Beyond figures

2010 Budgetary changes

Beyond figures
2010 Budgetary changes

Commentary
‘’Enhancing Growth through Competitiveness and
Diversification” retained as the theme
The title/theme of the 2010 budget has Prior years’ budget addresses have been
Very few proposed remained the same as that of the 2009 dominated by changes in the tax regime.
tax changes address “Enhancing Growth through The 2010 budget differs from prior years in
Competitiveness and Diversification”. that there are a few proposed changes to
the tax regime. Considering the changes
The strategy of We hope this is an acknowledgement of introduced in the past two budgets, this is
the Government unfinished business and a realisation that a welcome relief, particularly to the mining
continues to the development agenda is a long term industry. We are not suggesting that the
be ‘Enhancing one. It was unrealistic to refocus on an current tax regime is perfect and does not
growth through annual basis without any regard to the need improvement. But as we all know
Competitiveness and actual achievements, as the previous annual changes have to be carefully planned and
Diversification theme changes suggested. managed. We are not sure that can be said
of some of the recent changes to the tax
Considering the turbulence in the global regime.
economy for the most part of 2009, the
Manufacturing and economy performed reasonably well. The Some of the proposed changes in the 2010
tourism decline... projected GDP growth rate of 4.3%, or more, budget address might impact negatively
far exceeds the 1.3% projected for Sub on two priority sectors: agriculture and
Sahara Africa. tourism. The increase in the fees payable
under the Lands Act might hinder access
However, it is not appropriate to gauge our to land. Further, the increase in the excise
performance against a rough aggregate duty payable on the diesel will surely
Mining, agriculture
and construction grow
such as the Sub Sahara rate. We should increase the cost of farming. The proposed
develop targets based on the resources and tourism levy also has the potential to have
other competitive advantages we enjoy as a similar counter-productive effect. We urge
5% GDP growth nation. circumspection before its introduction.
target for 2010
In 2009, manufacturing and tourism are Beyond the figures, we believe the 2010
projected to decline by 1% and 15% budget proposals are realistic, albeit a bit
respectively, whilst mining, agriculture, cautious.
Some proposed
and construction are projected to grow by
changes may
impact negatively
13.1%, 5.2% and 10% respectively. If the
on agriculture and economy can grow by 4.3% in a very difficult
tourism year, is the 2010 GDP growth target of 5%
ambitious enough? We believe we should
and can achieve higher rates of growth.
To do that we need to set our priorities
GDP Growth of 4.3% and then focus and execute them as one
projected management guru put it. We appear to have
set the priorities and to some extent have
started focusing. Next we have to ensure we
execute relentlessly.

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The Economy
A synopsis of the Zambia economy

Amounts in % Actual 2008 Projection 2009 Revised Estimate 2009 Projection 2010

GDP growth rate 5.8 5 4.3 5

Inflation 16.6 10 12 8.0

Government bonds 16.7 n/a 16.8 n/a

TB rates 17.2 n/a 19.5 n/a

Budget Deficit 2.7 2.3 2.5 2.9

Domestic borrowing 1.4 1.8 3.0 2.0

n/a – not available

An overview The impact of these conditions has been

evidenced by a significant slowdown in
The global economy has slowly begun to demand-driven sectors of the economy such
climb out of the recession with key global as tourism, manufacturing, wholesale and
markets showing modest growth in the retail trade and transport & communication.
second half of the year. The Minister The following factors have affected the
presented the previous budget at the height economy in the nine months to September
of the global recession hence, in the context 2009:
of tight global liquidity and a compressed
commodity market. In our budget analysis 1 A fluctuating Kwacha that started the
in January 2009, we noted that the overall year at K4,200 to US$ to a high of
market painted a grim picture with: K5,800 in February, and a low of
K4,600 in September;
• Constrained markets negatively 2 Increasing prices of crude oil from
affecting commodity prices; $33 per barrel in January to $69 per
barrel in September;
• low global liquidity reducing the potential 3 Reduced donor funding to
for foreign direct investment in the Government programmes
economy; and mainly arising from allegations of
misappropriation of funds at the
• a weakening kwacha and higher food Ministry of Health;
prices causing inflation and reducing the 4 Reduced Government revenues from
disposable income of consumers. taxes and therefore increased domestic
and foreign borrowing; and

