EY Zambia 2021 National Budget Analysis
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EY Zambia 2021 National Budget Analysis
Disclaimer This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgement. Neither EY Zambia nor any other member of the global EY organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.
Contents About EY Zambia 4 EY Global 5 A Global leader in professional services 5 Who we are 6 Quality as a constant 6 2021 National Budget Overview 7 The 2021 National Budget 13 2021 National Budget Tax Proposals 24
About EY Zambia
EY Zambia is an integrated member of EY Central Africa,
a member firm of EY Global, a leader among the world’s
professional services organisations.
The firm is one of the longest-established and integration has been a critical success
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EY is a thorough professional services lines:
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a common culture of innovation and 1. IT Risk Advisory Services
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4. Performance Improvement
any of the more than 20 competencies
f Transaction Advisory Services
which transcend geographic borders and
organisational lines. EY’s global presence f Global Tax Advisory Services
4 EY Zambia 2021 National Budget Analysis
EY Global
The world is changing so rapidly that traditional ways of
doing business are no longer sufficient. Now, more than
ever, businesses need to act with the best knowledge
possible and move forward with confidence in order to
compete effectively.
A Global leader in professional services EY currently has representation in most
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EY is a global leader in assurance, tax, Africa ensures that communication is
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Worldwide, our 260,000 people are united thereby stimulating trade and enhancing
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clients and our wider communities achieve on local taxes, customs and systems, as
their potential. well as introductions to influential local
contacts.
Increasingly our clients and our people
expect us to be more global in our outlook, TUNISIA
more integrated in our thinking and more
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ALGERIA
inclusive in our approach. EY has been Western
Sahara
LIBYA EGYPT
proactive in responding to the globalisation MAURITANIA
MALI
of our clients by integrating our country
NIGER
ERITREA
SENEGAL CHAD
THE GAMBIA SUDAN
practices across Europe, the Middle East,
DJIBOUTI
GUINEA-BISSAU GUINEA BURKINA FASO
BENIN
CÔTE TOGO
India and Africa. This bold move has
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CENTRAL SOUTH
LIBERIA CAMEROON AFRICAN REPUBLIC SUDAN SOMALIA
brought together over 125,000 EY people
Gulf of Guinea
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SAO TOME AND PRINCIPE
KENYA
REP. OF
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in 97 countries generating revenues of
GABON DEM. REP. RWANDA
CONGO
(EQUA. GUI.)
OF THE BURUNDI
CONGO
$13 billion. We are the first of the Big 4
TANZANIA SEY CHELLE S
Ernst & Young office
No Ernst & Young office, COMOROS
firms to achieve a level of integration of
but support available ANGOLA MALAWI (MAURITIUS)
Mayotte
ZAMBIA FRANCE
COMOROS
this scale and scope and believe we have NAMIBIA
ZIMBABWE
MOZAMBIQUE
MAURITIUS
set a new standard in professional services
BOTSWANA MADAGASCAR
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AFRICA LESOTHO
our clients.
EY Zambia 2021 National Budget Analysis 5
20
Who we are Our globally coordinated tax professionals
We are people who demonstrate integrity, offer connected services across all tax
respect and teaming. People with energy, disciplines to help you thrive in an era of
enthusiasm and courage to lead. People rapid change. We combine our exceptional
who build relationships based on doing the knowledge and experience with the people
right thing. and technology platforms that make us an
ideal partner for your tax-related needs.
Quality as a constant EY has competencies in business tax,
international tax, transaction tax and
While change has become a given in tax-related issues associated with people,
today’s world, at least one aspect of the compliance and reporting and law. We
way we serve clients remains constant: the invite you to leverage our experience,
fundamental of imbedding quality in every knowledge and business insights to help
aspect of our business. To us, “quality” you succeed.
means getting the right information,
making the right judgements, taking Tax function operations
actions and maintaining the public trust. For today’s Tax function to be fit to operate
in the future, it has to be connected. EY’s
Connected Tax offers both a blueprint
EY - Tax and a business platform for building a
At EY, we believe that managing your tax future-proof Tax function that can help you
obligations responsibly and proactively can respond to demands.
make a critical difference.
If your organization is looking to drive
We create highly networked teams that value, manage costs and mitigate risk,
can advise on planning, compliance EY Connected Tax can help you design
and reporting and help you maintain and implement the effective means of
constructive tax authority relationships operating a business tax function. We help
— wherever you operate. Our technical define what it means to operate “best in
networks across the globe can work with class” and “best in cost,” with a blueprint
you to reduce inefficiencies, mitigate risk for dividing functional activities to reach
and improve opportunity. the desired result from technology to
talent.
Our tax professionals offer services across
all tax disciplines to help you thrive in We have both a blueprint and a business
this era of rapid change. We combine our platform for building the kind of future-
exceptional knowledge and experience proof tax function that helps you respond
with the people and technology platforms to demands, while also laying the
that make us an ideal partner for your tax- groundwork for a transformed tax function
related needs. fit for ongoing change.
6 EY Zambia 2021 National Budget Analysis2021 National
Budget Overview
The 2021 National budget presented COVID – 19 pandemic through a medium
by the Honourable Minister of Finance – term Economic Recovery Programme
on 25th September 2020 is themed (ERP). The programme is a successor to
“Stimulate Economic Recovery and Build the Economic Stabilisation and Growth
Resilience to Safeguard Likelihoods Programme (ESGP) which ended in 2019
and Protect the Vulnerable” and is and provides incentives to reinvigorate
aimed at stimulating economic recovery growth and build resilience while
through practical and tangible support safeguarding livelihoods and protecting the
to businesses. The budget also enhances vulnerable. It also contains measures to
social protection response programmes restore debt sustainability.
to prevent the worsening of poverty levels
despite constrained fiscal conditions. In order to achieve the budget objectives
and targets for 2021, Government has
The budget has been designed with a view proposed to spend K119.6 billion (2020:
to mitigating the negative effects of the K106.0 billion).
