2021 BUDGET HIGHLIGHTS

KINGSLEY CHANDA writes@SunZambianI AM pleased to present an overview of the major changes in the tax legislation and other relevant information to our taxpayers and stakeholders as announced by the Minister of Finance in his Annual National Budget Address to the National Assembly for the fiscal year 1st January, 2021 to 31st December, 2021.The overview gives a guide on the measures announced in the Budget as reflected in the various Bills, Statutory Instruments and Commissioner General’s Rules that contain the enabling legislation. The details are contained in the published legislation. However, it should be noted that some of the measures in this pamphlet are subject to Parliamentary approval while others take effect as per Minister’s pronouncement. DIRECT TAXES MEASURESCOMPENSATING MEASURESIncrease the tax rate on betting to 25 % from 10 % of gross takings.The measure seeks to harmonize the tax rate of betting with that of similar games. Currently, the betting games are charged a presumptive tax at the rate of 10 % on gross takings.REVENUE CONCESSION MEASURESIncrease the exempt threshold for Pay As You Earn (PAYE) to K4, 000 per month from K3, 300 and adjust the income bands accordingly.This measure is intended to give relief to employees and self-employed individuals under the Personal Income tax regime by increasing their disposable income. Currently, the exempt threshold for Pay As You Earn (PAYE) is at K3,300 and has not been adjusted since 2017.Employing a differently abled person to K2, 000 per annum from K1,000 per annum.The measure is aimed at encouraging employment of differently abled persons.Increase the monthly tax credit for differently abled persons to K500 from the current K250.The measure is intended to provide further relief to differently abled persons in our society.Increase the amount allowed for deduction by an employer for employing a differently abled person to K2, 000 per annum from K1, 000 per annum.The measure is aimed at encouraging employment of differently abled persons.Increase the monthly tax credit for differently abled persons to K500 from the current K250.The measure is intended to provide further relief to differently abled persons in our society.Increase the number of years for claiming the 10% development allowance to 5 years from the existing 3 years.The measure is aimed at providing relief to the horticulture and floriculture subsectors. This development allowance is applicable to persons growing rose flowers, tea, coffee, banana plant or citrus fruit trees or other similar plants or trees.Introduce a Local Content Allowance at the rate of 2% to encourage value addition to products such as Mangoes, Pineapples and Cassava.The measure intends to further incentivize the manufacturing and processing of products that utilize such locally available raw materials as Mangoes, Pine- apples and Cassava.Reduce the corporate income tax rate to 15% from 35% on income earned by hotels and lodges on accommodation and food services.The measure is aimed at giving relief to businesses in the hospitality industry that have been highly affected by the COVID-19 pandemic for the 2021 charge year.1.3 HOUSEKEEPING MEASURESInsert a subsection in the appropriate place in Section 29 of the Income Tax Act to clarify that the rule limiting the interest deductibility is applicable on aggregate interest expense.The measure seeks to clarify that the limitation rule applies on all interest deductions of borrowings of both revenue and capital nature.Amend the Income Tax Act by removing “Domestic Taxes Division’’ wherever it appears and replace it with “Zambia Revenue Authority’’.The measure seeks to address reference ambiguities in the Act.Amend the Income Tax Act to clarify that the obligation to furnish information to the Commissioner General extends to information that might be held outside the Republic or by a person who is not a resident of the Republic.The measure clarifies that the obligation to furnish information in relation to the tax affairs of a person includes information that may be held outside the Republic or by a third party who is not a resident of the Republic.Amend Section 55(4) of the Income Tax Act to provide for the keeping of all books of accounts in Zambian Kwacha.The measure seeks to make it mandatory to keep books of accounts in local currency.Amend Section 55 of the Income Tax Act to extend the keeping of books of accounts in United States Dollars to mining companies whose foreign exchange earnings are from within Zambia.The measure intends to extend the keeping of books in United States Dollars to mining companies that earn at least 75% of their income in form of foreign exchange within the Republic.Amend the definition of “reference price” in Section 97A(1) of theIncome Tax Act:a) By the deletion of words ‘Metal Bulletin’ and replacement with the words ‘FastMarkets MB’ wherever it appears; andb) insertion of the terms ‘or its successor or successor name’ in the appropri- ate places.The measures replaces the words Metal Bulletin with “FastMarkets MB” following its rebranding. Additionally the measure seeks to ensure that there will be no need to amend the Income Tax Act when there are subsequent name changes.Amend the definition of “norm value” in Section 89(5) of the MinesMinerals Development Act: a) By the deletion of words ‘Metal Bulletin’ and replacement with the words ‘FastMarkets MB’ wherever it appears; and b) insertion of the terms ‘or its successor or successor name’ in the appropri- ate places. The measures replaces the words Metal Bulletin with “FastMarkets MB” following its rebranding. Additionally the measure seeks to ensure that there will be no need to amend the Mines and Minerals Development Act when there are subsequent name changes.Increase the commissions paid to tax agents to a maximum of 10% from 3%.The measure is meant to empower the Commissioner General to give a com- mission that reflects the agent’s operational costs up to a maximum of 10%.Adjust the reference interest rate to be used in the determination of tax applicable on employee loan interest benefits to be the Bank of Zambia policy rate plus a margin of 2%.The measure seeks to ensure uniform application of the law across all indus- tries and sectors. The current practice note no. 1 of 2020 provides for open market price application in the calculation of staff loans benefit tax.Amend the Hospitality and Tourism Regulations (Tourism Levy) to replace the reference to Income Tax Act with Value Added Tax Act.The measure seeks to align the Tourism Levy to the Value Added Tax Act.Amend the Hospitality and Tourism (Tourism Levy) Regulations to provide for the imposition of a penalty for under-declaration on Tourism Levy returns.The measure intends to provide for the imposition of penalties.Amend Section 4 (3) of the Skills Development Levy Act to correct a drafting error by replacing the word ‘employee’ with ‘employer’.The measure seeks to correct a drafting error.Amend the Income Tax Act to provide for the charging of With- holding Tax (WHT) on payments made by a Zambian resident to a non- resident in respect of royalty financing arrangements.The measure seeks to introduce withholding tax on payments made under royalty financing arrangements.Royalty financing is a novel method of funding business operations, which is gaining popularity in the commodities value chain; particularly in the extrac- tive industries. Royalty agreements generally cover the life of the project being funded.Amend section 81B of the Income Tax Act to mandate all statutory regulatory bodies to require a tax clearance certificate and Taxpayer Identification number before registering or renewing membership or before issuing any licence, practicing certificate, permits or similar docu- ments etc. Further, empower the Minister to issue a statutory order to exempt certain categories of membership.The measure is intended to improve tax compliance.Amend the Transfer Pricing Regulations to provide for the Country by Country (CbC) Report.The measure will provide for the automatic exchange of the relevant Coun- try by Country reports with other tax Jurisdictions for entities operating in Zambia that are part of Multi-National Enterprises group. The measure is one of the requirements under the Inclusive framework on Base Erosion and Profit Shifting (BEPs) to which Zambia is a member.Amend the Transfer Pricing Regulations to increase the threshold to K50 million from K20 million for local companies which are not required to provide transfer pricing documentation.The measure seeks to extend the exemption from providing transfer pricing documentation to local small and medium sized businesses that have an annual turnover of K50 million and below. Currently only businesses that have an annual turnover of K20 million and below are exempt. TO BE CONTINUED The Sun