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5 Average inflation of 14.3%compared to copper production. It is generally believed
a projected rate of 10%.
The above negative factors have limited
the Government’s ability to raise funds to
finance operations as estimates indicate
that overall domestic revenues will be 7%
behind budget. The shortfall in revenue
generation, coupled with the withdrawal
of some donor support has forced the
Government to borrow more from the
domestic market. This has increased
domestic borrowing to 3% of GDP
compared to a target of 1.8%. Whilst the
above factors have had a negative effect
on the economy, various other factors
have supported its growth, particularly the
commencement of commercial copper
production by Lumwana Mining Company
and improving metal prices in the global
market. These resulted in improved dollar
flows into the economy strengthening the
Kwacha against major currencies. The
increasing price of fuel should however be
a continued cause for concern.
In the following sections, we give a
synopsis of the key sectors of the
economy.
Mining
Mining industry continues to be a primary
source of earnings to the economy. In
the nine months to September the mining
industry has slowly recovered from the
worst of the economic slow down with
copper prices increasing from c$3,100
in January to c$6,000 in October driven
by improved demand in China and India,
and also because of the overall low world
that copper prices will stabilise due to a
consistent and ready market for the product
in most economies and its relatively low price
compared to other base metals.
Copper production is projected to increase
by 5 % to 700,000 tons in 2010 from a
projected 662,000 tons in 2009, and an actual
production of 575,000 tons in 2008. The
increase is expected to come from ramped up
production at Lumwana and the resumption of
production at Luanshya Copper Mines.
Agriculture
Agriculture, whilst contributing to 16% of GDP,
employs 85% of the country’s workforce. It
continues to encounter difficulties, such as:
• High cost of credit;
• Fluctuating cost and unreliable delivery of
inputs:
• Limited access to inputs and extension
services;
• Inadequate infrastructure;
• Poor livestock management;
• Weaknesses in the Fertiliser Support
Program; and
• Failure to attract adequate private
investments in the sector.
The Government has planned to address
the above challenges by
1 Stabilising fertiliser prices while
making it more widely available
through the Fertiliser Support
Programme (now known as the Farmer
Input Support Programme);
2 Improving credit availability to rural
areas in partnership with donors though
there is insufficient detail on the exact
modalities of this arrangement); and
3 Encouraging increased investment
into the sector by both small- and large-
scale farmers through the
development of infrastructure to support
Farm Blocks across the country.
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The production of maize, tobacco, soya
beans, sunflower, sorghum and wheat
improved significantly in the 2008/9 farming
season. Total maize production grew by
31% in the 2008/2009 compared to the
2007/2008 farming season.
Recognising the importance of the sector,
Government has increased the allocation
to the sector in 2010 to K1,139 billion
representing 6% of the total budget.
Government has proposed to undertake
a comprehensive review of the Fertiliser
Support Program (now called the Farmer
Input Support Program) in an effort to
improve it’s effectiveness.
The Government also proposes to introduce
an Agricultural Marketing Bill that will allow
small-scale farmers to market their produce
directly to buyers.
Manufacturing
Manufacturing sector continues to be an
area of focus for the Government in its plan
to divest from the traditional mining revenue
base. The core objectives include:
• Reducing the cost of doing business in the transform the Northern Tourism Circuit into a
Zambia; and
• Development of the Multi-Facility
Economic Zones.
However, increases in electricity tariffs by
36% in 2009 and 26% in 2010 may have a
negative impact on the above objectives.
In 2009, the Government progressed the
development of the Multi-Facility Economic
Zone in Chambishi and Lusaka South.
Transport and Communications
Telecommunication had minimal growth in
the first quarter of 2009, however this has
gradually picked in the period from April to
September, driven by improved consumer
incomes. The industry still encounters
challenges due to the cost of international
and cross network calls.
Zambia Budget Review
4
The Government intends to reduce fees for
international gateway by the end of 2009.
To resolve the problem of poor infrastructure,
Government has reiterated its commitment to
the partial privatisation of ZAMTEL in 2010.
To develop the road infrastructure within the
country, Government has provided funds to
upgrade and rehabilitate various roads and
feeder roads around the country.
Tourism
The sector has been hit by the global credit
crunch as most of the guest arrivals are
primarily from South Africa, Europe, and the
US. The number of international tourists
visiting the country declined in the first half
of the year compared to the figures for same
period in 2008.
The tourism sector is expected to pick up in
2010 with the 2010 FIFA World Cup in South
Africa. There is insufficient information on
how the Government intends to capitalise on
the opportunity.
Government remains focussed on its plans to
high quality tourism destination.
Inflation
Underlying inflation to September 2009 stood
at 12.1% compared to 12.4% in 2008. Overall
inflation (including food and fuel) was 13%
(2008 16.6 %). The Government projects that
inflation will reduce to 12% by the year end
and 8% by the end of 2010.
Budget Deficit
Government expects to end the current
year with a budget deficit of 2.5% and this is
targeted to increase to 2.9% by the end of
2010. To finance the deficit, Government plans
to borrow over the medium term.
Beyond figures
2010 Budgetary changes