K65.9 billion (2020: K71.9 bn) K1.99 billion (2020: K3.1bn)
Domestic revenue Foreign grants
K17.4 billion (2020: K3.5bn) K34.2 billion (2020: K27.7bn)
Domestic borrowing Foreign financing
EY Zambia 2021 National Budget Analysis 7©2018 EYGM Limited. All Rights Reserved. EYG no. 010450-18Gbl. ED none How do boards keep today’s risks from becoming tomorrow’s headlines? The EY Center for Board Matters helps board members ask the right questions to oversee risk and seize the upside of disruption. ey.com/boardmatters #BoardMatters
Zambia’s Policy Monetary and Macro – Financial Measures
Responses to f To alleviate the adverse effect of the
pandemic, the Bank of Zambia’s Monetary
COVID – 19
Policy Committee lowered the Monetary
Policy Rate (MPR) by 225 bps to 9.25% on
May 19 and by 125 bps on August 19 in
2020.
f The Bank of Zambia (BoZ) aims to provide
medium-term liquidity support of 10
billion Kwacha (3.1% of GDP) to qualifying
providers of financial services, as well as
to scale up open market operations to
provide commercial banks with short-term
Fiscal Measures liquidity support.
f In favour of the mining industry, f In addition, BoZ has introduced a range
import duties on mineral of steps aimed at stimulating the use
concentrates and export duties on of e-money and reducing the use of
precious metals were suspended currency, revised the rules regulating
and then removed (import duty on the activity of the interbank foreign
concentrates). exchange market to facilitate its smooth
functioning by strengthening market
f The government removed tax discipline and providing a framework to
penalties and fees arising from cope with increased volatility, revised the
COVID-19 on unpaid tax liabilities. rules on the classification and provisioning
Customs duties and VAT on of loans and extended the transitional
certain medical equipment and arrangement to IFRS 9.
medical related goods have been
suspended. f BoZ has allowed providers of financial
services to renegotiate credit facility
f Zambia also removed provisions terms with borrowers impacted by the
related to claiming VAT on pandemic. For the purposes of computing
imported spare parts, lubricants, regulatory capital, non-bank financial
and stationery, in order to ease institutions have been permitted to use
pressure on companies. capital instruments which do not qualify as
common equity Tier 1 and Tier 2 capital.
f A K8 billion COVID – 19 bond (2.4
% of GDP) has been issued by f BoZ has also introduced arrangements
Government to fund COVID-19 for the participation of domestic and non-
related expenditures, including resident financial institutions in foreign
health spending, arrears clearance, exchange swaps and has expanded the
and grain purchases, as well as requirement for mining companies to
development bank recapitalization pay in US dollars for all their regulatory
(NATSAVE). obligations.
EY Zambia 2021 National Budget Analysis 9Performance of 2020
National Budget
The 2020 national budget whose was themed “Focusing
National Priorities Towards Stimulating the Domestic econ-
omy” and prioritised the creation of fiscal space, ensuring
debt sustainability and dismantling domestic arrears.
The projected total budget for the year activity which has led to a substantial
was K106 billion (32.4% of GDP) of which decline in consumer and investment
67.8% of the amount was to be financed spending due to disruptions in
from domestic revenues while 26.1% was business operations;
to be funded from external financing and ii. Disruptions in power supply due to
the balance from both domestic borrowing low electricity generation;
and foreign grants. iii. Rising costs of production largely
In 2020, Government had sought associated with rising energy costs
to achieve the following five (5) and depreciating currency; and
macroeconomic objectives within the iv. High public debt, leading to higher
spirit of achieving more with less coupled debt servicing costs, inevitably taking
with reduction in wasteful expenditure: away social and productive sector
i. To achieve a real GDP growth of at public spending.
least 3%;
ii. To achieve and maintain inflation The sectors that have been adversely
within the 6-8% target range; affected by the pandemic and other factors
iii. To increase international reserves to are tourism, wholesale and retail trade, and
at least 2.5 months of import cover; construction.
iv. To reduce the fiscal deficit to 5.5% of
GDP; and Annual overall Inflation has remained
v. To increase domestic resource substantially above the target range of
mobilization to at least 22% of GDP. 6-8% envisioned by the 2020 national
budget, and as at September 2020
Current projections show that the stood at 15.7%. Average food inflation
Zambian economy is projected to has remained relatively stable at around
contract by 4.2% in 2020 as opposed to 16% with minor upward and downward
the 3% growth target envisaged during adjustments while non – food inflation
the presentation of the 2020 national has been on the upswing from 7.8% in
budget. The main factors explaining this December 2019 to 17.7% as at September
performance are as follows: 2020. The upside pressures on overall
i. The adverse impact of the COVID inflation over this period have therefore
-19 pandemic on general economic emanated from non-food inflation.
