Zambia

Following the 2024 Budget announcements, below are some of the amendments to the tax legislations in Zambia with effect from 1 January 2024:

Corporate income tax (CIT)

Certain legislative amendments are designed to stimulate economic growth, foster rural development, and streamline tax compliance mechanisms. The key changes and their implications for stakeholders are as follows:

• The government has introduced significant tax concessions to invigorate the cotton value chain. These incentives include:

• A 0% tax rate for cotton seed producers during their initial five years of operation, fostering early-stage growth and sustainability.
• A similar 0% income tax on profits derived from the spinning and weaving of cotton for the first ten years of operation, incentivising investment in these critical value chain segments.

• Developers operating within Multi-Facility Economic Zones (MFEZs) will benefit from enhanced capital allowances, with the introduction of accelerated depreciation at a full 100% on new implements, plant, and machinery, thereby reducing taxable income and encouraging modernisation.
• The definition of ’rural enterprise‘ has been expanded, now encompassing all enterprises situated in rural areas of Zambia, with the exception of those engaged in mining or mineral processing. This broadened definition aims to: 

• encourage diverse economic activities in rural areas and
• provide a more inclusive framework for rural development incentives.

• In a move towards fiscal modernisation, the government has:

• replaced the term ‘electronic fiscal devices’ (EFDs) with ‘electronic invoicing system’ (EIS), reflecting the transition to more advanced, paperless invoicing solutions, and
• exempted certain entities from the mandatory use of EIS, recognising the impracticality in specific scenarios.

• The amendments have streamlined taxpayer obligations by:

• eliminating the requirement to notify the Commissioner-General within 30 days of first income receipt and
• introducing a mandate for taxpayers to obtain a TaxPayer Identification Number (TPIN) and register for relevant taxes within 30 days of earning taxable income.

• The definition of an ‘approved pension fund’ has been refined to specify that approval for pension funds will be administered by the Pensions and Insurance Authority (PIA) rather than the Commissioner-General, delineating regulatory responsibilities.

• A new requirement has been instituted for large and specialised taxpayers to support their tax returns with audited financial statements, enhancing transparency and accountability.
• The amendments have also introduced:

• An increase in tax relief for the initial five years for businesses in rural areas, excluding the mining sector, to promote rural enterprise development.
• Specific penalties for incorrect declarations in artisanal mining, scaled by the severity of the infraction, with rates set at 1.5% for negligence, 3% for wilful default, and 4.5% for fraud, thereby reinforcing compliance.

These legislative changes represent a concerted effort to support key economic sectors while ensuring tax compliance and governance. Stakeholders are encouraged to familiarise themselves with these amendments to fully leverage the benefits and comply with the new requirements.

Withholding tax (WHT)

Introduction of WHT on deemed interest from government securities

The recent legislative amendment has introduced the imposition of a WHT at a rate of 15% on the income derived from discount on government securities, with the exception of treasury bills. This tax pertains to the deemed interest that accrues from such financial instruments. The deemed interest is essentially the difference between the purchase price and the face value of the security, which is realised by the holder at maturity.

The introduction of a 15% WHT on deemed interest from government securities, other than treasury bills, marks a significant shift in the taxation of income from these instruments. Investors and stakeholders must take cognisance of this change and its implications on investment yields and tax obligations. Proactive measures, including a review of investment strategies and compliance frameworks, are essential to navigate this change in the fiscal environment effectively.

Value-added tax (VAT)

Introduction of electronic invoicing system (EIS)

The modernisation of VAT administration is set to advance with the introduction of an EIS. This initiative is poised to streamline the process of issuing and managing invoices, thereby improving compliance and efficiency. The system is designed to facilitate real-time tracking of transactions and ensure the accuracy of tax records.

There is an amendment to remove the mention of ‘electronic fiscal devices’ from both the VAT and Insurance Premium Levy Acts. This change reflects the transition towards more sophisticated digital solutions and the phasing out of outdated technologies.

