Tax Proposals to the Ministry of Finance for the 2014 Budget.pdf

7/30/2019 Tax Proposals to the Ministry of Finance for the 2014 Budget.pdf

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Tax and Non Tax Proposals to the

Ministry of Finance for the 2014 Budget

Prepared by Brian Mulenga

Email: [email protected]


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Tax and Non Tax Proposals to the Ministry of Finance for the 2014 Budget

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1 INTRODUCTIONThe purpose of these submissions is to suggest ways and means to improve the economy and ensure

equitable growth and development to all citizens of this country. In addition to improve on governance,

economic management and monitoring in the country.

The main thrust of these proposals is 1. To encourage Investment 2. Encourage Exports 3. Encourage

Local Ownership and Investment 4. Increase Employment


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2 CORPORATE INCOME TAX2.1 CORPORATE TAX RATE -IThe Corporate Tax Rate in the Agriculture, Tourism, Manufacturing and in businesses where more than

75% either received in foreign currency (namely Euros, US Dollars, SA Rands and Pounds Sterling) or is in

goods and services exported or performed outside the country and all such funds earned have been duly

banked and received in the country to be taxed at 15%, except for the mining Industry. The net effect

will be negligible as the tax losses will be offset by the increased receipts from Agriculture

2.2 CORPORATE TAX RATE -IIThe Corporate Tax Rate in all other industries not covered under point 2.1, the tax rate be harmonized

at 30% across the board. The net tax effect will be a reduction in taxes received from

Telecommunications and Banking of roughly 10%. However this will make management of taxes easier

in the country and will level the playing field for all businesses.

2.3 CAPITAL ALLOWANCESCapital Allowances for Tourism, Agriculture and Services should be set at 100% and should only come

into effect when equipment has been installed and the enterprise has paid all taxes and duties on the

equipment, buildings or capital improvements made.

2.4 TRAINING EXPENSESExpenses incurred on training Employees will be 100% Tax Deductible.

2.5 CONCLUSIONThe measures will have a minimal reduction in Government revenue in the short term but in the long

run more investments will be made in these sectors and hence more revenue for Government in terms

of corporate tax and PAYE. In addition companies will be encouraged to train their employees and

improve the skills level in Zambia.


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3 PERSONAL INCOME TAXThe purpose of these proposal will be to encourage savings and investments at a personal level for

Zambians in formal employment.

3.1 PENSIONSContributions to regulated, ZRA certified and recognized pension schemes will be 100% tax deductible.

3.2 SAVE AS YOU EARN SCHEMESCreate a special class of Save as you earn bank account whereby all funds invested in that account which

will only be drawn upon once in 24 months and only 50% of the funds invested therein be available for

withdrawal until the age of 40 or after 10 years whichever is applicable are 100% deductible.

Participants in the scheme can deposit up to 20% of all Gross Earnings every month into such a scheme.

3.3 MEDICAL INSURANCEContributions to regulated, ZRA certified and recognized medical insurance schemes will be 100% tax

deductible.

3.4 FOREIGN NATIONALSAll employees employed under Work Permits and of Foreign Nationality will pay a surtax of 10% of gross

income regardless of whether they are seconded or contract employees over and above the normal

PAYE rates in Zambia. Failure to produce a contract of employment or pay slip will automatically bring

into play a monthly flat tax charge of K5,000 per month to be paid by the employer. This is to reduce

encourage the employment of unskilled foreign labour as well as encourage the employment of

Zambian personnel.

3.5 PAY AS YOU EARNIncrease the exempt PAYE threshold from K2 200 per month to K3 000 per month, reduce the highest

tax rate to 30% and adjust the income bands and rates as follows:

First K36 000 - 0%

Next K18 000 - 20%

Next K42 000 - 25%

Above K96 000 - 30%

3.6 MORTGAGESHome loan payments of up to K3,000 per month should be tax deductible. This would encourage home

ownership. All such mortgages should be ZRA and Credit Reference Bureau registered and should be

current and not have defaulted to qualify for mortgages.


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3.7 TERMINAL BENEFITSIncrease the exempt portion for terminal benefits to K50 000 and the balance remains to be taxed at

10%. Gratuities should be taxed at a flat rate of 20%. Terminal Benefits and Gratuities paid into a Save

As You Earn Scheme will be tax exempt.

3.8 CONCLUSIONThese proposals will encourage employment of locals and savings. The tax effect will be negligible as

higher taxes earned from foreigners will offset the lower taxes paid by locals as foreign employees are

generally paid much higher and therefore liable to higher taxes than locals. They also encourage savings

and home ownership.