10 EY Zambia 2021 National Budget AnalysisInflationary pressures over this period have
mainly been on account of higher fiscal
The outturn has been at-
deficits, deeper than projected global and tributed to a rise in expendi-
domestic economic contractions, and pass
– through effect from the depreciation of
ture on COVID – 19 mitigat-
the Kwacha against the US dollar. ing measures, agriculture
Gross International Reserves declined to
related expenditures, a
US$1.38 billion as at end of July 2020 fall in revenues and lower
from US$1.45 billion as at end – December
2019. This is equivalent to 2.3 months
disbursements on foreign
of import cover in contrast to the 2.5 projects. In 2019
months of import cover target in the 2020
national budget. With three (3) months
remaining before the end of the year, this
may appear encouraging but may not be so
as the current reserve position is not due
to increases in export earnings but rather a
reduction in imports resulting from effects
of the COVID-19 pandemic.
Fiscal pressures, however, remained
elevated in the first half of 2020
compounded by measures taken to contain With regards to the country’s debt position,
the COVID – 19 pandemic. Preliminary in the first half of 2020, the external
data shows a sharp drop in revenue inflows debt stock increased by 4.3% to US
during the same period. Revenues and $11.97 billion from U$11.48 billion at
grants are projected at K65.9 billion by the end-December 2019. This was mainly on
end of 2020 translating into 14.0% below account of new disbursements on existing
the target of K75.0 billion. Therefore, loans which were used to finance various
estimations indicate a much larger than the projects in energy, education, road and
envisaged 5.5% fiscal deficit by the 2020 health sectors. The largest growth in debt
national budget. On a cash basis, the fiscal of 9.9% was recorded under multilateral
deficit is now expected to rise to 11.7% of creditors. This was followed by Exports
GDP by the end of 2020. The outturn has and Suppliers Credit at 6.73%, and private
been attributed to a rise in expenditure credit with an increase of 1.1%.
on COVID – 19 mitigating measures,
agriculture related expenditures, a fall With the 2020 performance of the
in revenues and lower disbursements on national budget in view, it is expected
foreign projects. In 2019, the Zambia that the economic recovery strategies
Revenue Authority is reported to have and measures in the 2021 national
surpassed its revenue target, the budget will lead to addressing of the
substantial contraction in economic activity fiscal deficit, rising inflation, depreciating
in 2020 is expected to lead to failure in Kwacha, domestic resource mobilisation,
achieving the 22% of GDP estimation in resuscitation of economic activity,
domestic resource mobilisation. especially in priority sectors.
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Budget
The 2021 national budget has been prepared amidst
numerous socio – economic and environmental challenges
exacerbated by the COVID – 19 pandemic which has
resulted in an unplanned escalation in health related
expenditure.
The global economy is expected to con- objective is dependent on the length of
tract by 4.9% while in Sub Sahara Africa, the COVID – 19 pandemic, the required
economic activity is projected to decline lockdowns and foreign debt management.
by 3.2% from a positive growth of 3.2% The fundamental uncertainty surrounding
in 2019 mainly due to the COVID – 19 economic recovery in 2021 is the
pandemic. The focus of Government in the evolution of the pandemic and its effects
medium term as detailed in the medi- on economic activity and the business
um – term ERP, therefore, is to contain environment coupled with issues of
the spread of the corona virus, mitigate possible default by Government on its
the effects of the pandemic and restore debt obligations. The real GDP growth rate
macroeconomic stability as well as grow target for 2021 though being modest at
the domestic economy. In the 2021 budget 1.8% compared to 2020 target of 3% may
Government also prioritises attaining fiscal not be attained on account of constrained
fitness, restore debt sustainability, disman- fiscal space worsened by huge foreign
tle domestic arrears and safe guard social debt obligations, and absence of an IMF
protection spending. supported economic recovery programme.
In view of the focus of the 2021 national Reduce the inflation rate towards the 6 to
budget, Government has set the following 8% medium – term target
macroeconomic objectives in 2021 and Commentary: This objective has not been
herewith under our commentary: attained as at September 2020 and is
unlikely to be attained by end 2020 as
Achieve a real GDP growth rate of at least it is currently hovering around 16%. Our
1.8% (2020: 3%) expectation is that overall annual inflation
Commentary: The attainment of the will remain above the upper bound of the
EY Zambia 2021 National Budget Analysis 13activity and consequently leading to
Due to continued subdued declining supply of foreign exchange from
economic activity on the mines and foreign financials.
account of the COVID – In 2021, this objective of meeting at least
19 pandemic, as well as 2.5 months of import cover may not be
met if it is not attained at the end of 2020
reduced revenue collections because of COVID – 19 pandemic con-
and increased expenditures tainment measures and elections related
expenditures as well as debt servicing
on health, it is unlikely that obligations.
this target would be met in
Reduce the fiscal deficit to 9.3% of GDP
2021. (2020: 5.5%)
Commentary: Fiscal deficit in 2020 on a
cash basis is expected to close the year
at 11.7% and could be much higher if
6 – 8 % medium term range but will steadily considered on both cash and commitment
decline dependent on good agricultural basis. Due to continued subdued economic
output in 2020/2021 season, improved activity on account of the COVID – 19
electricity supply and government pandemic, as well as reduced revenue
managing to lengthen tenors of its foreign collections and increased expenditures
debt resulting in reduced foreign debt on health, it is unlikely that this target
servicing. This should be supported by an would be met in 2021. This is likely to be
appropriate monetary policy stance, fiscal worsened by tight liquidity conditions on
discipline and adherence to set austerity the domestic market and increased debt
measures. However, we expect fiscal servicing obligations.
