Zambia at 50 Cracking the figures - PwC 2 2014 National Budget Zambia at 50 Cracking the figures 2015 National Budget Commentary rebuilding investor confidence. It is hoped that more

PwC 1

www.pwc.com/zm

Zambia at 50Cracking thefigures

2015 Budgetarychanges

10 October 2014

PwC 1

2014 National Budget

Zambia at 50Cracking the figures

2015 National Budget Commentary

As Zambia celebrates 50 years ofindependence, there is much focus onwhether the economy has madesufficient strides to meaningfullyimprove the lives of its citizens.

This year’s Golden Jubilee Budgettheme, Celebrating our GoldenJubilee as One Zambia OneNation by Making EconomicIndependence a Reality for All,looks to address this by focusing oneconomic developments that willfacilitate prosperity for all Zambians.

The Patriotic Front government has inits last three Budgets pledged todeliver on its election promises toincrease employment, provide socialinfrastructure development andensure equitable distribution ofZambia’s mineral wealth.

In his speech, the Minister of Financeacknowledges that Zambia has variousdevelopmental challenges to overcomeas it enters its sixth decade. Povertylevels stand at 60%, while a veryyoung population is putting increasingpressure on a limited job market.

The economy also faces headwinds inthe form of a subdued global economy,and lower copper and agriculturalcommodity prices. Copper prices wereon average 10% lower at US$7,097 pertonne during the first nine months of2014 compared to 2013.

Growth on track

Despite this, Zambia’s gross domesticproduct (GDP) is expected to growmore than 6.5% in 2014. This isbroadly in line with last year’s Budgetprojections, and comfortably ahead ofprojected global and sub-Saharangrowth rates of 3.3% and 5.1%respectively.

The Government says this strongeconomic growth is due to a good2013/2014 harvest, increased

electricity generation, private andpublic infrastructure investment, andgrowth in the manufacturing,transport and communicationssectors.

In 2015, real GDP growth of 7% will betargeted. However, the Minister notesthat Zambia needs double figuregrowth if it is to eliminate poverty.

Currency weakness, energy costsdrive inflation

Inflation in the first nine months of2014 stands at 7.8%, somewhat abovethe Government’s target for the year ofless than 6.5%. The Government istargeting inflation of less than 7% bythe end of 2015.

This higher-than-projected inflationwas attributed to the depreciation inthe value of the Kwacha, and the effectof upward adjustments in fuel prices(following the removal of the fuelsubsidy in early 2013) and electricitytariffs.

A rapid depreciation in the Kwachaduring the first half of 2014 saw thecurrency fall to a low of K7 to the USdollar in May. The Government saidthis drop was partly due to thereduction in the supply of foreignexchange to the market, particularlyfrom the mining sector, andsubsequent speculative behavior. TheKwacha has since stabilised at aroundK6.2 but remains significantly lowerthan recent historical averages.

It is possible that practical problemsbrought about by the introduction ofexchange monitoring regulationStatutory Instrument 55 in mid-2013along with the Statutory Instrument’simpact on investor confidence mayhave also contributed to liquidityissues. Exchange monitoring and localcurrency regulations (StatutoryInstrument 33) were removed earlierthis year in a welcome step towards

Growth rateswell aboveglobal and sub-Saharan Africanaverages

Inflation

remains within

single digits

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rebuilding investor confidence. It ishoped that more extensive dialoguewith key stakeholders on futureinitiatives will ensure regulatorydevelopments are better implemented.

Interest rates brought undercontrol

The lack of supply of forex prompted atemporary rise in interest rates duringthe middle of the year, whichconstrained access to credit. TheMonetary Policy Rate increasedsharply from 9.75% in December 2013to 12% in April 2014. Interest rates oninterbank overnight lending also rosesignificantly, possibly reflecting a lossof confidence in the Kwacha.

The Bank of Zambia has since easedliquidity conditions, promptinginterest rates to fall. It is hoped bankswill pass on these benefits toborrowers in the form of lower lendingrates to encourage growth.

Job creation

The Government expects to havecreated around 120,000 new formalsector jobs in 2014. This is below lastyear’s Budget projection of 200,000new jobs, but double the 58,000formal sector jobs generated in thefirst nine months of 2013.

In addition, the Government notedthat thousands of informal jobs havealso been created during the year,although it did not give specificfigures.

However, the 120,000 new jobs areunlikely to be enough to provideemployment for all the young peopleentering the job market each year.

Fiscal outlook

The Budget deficit for 2014 is forecastto be below last year's forecast of 5.5 %of GDP, a reduction on the 2013

outturn of 6.5%. This is particularlywelcome given that the IMF noted inJanuary that "the current fiscal stanceis clearly unsustainable".

In order to support the targeted deficitreduction to 4.6% of GDP in 2015 and,ultimately, a sustainable deficit ofaround 2%, it has been necessary forthe Minister of Finance to prescribeunpleasant medicine for bothspending and taxation.

In terms of spending, the Budgetproposes an overall increase inexpenditure of 9.3% to K46.7 billion.It will be essential for actual spendingincreases to remain within singledigits – i.e. broadly in line withinflation – if the Government's deficitreduction policy is to remain on trackin 2015. This target will requirediscipline with respect to theMinister's 2014 commitment to"contain the size of the public sectorwage bill".

It should also be pointed out that theGovernment’s second Eurobond issuewill cost Government substantiallymore in repayments over the next 10years than the Eurobond issued in2012. The interest rate on the US$1billion Eurobond, issued in April thisyear, is 8.5% per annum compared to5% for the US$750 million Eurobondissued in 2012. We would welcomefurther detail on how the latestEurobond will be spent to ensure it isinvested in projects that will enhanceeconomic growth.

Budget deficit

reduces to 5.5%

of GDP but

remains above

2% target

2014

Government

expenditure

target of K47

billion

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Infrastructure and socialinvestment

Unfortunately, fiscal discipline alsoinevitably means that desirableinvestment in social and economicinfrastructure will need to be rolledout more slowly than hoped. However,the Government can point to tangibleprogress in a number of keyinvestment areas.

The roads programme is nowdelivering new and rehabilitatedhighways across the country. In time,this should provide a domesticstimulus for growth as trade withinZambia is facilitated.

However, while there has beensubstantial funding given to therailway system, it is not yet clearwhether there is a sufficientlycoherent and integrated strategy inplace to meet objectives of increasinggoods transit by rail in order to reduceheavy traffic on the roads, and lowertransportation costs for imports andexports.

Zambia's energy shortfall should bereduced as 420 megawatts of capacitycome on stream at the Itezhi-Tezhihydro and Sinazongwe thermalgenerating facilities during 2015.Given the lack of scope for additionalpublic sector investment, these privatesector-led initiatives should be seen asa model for further private investmentin the infrastructure sector.