COMPARATIVE ANALYSIS – INCOME AND EXPENDITURE

Projection Revised Projected

2009 Estimate 2009 2010

Income (K'billion)

Domestic revenues and grants 13,414.50 11,647.80 14,533.70

Expenditure (K'billion)

General services exp, public order, environment,

housing , health etc 15,279.00 14,013.00 16,717.80

Deficit (1,864.50) (2,365.20) (2,184.10)

The amount of Government borrowings is still within sustainable levels. We hope the “more
expansionary fiscal stance in 2010” that the Minister mentioned in his address will not threaten
this hard earned position.

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Direct Taxes
Increase in exempt threshold for taxes

2010/2011 2009/2010
Income Tax rate Income Tax rate
First K9,600,000 0% First K8,400,000 0%
From K9,600,000- K16,020,000 25% From K8,400,000- K 16,020,000 25%
From K16,020,000- K 49,200,000 30% From K 16,020,000 – K 49,200,000 30%
Above K 49,200,000 35% Above K 49,200,000 35%

Personal Tax Housekeeping Measure

The exempt threshold has been The words ‘charities’ or ‘charitable

No change in annual tax
bands
Increase in tax credits for
differently-abled persons
No change in standard rate
of corporation tax
increased by K1, 200,000 per annum.
This represents an increase of 14.29%.
The annual tax bands have not
changed from 2008/2009. However
because the annual exemption limit
has increased, all individuals earning
more than K9,600,000 per annum will
be better off by K25,000 each month.
The tax credits for persons with
disabilities are increased by K660, 000
to K1, 560,000 per annum, an increase
of 73%.
organisations’, wherever they
appear in the Income Tax Act, have
been replaced by the name ‘public
benefit organisations’. Income
earned by these organisations from
commercial transactions is charged
at 15%.
The definition of mining licence
in the Income Tax Act is to be
amended to align it with the
definition included in the new Mines
and Minerals Development Act of
2008.

The above measures take effect from 1

April 2010.

It is planned that in future, the tax year,

which currently runs from 1 April to
31 March, will be the same as the fiscal
year which commences on 1 January.
This will enable changes announced
in the budget to be effective from 1
January in the following year.

Corporate Tax

The standard rate of corporation tax

remains at 35%.

There are no other changes relating to

corporation tax.