pressures to remain elevated on account
of measures to contain the COVID – 19 Achieve domestic revenue collections
pandemic and general elections related of not less than 18.0% of GDP (2020: at
expenditures. least 22%)
Commentary: This objective is only
Increase Gross International Reserves attainable if economic recovery is
to at least 2.5 months of import cover enhanced and businesses pick up which is
(2020: 2.5 Months) unlikely. We expect lower than targeted
Commentary: It is important to note that domestic revenue collections in 2021
as at end of December 2019, the Gross on account of pervasive uncertainty
International Reserves (GIR) stood at and continued high risks posed by the
US$1.45 billion and declined to US$1.38 COVID – 19 pandemic. This can only be
billion as at end July 2020 representing countered by increase in compliance
2.3 months of import cover. In 2020, levels for most tax measures. We reiterate
Government intended to increase GIR to what we indicated in our commentary for
not less than 2.5 months of import cover. the 2020 budget that this could also be
With three (3) months still remaining enhanced by increase in the tax base as
before the end of 2020, it is hoped that well as introduction of innovative revenue
the intended object may be met. However, collection measures that minimizes
this may not be so due to the COVID – 19 leakages, such as the newly implemented
pandemic resulting in subdued economic Whatsapp Tax Payments.
14 EY Zambia 2021 National Budget Analysis2021 National Budget Sector Policies
In seeking to achieve the macroeconomic objectives earlier outlined,
Government has proposed a number of sector policies grouped under
pillars in line with the seventh National Development Plan (7NDP) but
for the purpose of summary, pillars have been left out in this economic
analysis:
Economic
Sector Sector Policies
Agriculture, f To improve productivity of small – scale farmers in 2021, extension
Fisheries and services will be strengthened and that all Farmer Input Support
Livestock Programme (FISP) beneficiaries will adopt climate smart agriculture
technologies and practices.
f All beneficiaries under the FISP will be migrated to the cost effective
e-voucher system over the medium – term.
f In 2021, K5.7 billion has been provided for FISP targeting one million
farmers across the country (2020: K1.1 billion).
f In 2021, K517.5 million has been set aside for the national strategic
food reserve (2020: K660 million).
f In the 2019/2020 farming season, Government will continue with the
Livestock stocking and Restocking Programme out of which at least
30% of the beneficiaries are youths.
f In 2021, the Zambia Aquaculture Enterprise Development Project
under implementation through the Citizens Economic Empowerment
Commission will continue to be implemented.
f To scale up the agricultural productivity through mechanization,
Government proposes to zero rate all tractors.
f To provide relief to the horticulture and floriculture (rose flowers, tea,
coffee, banana and citrus fruit trees) sub-sectors, Government proposes
to increase the number of years for claiming the 10% development
allowance to 5 years from the existing 3 years.
EY Zambia 2021 National Budget Analysis 15Economic
Sector Sector Policies
Agriculture, f To revamp the horticulture and floriculture sub – sectors, Government
Fisheries and proposes to:
Livestock y Suspend import duty on biological control agents
y Remove import duty on greenhouse plastics
y Reduce import duty to 15% from 25% on selected bulb plants and
seedlings
y Reduce import duty on secateurs and pruners to 5% from the
current 15% and 25%, respectively
y Remove import duty on selected agricultural clippers; and
y Remove export duty on crocodile skin.
Industrialisation f Government is promoting the procurement of locally produced goods.
f To enhance market opportunities for the local industry, Government is
repealing and replacing the Public Procurement Act No. 12 of 2008.
f Construction of Industrial Yards across the country (Chipata, Kasama,
Kafue, Kitwe, Mongu, Ndola and Solwezi) has advanced to promote
locally owned small enterprises such as carpentry, and foundry.
f Government through the Industrial Development Corporation will
establish a tomato and fruit processing plant in 2021.
f With the coming in of the Africa Continental Free Trade Area in 2021,
Zambia will reposition itself to take advantage of the expanded market
to the rest of Africa.
f Government proposes to:
y Introduce a local content allowance for income tax purposes
for utilisation of selected local raw materials to encourage local
content and value addition.
y Reduce the investment threshold for a Zambian citizen to qualify
for tax incentives under the Zambia Development Agency Act No.
11 of 2006 to US$100,000 from US$500,000 for those intending
to operate in a priority sector, a multi facility economic zone or
industrial park.
y Reduce import duty to 5% from 25% on selected trimmings to
promote the local garments and textile industry.
Tourism f To revive the sector and mitigate against the COVID – 19 pandemic
effects, time to pay agreement covering Income Tax and Value Added
Tax have been implemented.
f Government proposes to:
y Reduce corporate income tax rate to 15% from 35% on income
earned by hotels and lodges on accommodation and food coaches.
y Suspend license of renewal fees paid by hotels and lodges.
y Suspend the retention fees paid by tourism enterprises.
y Suspend registration fees for hotel managers.
Mining f In order to diversify the mining sector from copper to other minerals
particularly gold, Government has established Zambia Gold Company
Limited to spearhead gold mining and trading activities in the country.
16 EY Zambia 2021 National Budget AnalysisEconomic
Sector Sector Policies
Mining f Government is actively working towards finding a strategic investor to
improve operations and production at Konkola Copper Mines.
f ZCCM – IH is in discussions with Glencore to acquire additional shares in
Mopani Copper Mines.
f Government proposes to remove import duty on copper ores and
concentrates to encourage local processing.
Energy f To mitigate against the adverse effects of climate change, Government
has been investing in additional electricity generation capacity,
including solar energy.
Road and Air f The construction of the U$298 million Kazungula Bridge linking Zambia
Transport and Botswana which will facilitate increased regional trade and reduce
Infrastructure transit time for freight and passengers is due for completion in 2020.
f The upgrading of the Kenneth Kaunda International Airport is at 90%
while the construction of the Copperbelt International Airport (renamed
Simon Mwansa Kapwepwe International Airport) is at 76% and they are
both scheduled for opening in 2021.