The emphasis on investment in socialsectors, including health andeducation, are to be welcomed. Theplanned increase in health serviceworkers of over 2,000 staff in 2015should represent a significantachievement.

The Government is correct to stressthe importance of secondary andtertiary education, and we welcomefurther detail on steps to ensure that

more school leavers and graduates areproperly equipped for the challengingdemands of the workplace in the 21stcentury.

Tax policy

To move towards balancing the books,substantial tax rises are inevitable.Primarily, this is to be achievedthrough a freeze on the tax-freeallowances for PAYE and an increasein direct taxation on the miningsector.

The absence of any increase in the tax-free allowance and other PAYE bandsin line with inflation means that thereal tax rates suffered by mediumearners will rise significantly.

It would appear that the Minister hasbudgeted for a significant increase inPAYE collection on the back of thisfreeze, on the assumption that therewill be an increase in jobs and wages.

However, it is unclear that this on itsown can achieve the additionalbudgeted income from PAYE in 2015of K7.5 billion, compared to K5.1billion as projected in the previousBudget. It appears that animprovement in ZRA’s capacity tobring additional workers out of theinformal sector may be necessary toachieve this ambitious target of a year-on-year increase of 45.5%.

Progress intransport andenergy sectors

Freeze in PAYE

tax free

allowance will

increase tax

revenues

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Reform of the mining tax regime

Undoubtedly, the reform of miningtaxation is a key measure. Theincrease in mineral royalty from 6% to8% on underground mines and 20%on open pit mines is targeted to morethan double annual collections to K5.9billion. This is only partially offset bythe elimination of revenues fromcorporate income tax following theabolition of profits-based taxes formining companies.

Overall, it is estimated that the totaldirect tax contribution of the miningsector will increase from 9.5% of totalGovernment spending to 12.7%.

There are two key questions as towhether this level of direct taxationupon the mines is sustainable in themedium term.

Firstly, the level of mineral royalty isundoubtedly high by global standards.Inevitably, the additional royalties willerode the returns from investment inthe Zambian mining sector and thereis a risk that this will reduce futureinvestment in the sector.

Secondly, while the single tier of directtaxation has some benefits in terms ofsimplicity, there are tax policydownsides to removing any form oftaxation on mining profits.

Since the royalty is applied to turnoverrather than profits, there will nolonger be any form of tax relief formining costs. In our view, alternativeincentives or relief for capitalexpenditure and major refurbishmentcosts in the mines should beintroduced to safeguard the continuedhealth of the cornerstone of Zambia'seconomy.

We welcome the Minister of Finance’sdesire to resolve concerns about theapplication of VAT Rule 18expeditiously and amicably. A well-

designed tax system should notpenalise taxpayers provided that theyare able to verify the validity of theexports by other means.

Overall, the Government should belooking at working towards an optimaltax system that seeks to strike abalance between ensuring the greatestpossible benefit for the public and, atthe same time, encouraging quality,sustainable investment. A profit-basedtax system takes into account the risksshouldered by investors, and can alsobe modified to allow for a fair andequitable distribution of profitsbetween investors and Zambians.

Mineral royalty

rates increased

Corporate

income tax

abolished on

mining profits


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The Economy


2015 National BudgetThe Economy

‘Celebrating our Golden Jubilee asOne Zambia One Nation by makingeconomic independence a reality forall”; the theme of the 2015 NationalBudget that represents the aspirationof all Zambians. The nation is facedwith formidable hurdles as it strives tocreate decent jobs and wealth for itscitizens, 60% of whom live in poverty.

Whilst the 2014 Budget emphasisedthe need for fiscal discipline andmaintaining growth, the 2015 Budgethas focused on economicdevelopments that will facilitateprosperity for all Zambians.

The total 2015 budget is K46.7 billion(25% of GDP). This will be financed bydomestic revenue of K41.3 billion andforeign grants and financing of K5.4billion.

Indicator 2014Target

2014Projected

GDP growth 7% Higherthan 6.5%

Job Creation 200,000 120,000IncreaseInternationalReserve

$2.7billion or3monthscover

$3.6billion or3.6monthscover

Inflation rate attaininflationof <6.5%

7.8%*

DomesticRevenue as a% of GDP

>21% 17.2%

BudgetDeficit as a% of GDP

6.6% 5.5%

*September 2014

The 2015 objectives are as follows:

• achieve a real GDP growth rateof above 7%;

• achieve an end of year inflationof no more than 7%;

• increase international reservesto at least 4 months of importcover;

• raise domestic revenue to atleast 18.5% of GDP;

• contain domestic borrowing tono more than 2% of GDP;

• accelerate the diversification ofthe economy, and continue thedrive to create decent jobsespecially for the youth; and

• accelerate implementation ofinterventions in the health,education and water andsanitation sectors.

Economic Performance

Gross Domestic Product

Over the last five years, Zambia hassustained a favourable rate ofeconomic growth. In 2014, a GDPgrowth of 6.5% is forecast. This isahead of the projected global and sub-Saharan growth rates of 3.3% and5.1% respectively.

The increase is driven by a favourableharvest in the 2013/2014 farmingseason, increased electricitygeneration, investments in private andpublic infrastructure and progressmade in manufacturing as well astransport and communications.

-10123456789

10

GDP growth %Zambia

Sub-Saharan Africa

Global

Total budgetedexpenditure ofK 46.7 billion.

GDP growth

exceeds 6.5%

2014 budget

deficit forecast

at 5.5% of GDP


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The Economy



Exchange rate

During the year, the Kwachaexperienced significant volatility,depreciating to an all-time low of K7against the United States Dollar inMay 2014. This was mainly attributedto a shortage of foreign exchangeinflows in the mining sector andsubsequent speculative behavior in themarket. Government implementedvarious monetary policies to tightenliquidity, including adjusting themonetary policy rate and the statutoryreserve requirement.

The Government also revoked,Statutory Instrument 55, the Bank ofZambia ( Monitoring of Balance ofPayments) Regulations and StatutoryInstrument 33, the Bank of Zambia(Currency) Regulations. The measuresintroduced led to the exchange ratestabilising at an average of K6.2 perUnited States Dollar in the last half ofthe year.

Inflation

The inflation rate as at September2014 was 7.8%, which is higher thanthe 7.1% attained in December 2013and also above the target of 6.5% set inlast year’s Budget. The inflationarypressures during the year mostly arosefrom the depreciation of the ZambianKwacha against the United StatesDollar in the first half of 2014 and the

impact it had on fuel and otherimports. The inflation rate is expectedto be contained to single digit in linewith the Government’s macro-economic objective.

Domestic and internationalborrowing

As part of its macroeconomic targetsin the last budget, government set outto limit the fiscal deficit to 6.6% ofGDP. The deficit projected for 2014 is5.5% of GDP. This is mainly as a resultof an additional US$1 billionEurobond that was issued in Aprilwhich is earmarked for variousinfrastructure projects.