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4 EXCISE DUTYTo abolish all Excise Duties as they are arbitrary and rather complex taxes to administer

4.1

CONCLUSION

New Value Added tax rates will be levied on Goods which will replace the Excise Taxes. Revenue lost willbe offset by the new VAT Rates.


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5 VALUE ADDED TAXThe introduction of new bands of Value Added Tax to replace the cumbersome Excise Duty system. The

input Vat will be the Standard VAT rate. Therefore Input VAT will NOT be equal to the Output VAT on

Luxury and Non-Essential items.

5.1 LUXURY VALUE ADDED TAXA new Value Added Output Tax of 40% will be levied on goods classified as luxuries or as health hazards

like alcohol, cigarettes and tobacco. Petrol driven motor vehicles with engine capacity of more than

3000cc as well Diesel driven motor vehicles with engine capacity of more than 4000cc will be considered

luxuries. Exempt motor vehicles will be ambulances, buses for commercial use, fire engines, cranes,

front end loaders and other such vehicles.

5.2 NON-ESSENTIAL VALUE ADDED TAXA new Value Added Output Tax of 25% will be levied on goods classified as non-essential luxuries or ashealth hazards like alcohol, cigarettes and tobacco. Petrol driven motor vehicles with engine capacity of

more than 2000cc as well Diesel driven motor vehicles with engine capacity of more than 3000cc will be

considered no-essential. Exempt motor vehicles will be ambulances, buses for commercial use, fire

engines, cranes, front end loaders and other such vehicles.

5.3 STANDARD VALUE ADDED TAXThe Standard Output VAT rate will drop to 15%

5.4 CONCLUSIONValue Added Taxes will increase as Good formerly taxed under excise taxes will be taxed at either Luxury

or Non-essential rates.


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6 CUSTOMS DUTYCustoms Duty has been used not as a means to protect Zambian industry and businesses but as a means

of earning revenue therefore reforms need to be carried out to simplify the system and to direct imports

towards sectors that need imports and ensure essential goods are not made expensive by customs duty.

6.1 FEEDSTOCK FOR INDENIRemove all customs duty on feedstock. With the removal of excise duties, the price of fuel should

decrease by 20 per cent for diesel and as much as 40 per cent for petrol.

6.2 MOTOR VEHICLESPetrol driven motor vehicles with engine capacity of less than 2000cc as well Diesel driven motor

vehicles with engine capacity of less than 3000cc should be levied customs duty of 15%. This will

encourage motor vehicle ownership and encourage small business to buy motor vehicles. Motor

vehicles are no longer luxuries but a necessity.


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7 DECENTRALISATIONLocal councils lack a revenue stream. They suffer from low compliance and poor revenue collection.

7.1

PERSONAL

LEVY

Personal Levy should be abolished

7.2 DECENTRALISATION LEVYA 5% Tax on Gross Income should be levied and paid into the Decentralisation Fund so as to help fund

the councils. The funds will be allocated to the councils by a formula to be decided by Parliament in an

amendment to the Local Government Act.


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8 NON TAX MEASURES AND HOUSE KEEPING8.1 REMOVAL OF FUEL LEVY AND INTRODUCTION OF TOLL GATESAbolish fuel Levy. Remove Road Blocks and replace them with Toll Gates. Levy a flat charge of K5 for

passing through a toll gate.

8.2 INCREASE FEES FOR EMPLOYMENT PERMITS FOR FOREIGNERSWe propose to increase the fees for employment permits for foreigners to K7 500. This measure is

intended to discourage foreign investors from recruiting foreigners when the Country has a number of

qualified Zambians without jobs. The measure will also help in creating jobs for

Zambians.

8.3 CONSOLIDATE RTSAFEESConsolidate RTSA fees into one monthly charge. The complicated Road license, Fitness, Carbon Tax and

so on are complicated and cumbersome. Consolidate them into one fee and increase the fitness testing

centers by allowing registered garages to perform fitness.

8.4 CONSOLIDATE LICENSING FEES FOR BUSINESSESConsolidate Licensing for business and create licensing packages for various types of business allowing a

business to pay once and government to perform the distribution of funds to the various agencies and

authorities. Therefore a Restaurant will pay one fee for its various business licenses and permits and will

be issued with a Business License for Restaurants which will cover all the various permits and license a

Restaurant requires in order to do its business. . This will reduce on time and money consumed moving

from office to office to get license.

Tax Proposals to the Ministry of Finance for the 2014 Budget.pdf

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Transcript of Tax Proposals to the Ministry of Finance for the 2014 Budget.pdf