Social f To mitigate against the effects of floods experienced by the country in
Protection 2020, a total of 90,202 households were supported under the floods
Programmes and droughts emergency cash transfers in 23 districts while 258,000
households were supported under the COVID – 19 emergency cash
transfers across the country.
f In 2021, the number of beneficiaries under the traditional social
cash transfer programme will be increased from the current 700,000
households to 994,000 households.
f The amount per household will be increased to K110 from the current
K90 per month.
f In 2021, Government will increase the number of beneficiaries under
the Food Security Pack Programme to 288,492 vulnerable but viable
households from 80,000 in 2020.
f Under the Girls Education and Women’s Empowerment and Livelihood
Programme, the number of beneficiaries will be increased to 208,400
in the medium term from the current number of beneficiaries standing
at 129,400.
Education f In order to increase science literacy and promote the next generation
and Skills of innovators and critical thinkers, Government has established
Development Science, Technology, Engineering, and Mathematics (STEM) schools of
excellency in all 10 provinces.
f Government intends to roll out Home Grown School Meals Feeding
Programme and the Keeping Girls in Schools Initiative to 18 and 22
additional districts, respectively which will improve the provision of
equitable services in learning institutions.
EY Zambia 2021 National Budget Analysis 17Economic
Sector Sector Policies
Health f In order to reduce the prevalence and impact of communicable
diseases, Government has continued to invest in health promotion
programmes and made available critical health system inputs.
f In 2020, 2,232 health workers were recruited and deployed to
strengthen the health care system and make it more resilient.
f To increase access to quality health care, 439 health posts out of 650
have been completed and are operational.
f 24 mini hospitals out of 108 have been completed.
f To strengthen the referral health system, Chinsali and the Kalindawalo
General Hospitals as well as the upgraded Levy Mwanawasa University
Teaching Hospital have been operationalised.
f Other notable projects under construction include the Lusaka Specialist
Hospital, surgical wards at the University Teaching Hospital, Bangweulu
General Hospital and the expansion and modernisation of Maina Soko
Military Hospital.
f In order to have sustainable financing to the health sector and
ultimately achieve Universal Health Coverage, the National Health
Insurance Scheme has been operationalised. To date, 540,000
beneficiaries have been registered on the scheme and 126 health
facilities have been accredited.
18 EY Zambia 2021 National Budget Analysisey.com/consulting
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222021 National Budget Summary of Expenditure
In 2021, the Zambian Government proposes to spend a total of K119.6
billion translating to 32.6 % of GDP compared to K.106.0 billion in 2020
which was 32.4 % of GDP.
Tables 1 and 2 provide the overview of domestic debt servicing obligations,
the 2021 national budget and compares it general elections expenses, and gratuity
to the 2020 and 2019 national budgets. for members of parliament as reflected
Government proposes to reduce spending in increase in proposed expenditure on
in most functions by Government general public services by functions of
classification including general public government which is 48.3 % as a share of
functions, social protection, health, the total budget for 2021. Government
education, and environment protection. also proposes to increase social protection
spending to safeguard the livelihoods and
The increase in general public spending protect the vulnerable thus preventing the
is on account of increased external and worsening of poverty levels.
Recreation, Culture
and Religion
Environmental
Protection
Social Protection
Housing & Community
Amenities
Public Order and Safety
Defence FY2021 FY2020 FY2019
Health
Education
Economic Affairs
General Public Services
0 10 20 30 40 50
20 EY Zambia 2021 National Budget AnalysisAnalysis of Budget Allocations
In 2021, General Public Services will receive a total of K57.8 billion
from K44.1 billion in 2020 and K31.2 billion in 2019, representing an
increase of 31.2% and 85.2%, respectively.
Out of the total General Public Services poor and mitigate against the effects of the
allocation of K57.8 billion, K27.8 billion pandemic.
is for external debt servicing, K18.3
billion for domestic debt servicing and The Economic Affairs function had a
K2.76 billion for dismantling domestic reduction in its allocation to K21.5 billion in
arrears representing 47.9%, 31.7% and 2021 from K21.8 billion in 2020. In 2020,
4.8%, respectively, of the total functional the function had an increase in allocation
allocation. K1.164 billion has been from K20.65 billion in 2019 translating in
provided for the Local Government an increase of 5.7%. Despite a reduction
Equalisation Fund representing two percent in the functional allocation in 2021 on
of the total functional allocation. The account of reduced allocation to road and
continued allocation for dismantling of air transport infrastructure spending, the
domestic arrears is meant to inject the Farmer Input Support Programme (FISP)
much needed liquidity in the economy for received an increase in proposed spending
the private sector particularly the Small from K1.1 billion in 2020 to K5.7 billion in
and Medium Enterprises (SMEs) to spur 2021 reflecting an increase of 418%. The
economic activity particularly in view of increase in allocation reflects Government
the negative effects of the COVID – 19 desire to grow and support the small
pandemic on the economy. scale farmers and possibly enable them
graduate into emergent and commercial
Other notable increases in allocation by farmers if inputs are accompanied with
function include social protection which targeted intervention measures aimed
received an increase of 18.7% in 2020 at improving productivity of the said
and in 2021 received a further increase farmers. Government has also provided
of 84.6% and in absolute terms received for empowerment funds particularly
K2.19 billion in 2019, K2.6 billion in 2020 targeted at the youth. This will contribute
and K4.8 billion in 2021, respectively. The to increased participation of the youth in
increase in social spending by Government productive ventures of the country and
is in a bid to protect the vulnerable and the grow the economy.