At the end of September 2014, thecountry’s external debt stood atUS$4.7 billion compared toUS$3.5 billion at December 2013whilst domestic debt was K 21.9 billionand K19.7 billion at September 2014and December 2013 respectively.

Interest rates

The tightening of the monetary policyby the Bank of Zambia in response tothe volatility of the Kwacha during theyear resulted in a sharp increase in theMonetary Policy Rate (MPR) from9.75% in December 2013 to 12% inApril 2014. The cap on the lendingmargin was also raised from 8.25 % inDecember 2013 to 16% in June 2014,resulting in a maximum lending rateof around 28%.

Overall, the average lending rates for2014 is 22% compared to 16.27% for2013, while the interbank overnightlending rate has averaged 12% in 2014,compared to 10% in 2013.

3

3.5

4

4.5

5

5.5

6

6.5

7K to US$1 K to US$

1

Kwachastabilises afterdepreciating toan all time lowduring 2014

Exchange

monitoring and

local currency

regulations were

abolished in

2014

USD1 billion

Eurobond issued

successfully in

April 2014


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The Economy



Other effects of the tightening in theeconomy were noted in the increase inthe Government treasury bills andbonds. Interest yields increased froman average of 11.38% in 2013 toaround 14.11% as at August 2014,while yields on bonds rose from15.27% in 2013 to 16.56% as at August2014.

Having achieved relative stability inthe foreign exchange markets at thestart of the second half of 2014, theBank of Zambia has since startedeasing liquidity conditions, and thebenefits, including lower interestrates, are expected to be passed on tothe consumer.

Comparison of 2015 vs 2014Budgets

2014 2015%change

Revenue

Income Tax 10,780 11,793 9%Value AddedTax 8,099 6,577 -19%MineralRoyalty 2186 5,937 172%

Customs andExcise 5,577 6,975 25%

Non-TaxRevenues 2,896 3,822 32%

DomesticBorrowing 3,502 6,190 77%

Grants 2,627 1,214 -54%

ForeignFinancing 7,015 4,159 -41%TotalRevenue 42,682 46,667 9%

Expenditure 2014 2015%change

General PublicServices 10,729 12,040 12%

Defense 2,744 3,247 18%

Public Order &Safety 2,122 2,180 3%

Economic Affairs 11,943 12,747 7%

EnvironmentalProtection 165 175 6%

Housing andCommunityAmenities 662 799 21%

Health 4,228 4,464 6%

Recreation,Culture &Religion 299 324 8%

Education 8,607 9,433 10%

Social Protection 1,183 1,258 6%TotalExpenditure 42,682 46,667 9%

0

5

10

15

20

25

30Interest rates %

Bank rates rose

during 2014 but

lending costs are

now anticipated

to fall

Overall 9% year

on year increase

in expenditure

from 2014 to

2015 in Kwacha

terms


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The Economy



Sector Analysis

Agriculture

While the country’s main economicdriver continues to be copper, theGovernment has continued to expandthe agriculture sector.

The Government’s strategic focus is toachieve food security and promotecrop diversification, as well as increaseproductivity and value addition. Inorder to attain this, the Governmenthas allocated about K2 billion to thesector.

Diversification from maize remainsparamount in attaining a moreinclusive growth and economicindependence. In attaining this,government has allocated K254.9million for farmers to purchase inputsusing the E-Voucher system. This willallow farmers more flexibility in termsof supplier choice.

During the 2013/14 farming season,the country recorded a harvest of 3.35million metric tonnes of maize, thehighest tonnage ever achieved.

With a record bumper harvestachieved in the 2013/2014 farmingseason, the Government has allocateda further K1.1 billion to the FarmerInput Support Programme (FISP).

In the 2015 Budget, the Governmenthas also moved to facilitate greaterprivate sector participation. In thisregard, a limit of 500,000 metrictonnes has been placed on the FoodReserve Agency (FRA) grainpurchases.

Other areas of focus in the agriculturesector for the coming year include:

Increasing the area of land underirrigation. K164.5 million has beenearmarked for this activity;

Promotion of livestock andfisheries. K307 million has beenset aside for livestock diseasecontrol measures and aquaculture,amongst other activities;

Provision of effective extensionservices that will equip thefarmers with relevant technicalknowledge;

Continuation of the NitrogenChemicals of Zambiarecapitalisation programme.

The above measures are expected tosustain and improve the 22.3%increase in agricultural yields and the8.1% increase in the area plantedduring the 2013/2014 farming season.

Tourism

The Government has continued withefforts to build on the positionrecorded in 2013. Total arrivals for2013 were 900,000 and it is expectedthat this number will be surpassed in2014.

Government continues to improveinfrastructure with plannedconstruction of a new airport at SimonMwansa Kapwepwe in Ndola. This isin addition to the on-going works toexpand Kenneth Kaunda InternationalAirport in Lusaka and plans torehabilitate aerodromes across thecountry.

The Government now proposes toreduce costs in the aviation industrywith a 5% reduction in the customsduty on aviation fuel. This is expectedto make Zambia a regional player inthe aviation sector and improve thenumber of tourists visiting theCountry.

Harvest of 3.35million metrictonnes recordedin the 2013/2014farming season

Grain purchasesby Food ReserveAgency to belimited to500,000 metrictonnes.

Agriculture amajorcontributor to the6.5% projectedGDP for 2014

Expected benefitsto the Tourismsector from thereduction in theaviation fuel.


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The Economy



Health Sector

The health sector continues to be oneof the priority areas for the currentGovernment. In the 2014 Budget, theGovernment allocated about K4.2billion or 9.9% of the Budget to thehealth sector while K4.5 billion or9.6% of the national Budget has beenallocated to the health sector in thecurrent Budget.

As noted in both the President’sopening speech to Parliament and the2015 Budget presentation, the 2014allocation has been largely spent onthe following:

Increasing the availability ofhealth frontline staff through theconstruction and rehabilitation oftraining institutions (two newtraining institutions are underwayand 27 institutions are underrehabilitation).

Construction of 650 health posts,which are expected to becompleted by 2016 as well as thecontinued construction of districthospitals. In this regard, theGovernment has embarked on theconstruction of 30 districthospitals in various parts of thecountry with a further eight tostart before the end of 2014.

Procurement and installation ofmodern and specialised medicalequipment at the country’s fourmain hospitals (Lusaka, Kitwe,Ndola and Livingstone).

Further extension of otherhospitals in the rest of theprovinces.

K268.2 million has been allocated tothe construction and rehabilitation ofhealth infrastructure while K753.5million has been set aside for the

procurement of essential drugs andmedical supplies.

To supplement the current number offrontline health personal of 13,147, thegovernment plans to recruit over2,000 health personnel bringing thetotal number to 15,000.

