Withholding taxes

Interest paid to Zambian resident shareholder in a Property Loan Stock Company listed on LuSE

The interest earned from the debenture part of a property linked unit paid to a Zambian resident shareholder in any Property Loan Stock Company listed on the Lusaka Stock Exchange will be exempt from withholding tax.

A Property Loan Stock Company is one whose capital structure consists of property linked units, which are basically instruments that consist of both equity and debenture.

Payments to nonresidents

The withholding tax rate has been increased from 15% to 20% on commissions, public entertainment fees and payments to nonresident contractors to bring it in line with the withholding tax rate on royalty and management and consultancy fees.

Money transfer charge

A charge at the rate of 0.2% of the value transferred has been introduced on the money transfer service to a recipient within or outside the Republic.

Rental income

The withholding tax on rent has been reduced from 15% to 10% and this is the final tax. Turnover tax on rental income is not applicable.

Branch profit distribution

A withholding tax at the rate of 15% has been introduced on profit distribution by branches of foreign companies.

Property transfer tax

The property transfer tax increased from 5% to 10% on land and buildings and shares. This brings the rate in line with Mining Rights transfer.

Housekeeping measures

The Budget proposes to amend the Income Tax Act to empower the Commissioner General to access any type of information required for tax purposes which is held by legal Practitioners, accountants and financial institutions.

It also proposes to amend the existing Anti-Avoidance provisions in the Income Tax Act and Transfer pricing regulations to align them to international best practices.

2014 tax rates

As reflected in the following table, corporate tax rates and withholding tax rates are generally the same for 2013 and 2014.

Corporate tax rates

2014

2013

Mining

30%

30%

Manufacturing and Trading

35%

35%

Farming business

10%

10%

Banking profits

35%

35%

Profits from production of chemical fertilizers

15%

15%

Profits from Telecommunication business:

Profits up to K 250 million

35%

35%

In excess of 250 million

40%

40%

Companies with turnover of K 800 million

3%

N/A

Companies with turnover of K 200 million

N/A

N/A

Newly listed companies on LuSE – year of listing only

2% discount

2% discount

Mineral Royalty Tax

Mineral royalty

6%

6%

Withholding Tax
Nature of payment

2014

2013

Withholding Tax on Commissions

20%

15%

Foreign contractors

20%

20%

Dividends to resident individuals and companies

15%

15%

Commissions earned by non-residents

20%

15%

Management and consultancy fees to non residents

20%

20%

Interest earned by individuals (savings/deposit a/cs)

exempt

exempt

Medical levy on interest earned

abolished

abolished

Royalties

20%

20%

Interest on treasury bills

15%

15%

Interest on Government Bonds

15%

15%

Discount on financial instruments

15%

15%

Multi-Facility Economic Zones/Industrial Parks:

Dividends (first 5 years)

0%

0%

Management and consultancy fees

20%

20%

Foreign contractors

20%

20%

Royalties

20%

20%

Property Transfer Tax

Land and Buildings

10%

5%

Shares

10%

5%

Mining Rights

10%

10%

For additional information with respect to this Alert, please contact the following:

Ernst & Young (Zambia), Pan Africa Tax Desk, Lusaka
  • Nelson H. Mwila
    +260 211 378 311
    nelson.h.mwila@zm.ey.com

EYG no. CM3899