EY Zambia 2021 National Budget Analysis 21Borrowing
and Grants
% share of total resources
Non-Tax Revenues
2019 2020 2021
Tax Revenues
0 10 20 30 40 50 60
In the health sector, budgetary allocation be completed to increase school space and
has been increased by three percent in student accommodation.
2021 to K9.7 billion from K9.37 billion
reflecting Government’s desire to procure In 2021, Government proposes to offer
adequate drugs and medical supplies in both tax and non – tax reliefs resulting in
view of the COVID – 19 health pandemic reduction in tax and non - tax revenues
and to complete the health infrastructure by 0.9% and by 28.2%, respectively.
projects aimed at increasing access to Comparatively, Government increased tax
quality health care. In absolute terms, the and non – tax revenue sources by 14.50%,
budgetary allocation to the health sector 93.90% and by 14.1% and 14.9% in 2020
by function classification was increased to and in 2019, respectively. To compensate
K9.37 billion in 2020 from K8.07 billion in for the loss in revenue, Government
2019. proposes to increase the share of domestic
financing in its resource envelope in 2021
Sectors such as education and to K17.4 billion from K3.46 billion in 2020
environmental protection received notable by 403%. The reduction in both tax and
increases in budgetary allocation for 2021. non – tax revenue sources is on account
Budgetary allocation for education has of various tax incentives offered to the
been proposed to be increased to K13.8 productive sectors and the adjustment of
billion from K13.12 billion in 2020 while Pay As You Earn bands.
the environmental protection budget
has been proposed to be increased to These measures will result in Government
K955 million from K611.8 million in experiencing a reduction in tax and
2020 representing an increase of 5.2% non-tax revenue and in turn increase its
and 56.3%, respectively. The increase borrowing from domestic sources in 2021.
in education by function budgetary To the productive sectors and employees,
allocation is on account of an increase in the measures are meant to spur grow for
infrastructure projects spending in the the productive sectors as well as increase
sector. It is hoped that with this allocation, disposable income for employees thus
unfinished schools and halls of residences resulting in upsurge in consumer spending.
for students in tertiary institutions would
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Tax Proposals
Income Tax proposed changes
Reduce corporate Our comment assets at the higher rate of
income tax rate to The tourism industry has 35 percent. The assets will
15 percent from 35 suffered due to the COVID have to be recalculated at
percent on income 19 pandemic and the re- the lower tax rate.
earned by hotels sulting limitation in travel
and lodges on and events. This is a wel- What this means for you:
accommodation and come measure by the min- This measure, together
food services; ister despite the pressure with other measures high-
on government to maintain lighted elsewhere in this
the revenue base and avoid analysis will assist the
sector specific tax rates. recovery of the tourism
The reduced corporate sector. Taxpayers carry-
income tax rates should ing significant deferred
stimulate further invest- tax from assessed losses
ment in the tourism sector. should carefully review
In the immediate term, this their positions and consider
may have a negative im- the appropriate disclosures
pact on the balance sheets in light of the possible re-
of affected businesses if duction of the assets aris-
they are loss making and ing from the rate change.
have accrued deferred tax
Amend Section 34A Our comment What this means for you:
(2) by increasing Section 34A(1) provides The carry forward period
the period in which for an allowance of 10 of the development allow-
development percent per annum for ance, combined with the
allowances is to be expenditure incurred on carry forward period of as-
claimed the growing of rose flow- sessed losses, now provides
ers, tea, coffee and citrus for a potential ten year
The amendment
fruit trees, among others. period for utilisation of the
increases the period
The Act permits the carry development allowance.
in which the 10% forward of the allowance This should assist growers
development allowance for a period of three years, by providing for a longer
for horticulture and if the taxpayer was growing recoupment period, given
floriculture sectors is the qualifying plants or the time span involved in
claimable from 3 years trees for the first time. The the maturity of some plants
to 5 years. carry forward period has and trees.
now been extended to five
years.
24 EY Zambia 2021 National Budget AnalysisIntroduce a Local Our comment What this means for you
Content Allowance Mangoes, Pineapples and The restrictions brought
at the rate of 2% to Cassava are produced by COVID-19 have
encourage value in significant quantities demonstrated that lengthy
addition to products locally. However, many and remote supply chains
such as Mangoes, drinks manufacturers still are more vulnerable to
Pineapples and import pulp at the expense disruption. Post pandemic
Cassava. of value addition to locally supply chains will need to
produced fruits. This is a be regional or local rather
commendable measure than global. In addition,
to encourage investors they will have to be
to encourage local value focussed on resilience and
addition and stimulate agility. Local value addition
demand for locally grown will be critical in realising
produced fruit. these objectives and drinks
producers can make use of
this incentive to minimise
the risk of disruption to
their supply chain.
Amend the Income Tax Our Comments by the OECD’s 2020 peer
Act to clarify that the Section 48 of the Income review report on Coun-
obligation to furnish tax Act provide requires try-by-Country Reporting
information to the taxpayers to furnish infor- (CbCR). In the absence of
Commissioner General mation as required by Com- these overall frameworks,
extends to information missioner-General, whether non residents may not be
that might be held relating to their own tax obliged to provide informa-
outside the affairs or to any other tion as it may breach legal
person as the Commission- confidentiality and data
Republic or by a person
er-General may determine protection provisions in
who is not a resident of
necessary. This amend- some instances. Please see
the Republic.
ment provides clarity and further comments in the
extends the Commissioners transfer pricing section on
power to information not page 29.
held in the republic or by
persons not resident in the What this means for you
republic. We continue to The Act imposes significant
believe that information re- penalties for failure to
quest provisions should be provide information to the
legislated within the frame- Commissioner-General.
work of The Organisation Taxpayers must carefully
for Economic Co-operation consider the amendment
and Development (OECD)’s and seek appropriate
Inclusive Framework, of legal advice to balance
which Zambia is a member. the obligations imposed
This includes Zambia es- on them in terms of the
tablishing an appropriate Act against any other
framework for exchange obligations outside our
of information as noted jurisdiction.