Education and skillsdevelopment

Government has allocated K 9.4billion or 20% of the total budget tothe education sector. This is the sameproportion as was allocated in 2014.Of this, 68% will go towards therecruitment of 5,000 teachers andsustaining the current establishmentin an effort to reduce the pupil teacherratio.

Over K1.7 billion has been allocated toinfrastructure development, with K1.1billion earmarked for early childhood,primary and secondary education.K650 million has been allocatedtowards the construction ofuniversities. Five universities areexpected to be completed by the end of2015, while construction of two moreuniversities is planned to commencein 2015. The allocation will also beused for the construction of additionalaccommodation at three universitiesand a college.

To improve access to tertiaryeducation, the allocation for bursarieshas been increased from K156.5million in 2014 to K200.2 million inthe 2015 budget. HoweverGovernment is concerned that the costof publicly provided tertiary educationis among the highest in the SADCregion, and that there is a need toreview this.

A further K79.6 million has beenallocated to the construction of ninetrades training institutes across the

MarginalIncrease in theHealth sectorallocation fromK4.2 billion in2014 to K4.5billion in 2015

Plannedrecruitment ofover 2,000health personnel

68% ofeducationbudget to beused forrecruitment of5,000 teachersandmaintenance ofcurrentworkforce


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The Economy



country, with three expected to becompleted in 2015.

Water supply and sanitation

The allocation towards water supplyand sanitation has been increased by30% to K541 million from K417million for 2014. The water supply andsanitation allocation will be used forthe rehabilitation and construction ofwater supply and sanitationinfrastructure in the rural, peri-urbanand urban areas.

Manufacturing

Noting that SMEs hold the greatestpotential for job creation, theGovernment will continue to allocatefunds to the Citizens EconomicEmpowerment Commission (CEEC)and support initiatives such as theAlternative Investment Marketlaunched by the Lusaka StockExchange (LUSE). In 2014, thegovernment funded 1,072 out of theapproved 1,526 projects, worth K48million, through the CEEC.

Other initiatives include plans toestablish industrial clusters in eachdistrict that will provide industrialworkshops for the manufacture ofvarious products.

The Government remains committedto the growth of the manufacturingsector through the promotion ofMulti-Facility Economic Zones andIndustrial Parks. It is expected thatthe Chambishi, Lusaka South, LusakaEast and Lumwana MFEZs will becompleted by 2017.

Energy infrastructure

Government continues in its efforts toensure availability of adequate andreliable supplies of energy. Thecompletion of the 360 MW KaribaNorth Bank hydro power extension

project and 50 MW Ndola heavy fuelplant are expected to reduce theelectricity deficit.

The 120 MW Itezhi-Tezhi hydro and300 MW Sinazongwe thermal powerplants are on course for completion in2015, while the 750MW Kafue GorgeLower hydro power project is expectedto accelerate in 2015.

K600 million has been allocated in2015 to the Zambia Electricity SupplyCorporation (ZESCO) for powergeneration, transmission anddistribution, while K71 million hasbeen allocated to the RuralElectrification Programme.

In the petroleum sub-sector,Government’s focus is on ensuringsecurity of supply of petroleumproducts to attain 30 days strategicreserves. Accordingly, additionalstrategic petroleum reserve depots willbe constructed and an efficientmechanism for procuring petroleumstrategic stocks will be put in place.

Local Government & Housing

In 2015, the Government through alocal government equalisation fund,will provide additional funds tocouncils for local service delivery, aspart of the decentralisation policylaunched in 2013.

The Zambia National Building Societywas recapitalised in 2014, with acapital contribution of K165 million.The aim is to enable more people gainaccess to affordable housing credit.The Government is also working withthe private sector to resolve thehousing deficit in the country.

The Government has allocated K799million in the 2015 Budget for housingand community amenities.

Energyinfrastructureprojects oncourse

Recapitalisationof ZambiaNationalBuilding Society

K799 million forhousing andcommunityamenities


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The Economy



Mining

The mining sector has continued to bedominant in the economy, especiallywith new mining investments inNorth-Western Province such asKalumbila Mine. Mining plays asignificant role in the economy as asource of employment, foreignexchange earnings and contribution toGDP.

In the first eight months of 2014,mining production was 448,673metric tonnes, which was about50,000 metric tonnes lower than thecorresponding period in 2013. Thelower outturn was largely on accountof a fall in output recorded at one ofthe major mines, the depletion ofoxide ore and stockpiling ofconcentrates at some mines.

Notwithstanding the above, copperproduction is projected to bemarginally higher than the 2013production of about 790,000 metrictonnes. The Government maintainsthat the country is on course to reachthe expected 1,000,000 metric tonnesannually by 2017.

In 2013, local auctioning of gemstonescommenced with the Governmentencouraging the initiative and urgingsmall scale gemstone miners to usethis market to get better value for theirgemstones. Gemstones continue tocontribute to domestic revenuecollection as evidenced by sales of overUS$50 million in the first eightmonths of 2014.

The 2015 Budget has introduced somechanges to the mining fiscal regimeaimed at increasing revenues collectedfrom the mines. It has been proposedto replace the current two tier system,of collecting mineral royalty tax andcorporate tax from the miningcompanies, with a simplified mining

tax structure. The new tax structureproposes collecting either mineralroyalty tax or corporate income tax asapplicable to each mining company.

Transport

The Government recognises thatinfrastructure development isimportant in its goal to enhanceeconomic development of theprioritised economic sectors.

As a result, the Government hascontinued implementing major roadprojects such as the Link Zambia8000, Pave Zambia 2000, Lusaka 400and Road Tolling road projects. In thecurrent budget, an allocation of K5.6billion has been set aside for roadinfrastructure.

The Government is operationalisingthe road tolling programme as aninnovative and self-financingmechanism for sustainable roadrehabilitation and maintenance. Theprogramme has been implemented ateight weigh bridges and 18 ports ofentry targeting vehicles with weightsabove 6.5 tonnes. So far, K187.4million has been raised from theprogramme in 2014.

Efforts continue being made toimproving the railway network toreduce the heavy load on the roads.This is expected to result in anincrease in cargo transported by rail.

Copperproduction isprojected to bemarginallyhigher than the2013 productionof about790,000 metric

Gemstonescontinue tocontribute todomestic revenuecollection asevidenced by salesof over US$50million in the first8 months of 2014

Government isoperationalizingthe road tollingprogramme asan innovativeand self-financingmechanism forsustainable roadrehabilitationandmaintenance


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The Economy



The Minister proposes fundamentalreforms to the mining tax regime.Currently mining operations aresubject to both corporate income taxand mineral royalty tax. This will bereplaced by a single mineral royaltytax at significantly higher rates asfollows:

8% mineral royalty tax rate forunderground mining operationsas a final tax

20% mineral royalty for open castmining operations as a final tax

Some mining related activities willremain subject to corporate incometax as follows:

30% corporate income tax rate onincome earned from tolling

30% corporate income tax rate onincome earned from theprocessing of purchased mineralores, concentrate and any othersemi-processed minerals currentlytaxed as income from miningoperations.