Legislative amendments to support digital taxation

To align with technological advancements, Section 2 of the VAT Act has been amended to incorporate definitions that will underpin the taxation framework for both local and international electronic services. The inclusion of these definitions is critical to establishing a clear legal basis for the taxation of digital transactions and the operation of the EIS.

Special provisions for mining companies

There is an amendment to Section 42 of the VAT Act, which permits mining companies to maintain their financial records in United States dollars (USD). This provision, however, is contingent upon the stipulation that a minimum of 75% of the company's mining revenue is generated from external markets in the form of foreign exchange. This amendment acknowledges the global nature of the mining industry and the need for a fiscal framework that accommodates international transactions.

Invoicing system compliance for input tax claims

The VAT Act is amended to include a reference to an approved invoicing system as a prerequisite for claiming input tax. This measure is intended to ensure that only those taxpayers who comply with the mandated EIS can benefit from input tax deductions. It serves as an incentive for taxpayers to adopt the new system and reinforces the government's commitment to modernising tax administration.

These amendments represent a significant step towards enhancing the VAT framework to better suit the evolving digital economy and international business practices. The adoption of an EIS, coupled with the necessary legislative updates, will position the tax system to be more effective, transparent, and adaptable to future innovations.

Customs and excise duties

The government has implemented a series of strategic amendments to customs and excise duties aimed at fostering sustainable development. These amendments are as follows:

Electric vehicles and accessories

A suspension of customs duty is now in effect for electric motor vehicles intended for the transportation of individuals, including electric buses and trucks. Additionally, this suspension extends to accessories pertinent to electric vehicles, such as charging systems, reflecting a commitment to environmental sustainability and the promotion of clean energy solutions.

Educational support through technology

Recognising the pivotal role of technology in education, the government has suspended excise duty on Internet services provided to higher education institutions. This exemption applies to institutions that are either government-owned or owned by local authorities and are financed through public funds, thereby supporting the advancement of digital learning platforms and resources.

Excise duty rate reductions

In a move to recalibrate the taxation of alcohol products, the excise duty rate on ethyl alcohol and other spirits, which have an alcoholic strength of less than 80%, has been reduced from 125% to 60%. This reduction is anticipated to have various economic implications, including potential shifts in consumer behaviour and market dynamics.

Introduction of new levies and duty increases

A new levy has been introduced on person-to-person mobile money transfers. This measure is part of a broader strategy to modernise the fiscal framework and capture value from the burgeoning digital economy.

There has been an increase in customs duty on all imported electrical panels, including distribution boxes, from 15% to 25%. This adjustment specifically targets boards, panels, and other bases utilised for electric control or the distribution of electricity.

The excise duty rates on a range of processed and unprocessed tobacco products have been increased from 361 to 400 Zambian kwacha (ZMW) per mille. This increment aligns with public health objectives and reflects the government's approach to discouraging the consumption of tobacco products through fiscal policy.

Legislative updates

Amendments to the provisions of the Customs and Excise Duty Act now incorporate a chargeable offence for the unauthorised use of the customs seal. This update underscores the importance of compliance with customs regulations and the protection of revenue through the enforcement of proper seal usage.

These fiscal policy changes are designed to balance economic growth with social responsibility, reflecting a nuanced approach to taxation and regulatory adjustments. Stakeholders are advised to review these changes comprehensively to understand their implications and ensure compliance with the updated legal framework.

Transfer pricing

A requirement is introduced for taxpayers to obtain authorisation from the Zambia Revenue Authority (ZRA) prior to employing transfer pricing methods not explicitly prescribed by the Commissioner-General. This measure ensures adherence to standardised practices and enhances compliance oversight.

The definitions of key terms, including ‘surrogate parent entity’, ‘reporting entity’, and ‘reporting fiscal year’, have been refined. These changes are designed to harmonise domestic regulations with the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines, thereby promoting international consistency and reducing the risk of tax disputes.