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Indirect Taxes
VAT on sale of commercial properties to
broaden the tax base
Value-added Tax
Sale of commercial properties to be
subject to VAT.
The sale of commercial property is currently
Sale of commercial exempt for VAT purposes. As a result
properties to be
companies currently involved in constructing
subject to VAT
properties for sale are unable to reclaim input
VAT incurred on construction expenditure.
This increases the cost of building and
construction.
The Minister proposes to charge VAT on
sale of commercial properties. Assuming that
Insecticide treated properties are generally sold at a profit this
curtains to be zero
measure should increase tax revenues for the
rated
Government. It will also benefit developers’
cash flows as they will be entitled to re-claim
input VAT on construction expenditure on a
monthly basis whilst only paying output VAT at
the time of sale.
The move by the Minister to standard rate the
sale of commercial properties is welcomed as
it is likely to encourage further development
of commercial properties and related
infrastructure. This should also reduce the cost
The VAT Act to of purchase and lease of commercial property
provide clarity in Zambia in the longer term. However, it may
on financial and divert builders from the domestic sector as
insurance services it will be less lucrative to construct domestic
/ charges that will property.
be exempt for VAT
purposes
We would encourage the Government to
introduce similar changes for residential
properties. This would address the current
shortage of residential accommodation in
urban areas whilst at the same time maintain
or increase the level of construction activity in
the country. An increase in the quantity and
quality of residential accommodation should
also lead to lower rentals in the longer run,
which are generally perceived to be higher
than other countries in the region.
The above measure is effective from 1
January 2010.
VAT on insecticide treated curtains to be
zero rated
In order to effectively fight the scourge of
death and illnesses attributed to malaria, the
Minister proposes to remove import duties
on importation of insecticide treated curtains
and also zero rate their sales to make them
more affordable.
The move to reduce the cost of importing
and selling treated curtains is welcomed.
The above measure is effective from 1
January 2010.
Housekeeping measures
Clarity on classification of financial and
insurance services for VAT purposes
The VAT Act will be amended to provide
clarity on those financial and insurance
services that qualify for VAT exemption.
Currently, the law does not specify the
various financial and insurance services/
charges that are exempt for VAT purposes.
As a result there is much ambiguity on the
VAT treatment currently applicable.
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Legal requirement for “valid tax invoice”

for the purpose of claiming input VAT.

The VAT Act is to be amended to make it

a legal requirement for taxpayers to have
valid tax invoices in order to claim input tax.
Taxable suppliers must issue invoices in a
The VAT Act to “prescribed format” to successfully claim
incorporate the
input tax. Previously, although ZRA sought
requirement for
suppliers to issue to enforce this, it was not backed up by
a valid tax invoice legislation.
for proposes of
claiming input tax. They Supply of paste and liquid polymers is
to be exempted for VAT purposes.
The First Schedule to the VAT Act is
to be amended to include paste and
liquid polymers to be classified as
exempt supplies. These are used in the
manufacture of polypropylene bags.

This measure is intended to align the

Supply of paste or treatment of paste or liquid polymers to
liquid polymers to that of plastic granules which are currently
be exempted. exempt.

Unregistered suppliers to be liable for

VAT immediately they attain the turnover
threshold of K200m.

The VAT Act is to be amended to

incorporate a provision that will require an
unregistered supplier to be liable to account
for VAT immediately they attain the turnover
threshold irrespective of the actual time of
registration.

This means that in case of late registration,

a taxable person’s registration will be back
dated to the time when they first reached
the turnover threshold of K200 million and
they will be liable to pay output tax on all
supplies made since that date irrespective
of the fact that the tax may not have been
collected from the customers.

This measure is intended to compel taxable

suppliers eligible for VAT registration to
apply for registration immediately they
reach the turnover threshold of K200m per
annum.

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Customs and Excise
Increase in excise duty on diesel
In 2008, the Government reduced excise duty
rates on diesel from 30% to 7% to mitigate
the impact of record high international fuel
Excise duty on
diesel increased prices. Given the fall in global oil prices from
from 7% to 10% it’s peak of US $150 per barrel in 2008 to the
current levels of around US $70 per barrel,
the Minister now proposes to increase excise
duty on diesel from 7% to 10%. If all of the
increase in duty is passed on the consumer
there will be an increase in diesel costs of
approximately K110 per litre.
Penal bond
system
abolished
Whilst at face value the increase may appear
insignificant, one must consider this in the
context of the challenges currently faced
by businesses operating in Zambia. The
recent increase in electricity tariffs averaging
36% coupled with increased power outages
and load shedding has meant that many
businesses have had to invest in back up
facilities in the form of diesel generators.
The cost of operating such generators can
be significant and the increase in duty rates
however insignificant, will add to the burden
and cost of operating a business in Zambia.
The overall increase in cost for operators in
the transport, mining and agricultural sectors
is likely to be significant particularly where
high volumes of diesel are consumed.
Businesses that sell their products on
commodity markets may find it difficult to
pass this cost on to their customers and the
higher cost is likely to result in lower profits.
The above measure is effective from 1
January 2010.
Abolishment of penal bond system
The Minister proposes the abolishment
of the penal bond system applicable to
manufacturers of excisable goods.
Under the current system, manufacturers are
required to put in place a bond to guarantee
payment of excise duties to ZRA on the
manufacture of goods.
This requirement affects the ability of
taxpayers to raise additional finance for
their business operations thereby increasing
financing costs whilst at the same time
reducing the prospect for further investment.
The new measure is welcomed, as it should
reduce the cost of doing business. However,
it is not clear whether other measures will
be introduced to safeguard the collection of
excise duties by ZRA.
The above measure will be effective from 1
January 2010.
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Carbon emission tax on motor vehicles Reduction of duty on cranes and