Currently, entities carrying on miningoperations are subject to the followingtax regime:

Mineral royalty tax of 6% ofnorm/ gross value of base metals /minerals sold. This is not a finaltax;

Basic corporate income tax rate of30%, where the taxable incomefrom mining operations does notexceed 8% of the gross sales.

Variable corporate income taxwhere the income from miningoperations exceeds 8% of grosssales. In this case, in addition tothe basic tax of 30%, miningcompanies are subject to avariable profits tax of up to amaximum of 15%. The actual rate

will depend on the proportion oftaxable income which exceeds 8%of the gross sales.

The new measures announced will notaffect the mining of industrialminerals which will continue to besubject to the variable rate ofcorporate income tax. It seems thatthe increase in mineral royalties willnot apply to industrialised minerals.

(Note that industrialised minerals aregeological minerals which are minedfor their commercial value. This termexcludes fuel minerals or metallicminerals.)

No change has been announced to thewithholding tax regime applicable tomining companies.

It is therefore assumed that miningcompanies will continue to benefitfrom a 0% withholding tax ondividends.

The withholding tax rate on paymentsof interest, royalties, management andconsultancy fees by mining companieswill be the same as that applicable toall other industry sectors.

Commentary

These measures are aimed atincreasing revenue obtained from themining sector to “achieve a moreequitable distribution of mineralwealth”.

The 8%/20% royalty tax applies to thevalue of the minerals. In most cases itis calculated on the “norm value”determined according to the price onthe London Metal Exchange.

In providing for different mineralroyalty rates, the Government hassought to take account of the fact thatunderground mining and open castmining have different cost structures.

Increase inmineral royaltytax rate

Abolition ofcorporateincome tax onmost miningactivities

Reduction incorporateincome tax rateto 30% onincome fromprocessing andtolling activities


2015 National budgetMining Taxes


PwC 13

The Economy



Operating a single tier mining tax inthe form of mineral royalty willarguably be straightforward tocalculate compared to corporateincome tax. The Minister alsoconsiders that this reduces scope fortax avoidance.

However, the 20% rate of mineralroyalty on open cast mines is high byglobal standards.

With the abolition of corporate incometax, there will be no form of tax relieffor the running costs or capitalexpenditure of a mine. This meansthat irrespective of whether or not acompany makes any profits it will stillbe liable to tax.

Further, the mineral royalty appliesequally to mines regardless of the costof extraction. As this will be the finaltax there will be no deduction formineral royalties. Previously miningcompanies were able to claim themineral royalty as a deduction forcorporate income tax purposes.

The changes proposed are a majordeviation from normal taxationprinciples whereby enterprises areprovided relief for businessexpenditure incurred, particularlywhere there is a significant capitalexpenditure requirement as in themining industry.

The application of a turnover-basedtax with no relief for operating costs

and capital expenditure will be amajor cause for concern and is likelyto be a key disincentive for miningcompanies to continue operations,particularly if they are alreadyoperating at loss.

This measure could in the longer termrender investment in the Zambianmining sector unattractive.

The reduction of the corporate incometax rate to 30% on the processing ofmineral ores and tolling activities isintended to incentivise value additionand consequently contribute to jobcreation. It is not clear whether thereduction below the normal 35% CITrate will be sufficient to achieve thisaim.

Housekeeping measures

Amendment to redefine minerals

Currently the definition of minerals inthe Income Tax Act excludes mineralsthat are won through quarrying withthe exception of limestone. Thismeasure will align the definition ofminerals in the Income Tax Act to thedefinition in the Mines and MineralsDevelopment Act. Going forward itwould appear that the products of allquarries will be treated as minerals fortax purposes.

Effective Date

All the above will be effective from 1January 2015.

The 20%mineral royaltyon open castmines will beamong thehighest rates inthe world

No tax relief foroperating costsor capitalexpenditure forminingoperations

Reduction ofcorporateincome tax to30% onprocessing andtolling targetedto boost valueaddition andincentivise jobcreation


2015 National Budget Mining Taxes

PwC 14


2015 National Budget Direct Taxes

PAYE

Tax bands unchanged

The rates and thresholds for personalincome tax/PAYE remain unchanged.The first K3,000 of monthly earningsremains tax free.

The top 35% rate on income taxcontinues to apply on monthlyearnings over K5, 900.

Corporate Income Tax

Outside the mining sector, changes toCorporate Income Tax are broadlytechnical in nature. The main rate oftax for the majority of businessesremains at 35%.

Non-deductibility of impairmentprovisions of bank and financialinstitutions for debts secured bycollateral

The Minister has proposed that nodeduction be allowed for impairmentprovisions/bad debts incurred bybanks and financial institutions fordebts that are secured againstcollateral.

This measure is intended to align thetax treatment of bad debt securedagainst collateral to insured losses.

Taxation of internationalcarriage income of Zambiaresident carriers

The Minister proposes to introducetax on income earned by Zambianresident businesses from internationalcarriage of persons, mail, livestock orany other goods shipped or loadedoutside Zambia to other destinationsoutside Zambia.

Under the current tax regime, thisincome is not treated as being sourcedin Zambia and thus not taxable here.

This measure seeks to prevent thedouble non-taxation of this incometype by taxing it in Zambia if it is nottaxed in the foreign country where it isearned.

Removal of requirement to fileAnnual Financial Statementswith Annual Income Tax Returns

Following the introduction ofelectronic filing, it is proposed thatrequirement to file Annual FinancialStatements with a tax payers’ annualtax return be removed.

Alignment of the definition of apermanent establishment toglobal standards

It is proposed that the definition of apermanent establishment (PE), forpurposes of determining the liabilityto tax in Zambia, be aligned withdefinitions in international model taxtreaties.

A foreign company becomes taxable inZambia, when it forms a PE here. Thealigning of the definition of a PE underZambia tax legislation to globalstandards will reduce ambiguities as towhether or when a business will betaxable in Zambia.

No change topersonal incometax rates andthresholds

Main CorporateIncome Tax rateremains 35%

PwC 15



Other Direct Taxes

Withholding tax accounting onbranch profit repatriation

Following amendments to the taxlegislation brought about in last yearsbudget proposal which introducedwithholding tax on branch profits, theMinister now proposes furthermeasures to provide for theaccounting of this withholding tax.

Withholding tax on interestreceived by tax exempt entities

The withholding tax (WHT) rules willbe clarified to ensure that WHTapplies on interest arising fromtreasury bills, government bonds,corporate bonds or any financialinstruments or securities. Goingforwards, all tax exempt bodies willsuffer WHT on this income.