EY Zambia 2021 National Budget Analysis 25Amend Section 55(4) Our comments Amendment extends the
of the Income Tax Section 55(4) was exemption to companies
Act to provide for the intended to prohibit carrying out mining
keeping of all books of taxpayers other than operations but whose
accounts in Zambian mining companies from qualifying foreign currency
Kwacha and provide maintaining accounting earnings are from domestic
exemptions to certain records in foreign currency. sales.
mining companies. However, the wording of
Amend Section 55(3) the provision currently What this means for you
of the Income Tax Act leaves open the argument The effect of this measure
that there is no actual will largely depend on the
to extend the keeping
prohibition. The proposed wording adopted in the
of books of accounts in
amendment therefore proposed amendment. The
United States Dollars
makes it clear that all mandatory requirement
to mining companies
books of accounts must be could have an impact on
whose foreign
kept in Zambian Kwacha, taxpayers whose functional
exchange earnings are
save for the specified currency is other than
from within Zambia. exemption. Zambian Kwacha and have
accounting software is
Section 55(3) allows implemented accordingly.
persons carrying out Affected taxpayers should
mining operations to keep look out for the draft
books of account in United legislation to ascertain if
States Dollars if they derive there will be any impact
not less than 75 percent of on the set-up of their
gross income from exports accounting software.
in foreign currency. The
Adjust the reference Our comments What this means for you
interest rate to be used The Income Tax Act Employers must review
in the determination provides for the taxation their staff loans policies
of tax applicable on of interest on staff loans and employee contracts to
employee loan interest granted at less than market ascertain the impact of the
benefits to be the Bank value as a benefit in kind. amendment.
of Zambia policy rate The reference interest rate
plus a margin of 2%. for determining market
value has previously
not been defined. The
amendment now requires
the use of the Bank of
Zambia policy rate plus 2
percent as the reference
rate. Any rate below the
reference rate will be
deemed to give rise to a
benefit in kind taxable on
the employee.
26 EY Zambia 2021 National Budget AnalysisAmend Section 81B of Our Comments practicing certificates,
the Income Tax Act to Section 81B requires permits or similar
mandate all statutory various institutions and documents. The Minister is
bodies to require tax expected to issue statutory
regulatory bodies to
clearance certificates. orders to exempt certain
require a tax clearance
This includes the bodies categories of membership.
certificate and
dealing with transfer of
Taxpayer Identification
property and issue of What this means for you
Number. Further,
various licences. This Affected taxpayers must
empower the Minister
requirement has now been ensure that their tax
to issue a statutory extended to regulatory affairs are in order as
order to exempt bodies who will now require the period for renewal of
certain categories of tax clearance certificates most licences approaches
membership. and Taxpayer Identification in January 2021. The
Numbers when admitting amendment may take
members and on renewal affect at this time and may
of membership. This impact affected taxpayers’
requirement will also apply ability to operate.
on issuance of any licence,
Introduce Withholding Our comments dividend as no equity and
Tax on payments The Minister has proposed voting rights are issued. On
in respect of an amendment to the In- the other hand, the pay-
royalty financing come Tax Act to provide for ment is not interest as the
arrangements. the charging of Withholding investment is treated as
Tax (WHT) on payments an advance, rather than a
made by a Zambian resi- loan. The proposed amend-
dent to a non-resident in ment will now impose with-
respect of royalty financing holding tax on the royalty
arrangements. payments.
Royalty financing is a What this means for you
means by which a business The introduction of royalty
obtains financing and in financing will give rise to
return guarantees payment payment of withholding tax
of a specified portion of on the monthly royalty pay-
its revenue to the investor. ments made by a Zambian
The repayment period can company. Taxpayers will
range from a specified have to evaluate whether
period to payment over the it is still advantageous to
life of the project. The in- obtain financing using roy-
vestors return is therefore alty financing payments as
secured on the business’ they will now be subject to
future revenue stream. The withholding tax at 20%. We
payment to the investor also note that many double
cannot be classified as a taxation agreements that
EY Zambia 2021 National Budget Analysis 27Introduce Withholding Tax Zambia has entered into be more readily available
on payments in respect
of royalty financing
do not provide for relief for for interest and dividends
arrangements royalty financing payments, (return on loans and equity)
unless covered by the profit rather than royalty financ-
article. In many instances ing payments.
therefore, tax relief could
Insert a subsection Our comments capital nature should be
in the appropriate Section 29 of the Income included. The amendment
place in Section 29 Tax Act provides for provides clarity that all
of the Income Tax the limitation of the Interest, irrespective of
Act to clarify that deductibility of interest the nature of the loan is
the rule limiting the on loans to 30 percent of subject to the 30 percent
interest deductibility the tax earnings before limitation.
is applicable on interest, tax, depreciation
aggregate interest and amortisation (EBITDA); What this means for you
expense There has been no clarity Affected taxpayers should
as to the nature of the review their projected
interest that should be interest expense for tax
included in the calculation. years commencing in 2021
Some taxpayers have and consider any impact of
argued that only interest the limitation on their tax
arising from loans of a position.