Since the introduction in 2006 of the carbon
emission tax, the ZRA have only managed
to collect the tax on vehicles temporarily
entering the country. They were unable
Measures to to collect taxes due on domestic motor
effectively
vehicles due to administrative challenges.
collect carbon
tax on domestic
vehicles The Minister has indicated that measures
are now in place to implement the collection
of the annual carbon emission tax on
domestic vehicles. However, the detailed
measures are not specified and it remains
to be seen how efficient/ effective the
collection mechanism will be.
In addition to implementing new measures
for collecting the tax, the Government
has extended the validity of the Carbon
Emission Tax Certificates to 90 days for
vehicles in transit and for those vehicles
Basis for that enter the country for short periods only.
assessing This means that vehicles that leave and
excise duty on re-enter the country within 90 days can use
airtime clarified
the original tax certificates and will not have
to pay the carbon emission tax each time
they re-enter the country.
Current carbon emission taxes on motor
vehicles are as follows:
garbage dumpers
To support the “Keep Zambia Clean and
Healthy Campaign”, the Minister proposes
to remove the 15% duty on cranes and
garbage dumpers.
This measure is intended encourage
investment and reduce the cost of capital
investment.
This measure will be effective from 1
January 2010.
Reduction of duty on insecticide treated
curtains
In line with the Roll Back Malaria
Programme under the Abuja Declaration,
and in an effort to reinforce the fight against
malaria, the Minister proposes to remove
duty on insecticide treated curtains. This is
currently levied at 25%.
This measure will be effective from 1
January 2010.
Housekeeping measures
Excise duty on airtime

The Customs and Excise Act is to be

Engine size < 1,500 cc
Engine size > 1,500 cc, <
2,000 cc
Engine size > 2,000 cc, <
3,000 cc
Over 3,000cc
Vehicles propelled by non
pollutant energy sources
amended to clarify that the total excise
K50,000 duty payable in an accounting period shall
be based on air time consumed, lost or
K100,000 otherwise foregone by a consumer.
Reduction of duty on inputs used in the
blending of fertilizer
K150,000
Customs duty on fertilizer micronutrients
of sulphur, zinc, iron, bentonite pastilles,
and manganese used in the blending of
fertilizer has been removed.
Nil
This measure is intended to reduce the
cost of inputs in the agriculture sector.

The new collection measures are expected

to be implemented with effect from 1
January 2010.
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2010 Budgetary changes

Amend Customs and Excise

Regulations to list investments that
access incentives under the ZDA Act
Incentives
granted must This measure will provide for the
be gazetted gazetting of investments which have
been granted tax incentives by the
Minister of Finance, under the ZDA Act.
In practice this means that any incentives
granted will only be valid if they are
gazetted.

Minister to be allowed to delegate

powers to the Commissioner General,
to grant tax rebates on mining
equipment to holders of mining rights

Under this measure the Commissioner

General of ZRA will be empowered to
grant tax rebates on mining equipment to
holders of mining rights.

Miscellaneous Item

The Minister has proposed an increase in

fees payable under the Lands Act. These
Increases in
fees payable will be as follows:
under the
Lands Act • Consideration Fees: Increase of 50%

• Ground rents: Increase of 80%

• Consent fees: Increase of 100%.

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Disclaimer

The information in this budget bulletin is for general guidance purposes only. PricewaterhouseCoopers and or any of it’s associates will not be
held liable for any errors or loss incurred due to reliance placed on this. The budget pronouncements of 9 October 2009 as highlighted in this
bulletin are subject to enactment by an Act of Parliament.
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