Currently only Public BenefitOrganisations are subject to this rule.

Amendment of the definition of“turnover” for purposes ofturnover tax

It is proposed that the definition of a“turnover” for turnover tax purposesbe amended to clearly excludeinterest, rental income, dividend androyalties.

This measure is intended to clarifythat such “passive” income or incomefrom investments is excluded from theTurnover Tax regime.

Doubling of presumptive taxpayable by individual operatorsof public service vehicles

The Minister proposes to double thepresumptive tax payable by individualoperators of public service vehicles.

This measure is aimed at adjusting thetax payable by the operators forinflation as this has not been increasedsince its introduction in 2004. Thecurrent tax payable by operatorsranges from K600 per annum for avehicle with a sitting capacity below 12seats to K7,200 for a vehicle with 64seats and above. The tax payableshould now range from K1,200 toK14,400.

Extension of exemptions underthe Millennium ChallengeAccount Act to contractors,consultants and other vendors

It is proposed that the Income Tax Actbe amended to extend tax exemptionsavailable on income from theMillennium Challenge Account (MCA)as provided in the MillenniumChallenge Compact Act to covereligible entities or persons such ascontractors, consultants and othervendors that may qualify for taxexemption.

Currently, only MCA Zambia andimplementing agents are coveredunder the ITA.

This should be welcomed by anyNGOs and consultants providingservices to the Millennium ChallengeCompany Zambia.

Effective date

The above measure will take effect on1 January 2015

Withholding taxwill apply tointerest onGovernmentbonds receivedby all taxexempt bodies

Presumptive taxpaid by vehicleoperators to rise

PwC 16



Property Transfer Tax

Restriction of group reliefprovisions

Currently the transfer of shares, landand buildings or mining rights to acompany within a group for purposesof reorganisation will qualify forProperty Transfer Tax (PTT)exemption if the transferee is residentin Zambia irrespective of the fact thatthe holding company may be residentoutside Zambia.

The Minister now proposes to restrictthis relief. The exemption will onlyapply if the holding company is alsoresident in Zambia.

Effective date


Zambia DevelopmentAgency

Aligning of tax incentives topolicy objectives

It has been announced that thelegislation will be clarified to align therules to the policy objective ofrestricting these incentives tomanufacturing enterprises located in:

“a rural area or operating in a Multi-Facility Economic Zone or IndustrialPark.”

Effective date of change


Tax administration

It is proposed that the law will beamended to indemnify ZRA itselfagainst any other parties which seek toobtain any form of order to seizeproperties from ZRA. It is understoodthat, previously, other parties haveappointed bailiffs in attempts to seizeZRA assets to seize ZRA assets whichhas hampered the operationaleffectiveness of ZRA.

Rules for PTTgroup reliefmodified torequire aZambianresident holdingcompany

Clarification ofcorporateincome tax andwithholding taxincentivesapplicable tomanufacturingenterprises

PwC 17


2015 National Budget Indirect Taxes

VAT

No fundamental changes to the VATrates and regulations were announced.

The following housekeeping measureswere announced:

Anti-avoidance provisions

The scope of the anti-avoidanceprovisions in the VAT Act will beincreased.

Intending trader scheme

The Finance Minister proposes toamend the “intending trader” schemewith respect to claims made for inputVAT. Input VAT claims by intendingtraders will be restricted to thecorresponding business lines followingthe expiry of a stipulated period wheretrading activities have not commencedon a timely basis. We understand thatthis is intended to restrict VAT claimsprovided to traders prior to thecommencement of business ininstances where the nature of thebusiness changes, or where thebusiness does not commence withinthe stipulated time frame.

Late payment penalties

The penalty for the late payment ofVAT is to be aligned with the due datefor the submission of VAT returns i.e.the 21st day of the month following theprescribed monthly period to whichthe VAT return relates. Currently, latepayment penalties commence on theday following the submission of themonthly VAT return to which thepayment relates, even if this is afterthe due date for payment. This willcorrect a perceived drafting errorcurrently in the taxpayer’s favour and

will increase the penalties for latepayment of VAT in some cases.

Deregistration from VAT scheme

Suppliers whose turnover falls belowthe registration threshold (currentlyK800, 000) during an accounting yearwill be allowed to deregister after theend of such an accounting year. This ismeant to avoid any disruptions to thesupplier’s business during theaccounting year.

Other measures

The First Schedule of the VAT Act, inparticular, Group 16 with respect toexempt agricultural products, is to beamended to clarify any ambiguousmeanings implied by unclearpunctuation and wording.

The Second Schedule of the VAT Act isto be amended to clarify that it is onlygoods or services which are suppliedto and exclusively used for adonor/Government financed projectsthat will qualify for a zero rate of VAT.In this respect, goods or servicessupplied to contractors assisting onsuch projects but which are not usedexclusively for the donor/Governmentfinanced projects, will not qualify forthe zero rate of VAT.

The provisions of the VAT Act and theAnimal Health Act of 2010 are to beharmonised.

Effective date

All of the above measures will takeeffect on 1 January 2015.

VAT ratesremainunchanged

VAT anti-avoidance rulesto bestrengthened

PwC 18


2014 National BudgetIndirect Taxes

Application of VATAdministrative Rule Number 18(Rule 18)

In the Budget speech, the Ministernoted that there are concernsregarding the application of VAT Rule18 and the proof of exportrequirements. He noted that non-compliance by some exporters underRule 18 has led to the non-payment ofVAT refunds by the Government.

He however expressed a desire to“expeditiously and amicably resolve”these concerns.

Rule 18 currently provides that anytaxable supplier exporting goods thatthey claim qualify for zero-rating forVAT purposes must provide thefollowing documentation to ZRA:

i) Copies of export documents for thegoods, bearing a certificate ofshipment provided by ZRA;

ii) Copies of import documents for thegoods, bearing a certificate ofimportation into the country ofdestination provided by thecustoms authority of that country;

iii) Tax invoices for the goodsexported;

iv) Proof of payment, made by thecustomer, for the goods;

v) Documentary evidence, provingthat the payment for the goods hasbeen made by the customer intothe exporter’s bank account inZambia; and

vi) Such other documentary evidenceas the authorised officer mayreasonably require.

Rule 18 has been in force since 1997.However, it appears that ZRA did notrigorously enforce all the documentaryrequirements under Rule 18 untilaround 2012.

Currently, there is no globallyestablished practice for customs

agencies to provide confirmation ofimportation of goods into theircountries. Furthermore, where theexporter has sold his products on acommodities market, then there maybe no direct relationship with the finalcustomer and indeed it may even bedifficult to establish who the finalcustomer/importer is.

Given this some exporters facepractical difficulties in obtainingcopies of import documentation fromthe end importer. This has resulted in“non-compliance” with Rule 18.

The principle legislation that providesfor VAT refunds for exports is foundunder Section 15 and the SecondSchedule of the VAT Act.

Section 15 states that goods andservices “described in the SecondSchedule shall… be zero rated.” Item 1of the Second Schedule zero-rates:

“Exports of goods from Zambia by oron behalf of a taxable supplier, wheresuch evidence of exportation isproduced as the Commissioner-General may, by administrative rulerequire.”

The critical issue then is that thereshould be sufficient evidence ofexportation. We understand thatRule 18 is drawn up under thedirection of the Commissioner Generalof ZRA. It does not require an Act ofParliament or Statutory Instrument toamend the directive. Given this, itwould appear, that, providing theCommissioner General acts within thespirit and scope of the law he shouldbe able to exercise his discretion.

It should therefore be possible to workout new rules that strike a properbalance between incentivising exportgrowth and safeguarding againstisolated incidences of fraud.

Government towork withexporters toaddressconcerns ondelayed VATrefunds due toissues with VATRule 18

PwC 19

Customs and ExciseZambia at 50Cracking the figures

2015 National BudgetIndirect Taxes

Customs and Excise

Aviation fuel

The Minister proposes that CustomsDuty be removed on aviation fuel.

The principal objective of this measureis to reduce costs in the aviationindustry. It is intended that this willassist in making Zambia a regionalhub for air traffic.

In addition to increasing the numberof connections, it is to be hoped thatplayers in the aviation industry willpass down an element of these savingsto the final consumer.

Refined edible oil

The Minister proposes to increase thespecific duty rate on refined edible oilfrom K0.85 per kilogram to K2.20 perkilogram.

This proposed change is intended tobring refined edible oil at par with thead valorem rate of 25% charged onimported refined edible oil.

Explosives

The Minister proposes to increasecustoms duty on explosives from 15%to 25%. The primary objective of thisis to stimulate the local manufacturingindustry and sustain employment inthe sector.

Unless there is sufficient local capacityto manufacture explosives at acompetitive price, costs for industriesthat require explosives (e.g. miningand road works) will increase.

Roofing sheets

The Minister proposes to double thecustoms duty on roofing sheets from15% to 30%. The primary objective ofthis is to encourage local value

addition and sustain employment inthe sector.

Un-denatured spirits

The Minister proposes to increase theexcise duty on imported un-denaturedspirits of alcoholic content of 80% orhigher by volume, from 0% to 125%.

This proposed measure will only applyto importers who are not licenced tomanufacture excisable products.Licenced manufacturers will continueto account for excise duty at the pointof sale of the manufactured potablespirits at the current excise duty rateof 60%.

The above proposed changes are partof the changes to the customs andexcise duty regime which are intendedto result in a net revenue gain of K40million.

House keeping measures

The Minister has proposed the:introduction of a K1,000 penalty feefor persons who submit multiplecustoms declarations for the sametransactions. After a third offence,offenders will be deregistered.

Amendment of the Customs andExcise Act to distinguish between thevarious types of services provided bymobile phone providers.

Increase the ASYCUDA processing feefrom K55.60 to K83.00.

Effective Date

All of the above will be effective from 1January 2015

Removal of 5%customs duty onAviation fuel

Increase ofspecific duty rateon refined edibleoil

Increase ofcustoms duty onexplosives

Increase ofcustoms duty onroofing sheets

Increase of exciseduty on importedun-denaturedspirits

Removal of 5%customs duty onAviation fuel

Increase ofspecific dutyrate on refinededible oil

Increase ofcustoms duty onexplosives

Increase ofcustoms duty onroofing sheets

Increase ofexcise duty onimported un-denaturedspirits

20


2015 National BudgetTax Data Card

Corporate tax rates2015 2014

Standard rate 35% 35%Banks 35% 35%Telecommunication companies

Income not exceeding K250,000 35% 35%Income exceeding K250,000 40% 40%

Farming 10% 10%Income earned from organic fertilizer 15% 15%Export of non-traditional products* 15% 15%Foreign earnings of Sun International Limited 15% 15%All other companies except mining companies 35% 35%

New listings on LuSE** 2% discount 2% discountNew listings on LuSE> 33% shares taken up by Zambians 2% discount 2% discount

Turnover tax levied on business with turnover belowK800,000(excludes passive income and income earned from consultancyservices, property rental, mining and VAT registered businesses) 3% 3%

Advanced Income Tax (upon importation of goods forcommercial purposes in the absence of a valid tax clearancecertificate)

6% 6%

Capital deductions***Investment allowance on industrial buildings**** 10% 10%Initial allowance on industrial buildings**** 10% 10%Industrial buildings allowance 5% 5%Commercial buildings allowance 2% 2%Implements, machinery and plant

Used for farming, manufacturing, tourism and leasing 50% 50%Implements, machinery and plant- Other 25% 25%

Motor vehiclesCommercial 25% 25%Non-commercial 20% 20%FarmingFarm improvement/ Farm works allowance 100% 100%

Carry forward of Trading losses No. of years No. ofyears

Non - mining companies 5 5Hydro and thermo power generation companies 10 10

* With the exception of minerals, electricity, services and cotton lint exported without an

export permit from Minister of Commerce.

** Discount applicable to corporate tax rates and only available for the first year.

*** Capital allowances are computed on a straight line basis.

**** Investment and Initial allowance granted in the charge year in which the industrial

building has been put into use.

21



Mining Companies

2015 2014Corporate Income Tax rate

Mining Profits

Profits from income earned from tolling/ processing ofpurchased mineral ores, concentrates and other semi-processedminerals.

30% BR+VPR**

Industrial Mineral Mining BR + VPR** BR + VPR**

All other mining activities (including copper mining) N/A* BR + VPR**

Mineral Royalty

Underground Mining Operations 8% 6%Open Cast Mining Operations

Not Applicable (N/A)*: Corporate income tax no longer appliesto profits of mining entities involved in underground miningoperations and open cast mining operations from 1 January2015. These entities are now only subject to the increasedmineral royalty tax. The variable profit tax now only applies toprofits from industrial mineral mining and is calculated asfollows:

Basic Rate (BR) ** 30%Variable Profit Rate (VPR) *** 15%

20% 6%

Withholding Tax on dividends paid by companiescarrying on mining operations

Resident

Dividend 0%

Non Resident0%

22



Income Tax Individuals

2014Monthly income bands

2015Monthly income bands

Housing benefit taxable in the hands of the employer

Rate at which employees annual taxable emoluments disallowed 30%

Tax on car benefit is payable by the employer at the corporate tax rate

based on the following scale charges:

Engine size < 1,800 cc: K9,000 p.a.

Engine size > 1,800 cc, < 2,800 cc: K15,000 p.a.

Engine size > 2,800 cc: K20,000 p.a.

Income

from

K

Income

to

K

Tax

rate

%

Tax on

band

(maximum)

K

Cumulative

tax on

income

(maximum)

K

First 0 3,000 0 0 0

Next 3,001 3,800 25 200 200

Next 3,801 5,900 30 630 830

Over 5,900 35

Income

from

K

Income

to

K

Tax

rate

%

Tax on

band

(maximum)

K

Cumulative

tax on

income

(maximum)

K

First 0 3,000 0 0 0

Next 3,001 3,800 25 200 200

Next 3,801 5,900 30 630 830

Over 5,901 35

23



Dividends from Lusaka Stock Exchange

Dividend income earned by individuals from shares listed on the LuSE is exempt

from income tax.

Withholding Tax

Resident Non

Resident

Dividend 15%* 15%*

Interest

Interest from a LuSE listed Property Loan Stock

Company

15%

0%

15%

15%

Management or consultancy fee n/a 20 %

Royalties 15% 20%

Rent from a source within the Republic 10% 10%

Commissions 15% 20%

Non-resident construction and haulage contractor n/a 20%

Non-resident entertainers/sports persons fees n/a 20%

Note: The above rates are unchanged from 2014.

* 0% for dividends paid by LuSE listed companies to individuals.

Tax Treaties

Canada, China, Denmark, Finland, France, Germany, India, Ireland***, Italy, Japan,Kenya, Netherlands***, Mauritius, Norway, Romania, Seychelles, South Africa,Sweden, Switzerland**, Tanzania, Uganda, United Kingdom, Yugoslavia*, Zimbabwe*

* These treaties have not been ratified and are therefore ineffective currently**Status of tax treaty currently uncertain*** These treaties are currently under review.

24



VAT

Taxable supplies- rate

Supply of goods & services in Zambia 16% / 0%

Import of goods & services into Zambia 16% / 0%

Export of goods & services from Zambia

*services are deemed to be exports only when

physically rendered outside Zambia

0%*

Registration

Threshold K 800,000 p.a.

Payment- due date

Supply of taxable goods & services 21 days following the end of

the VAT accounting period*

Repayment- due date

Standard 30 days after submission of a

VAT refund claim

*accounting period typically means the month following the month of registration and

each succeeding calendar month.

Property Transfer Tax (PTT)* 2015 2014

Land (including buildings)

Transfer or sale of mining right

Shares not listed on the LUSE

*PTT is paid by reference to the nominal value or

realised (open market) value whichever is greater

10% 10%

10% 10%

0% 0%

25



Zambia Development Agency

Concessions for Priority Sectors

The following incentives may be granted to an investor investing not less thanUSD500,000 in a priority sector or product in a Multi-Facility Economic Zone(MFEZ) or an industrial park or a rural area declared under the ZambiaDevelopment Agency (ZDA) Act in 2015:

• No Corporate Income Tax (CIT) on business profits for a five year periodfrom the date of commencement of business operations.

• Withholding Tax (WHT) on dividends charged at 0% for a five year periodfrom the date of commencement of business operations.

• 100% improvement allowance for tax purposes on capital expenditure forimprovement and upgrading of infrastructure.

Note: Where the concessions were granted in previous periods, these may nolonger apply, or if they do, may be varied.

26



Carbon Tax

An annual carbon tax is payable on all motor vehicles as follows:

Note:

Validity period of the carbon emission tax certificate is 90 days for vehicles in

transit and those that enter for short periods.

Presumptive Tax

Public Service Vehicle (PSV) operators are required to pay presumptive tax on

each motor vehicle as follows:

Engine size < 1,500 cc K50 p.a.Engine size > 1,500 cc, < 2,000 cc K100 p.a.Engine size > 2,000 cc, <3,000 cc K150 p.a.Over 3,000cc K200 p.a.Vehicles propelled by non-pollutant energy sources nil

Type of Vehicle Tax per Vehicleper annum(2014)

Tax Per Vehicle perannum (2015)

64 Seater and above K7,200 K14,40050-63 Seater K6,000 K12,00036-49 Seater K4,800 K9,60022-35 Seater K3,600 K7,200

18-21 Seater K2,400 K4,800

12-17 Seater K1,200 K2,400

Below 12 Seater K600 K1,200

27



Deadlines and Penalties

2015 Deadlines Penalty Interest

Income Tax- Companies

Provisional tax

Return deadlines:

31 March 2015, 30 June 2015, 30 September

2015 & 31 December 2015 (where applicable)

Payment deadlines:

Within 14 days following the return date

Note:

2/3 of the total tax liability payable by the

final quarter

Final tax return & payment

Deadline: 30 June 2016

Provisional tax:

Late filing of return:

K400 per month or part month

Late payment of tax:

5% per month or part month

Underestimation of tax:

25%





N/A

Late payment:

2% + DR*

N/A

N/A

Late payment:

2% + DR*

Income Tax- Individuals

Final tax return & payment

Deadline: 30 June 2016





Late payment:

2% + DR*

N/A

Withholding Tax (WHT)

Filing & payment deadlines: Within 14 days

after the end of the month of accrual / payment

Payroll (PAYE)

Filing & payment deadlines: Electronic returns

to be filed within 14 days after the end of the

month of accrual / payment. Manual returns to

be filed within 5 days of after the end of the

month.

VAT

Filing & payment deadlines: 21 days after the

end of the accounting period

NB: All annual Income Tax, PAYE and VAT

returns should be submitted electronically to

the ZRA except for certain small businesses.

WHT late payment of tax:


WHT late filing of return:


PAYE late payment of tax:


PAYE late filing of return:


VAT late filing of return:

Daily penalty- higher of K200 and 0.5% x tax

payable

VAT late payment of tax:

Daily penalty- 0.5% x tax payable

Late payment:

2% + DR*

N/A

Late payment:

2% + DR*

N/A

Late payment:

2% + DR

Key

*DR= Bank of Zambia discount rate

** accounting period means the month following the month of registration and each succeeding calendar

month

28




2014 National Budget Notes

29




2014 National BudgetNotes

© 2014 PricewaterhouseCoopers Limited. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopersLimited, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separatelegal entity.

The information on this budget bulletin and tax data card is based on the budget pronouncements of 10October 2014. The specific legislative provisions to effect the budget pronouncements are subject toenactment by Parliament. We therefore caution that the information highlighted in this bulletin and datacard may be subject to change. Accordingly, you should confirm the current tax position as necessary.

We emphasise that the information on this budget bulletin and tax data card is generic and may be subjectto update/amendment. Accordingly, you should seek specific advice and should neither act nor refrainfrom acting solely on the basis of the information provided here. PricewaterhouseCoopers Limited, itsaffiliates and/ or network firms shall have no liability for any action taken (or omitted) on the basis of theinformation provided on this bulletin and tax data card.

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