Other proposed Income Tax changes
Amend section Our comments communication aids
43D to increase the Section 43D(1) of the and transportation. The
amount for deduction Income tax Act provides allowance is meant to assist
by the employer for that for a special deduction businesses meet these
employing a person of K1000 per year in the costs but it is not adequate
with disability from hands of the employers to provide a meaningful
K1,000 to K2,000 per in respect of differently incentive, particularly in
annum abled person who has the absence of appropriate
is employed full time. infrastructure, including
T
he Minister proposes to differently abled friendly
increase the deduction to public transportation
K2,000 per annum. This system.
is commendable. Beyond
this allowance, we are of
the view that consideration
should be given to a
cost based deduction for
expenditure incurred on
items such as improving
access to offices, providing
28 EY Zambia 2021 National Budget AnalysisReduce the investment Our comments proposed a reduction of
threshold for a The Zambia Development the threshold for Zambian
Zambian citizen Agency Act currently citizens to $100,000.
to qualify for tax provides threshold of This is a commendable
incentives under the US$500,000 for an proposal and should
Zambia Development investor to qualify for increase interest in priority
Agency Act No.11 of incentives, irrespective sectors and economic
2006. of whether or not the zones among Zambian
investor is a Zambia investors. Current priority
citizen. In an effort to sectors are construction
drive local investment & establishment of
in priority sectors and infrastructure, energy &
Multi Facility Economic water development and
Zones, the Minister has water supply.
Transfer Pricing
Amend the Transfer Our comments ed parties, as well as more
Pricing Regulations This amendment will enable robust transfer pricing au-
to provide for the the automatic exchange of dits. However, we note that
exchange of Country- CbC reports with other tax there is still no requirement
by-Country Reporting jurisdictions for members for local entities to prepare
(CbCR). of Multinational Enterprise or submit CbC reports. As
(MNE) groups operating such, the amendment is a
in Zambia, and in doing so continuation of what has so
provide for further trans- far been piecemeal legisla-
parency in the operations tive changes to implement
of MNEs. the BEPS agenda.
The CbC Report is one of In its recently released
the requirements under Inclusive Framework Peer
the Inclusive Framework Review Report Phase 3, the
on Base Erosion and Profit OECD noted that Zambia
Shifting (BEPS) Action 13 had lagged behind in im-
and aims to improve trans- plementing CbC Reporting.
parency in the operations The Report also indicated
of MNE’s by providing infor- that Zambia had not taken
mation to the revenue au- steps to ensure that the
thority on the group’s allo- “appropriate use condition”
cation of income, taxes and is met ahead of the first
business activities on a tax exchange of information
jurisdiction by tax jurisdic- agreements under Action
tion basis. This amendment 13. The ability of a jurisdic-
will enable the ZRA to carry tion to obtain and use CbC
out more efficient transfer reports is conditional upon
pricing assessments on it using CbCR information
transactions between relat- appropriately. In this re-
EY Zambia 2021 National Budget Analysis 29Amend the Transfer Pricing spect, appropriate use is taxpayers. As such, it is
Regulations to provide for
the exchange of Country-by-
restricted to; critical that the government
Country Reporting (CbCR). • high level transfer pric- embarks on a full implemen-
ing risk assessment, tation of BEPS Action 13 as
• assessment of other recommended by the OECD.
BEPS related risks and
• economic and statis- What this means for you.
tical analysis, where Given the lack of steps in
appropriate. implementing the appropri-
ate use condition and other
In the absence of an ap- related provisions, taxpay-
propriate legislative frame- ers must evaluate their
work, including steps being positions carefully and seek
taken by the government to legal advice with respect to
ensure appropriate use, tax- requests for the provision
payers in other jurisdictions of CbCR information. Tax-
may be precluded from payers must also consider
providing CbCR information their positions where they
to the Zambian tax author- become aware that CbCR
ities. This may then create information has been ex-
conflicting obligations that changed with respect to
could be detrimental to their operations.
Amend the Transfer Our comments What this means for you
Pricing Regulations to This amendment extends Local related
increase the threshold the exemption, particularly taxpayers that earn an
to K50 million from for small to medium unconsolidated annual
K20 million for local sized businesses that turnover that is below the
companies which are have an annual turnover K50 million threshold will
not required to provide of K50 million, from no longer be required to
providing transfer pricing prepare Transfer Pricing
transfer pricing
documentation. The documentation. However,
documentation.
current Transfer Pricing the ZRA will still require
legislation and regulations taxpayers to comply
require local taxpayers that with the Transfer Pricing
have an annual turnover regulations. Therefore,
K20 million and above taxpayers will still need
to prepare local transfer to ensure that all related
pricing documentation party transactions are
contemporaneously. This undertaken at arm’s
places a considerable length and to keep
administrative burden on contemporaneous
small to medium sized documentation as relates
businesses. It is unclear to the related party
whether this exemption transactions.
will apply to other transfer
pricing matters such as
Transfer Pricing Audits.
30 EY Zambia 2021 National Budget AnalysisAmend the definition Our comments
of “reference price” This is a change in terminology following the rebranding of
in Section 97A (1) of Metal Bulletin to FastMarkets MB. Accordingly, the Metal
the Income Tax Act. Bulletin should therefore be replaced with FastMarkets MB
The deletion of words wherever it appears.
‘Metal Bulletin’ and
replacement with the
words ‘FastMarkets
MB’ wherever it
appears and insertion
of the terms ‘or
its successor or
successor name’ in the
appropriate places.
Property Transfer Tax proposed changes
Amendment of section Our comments • the
proportion of the
5(2A) of the Property In the 2019 Income Tax nominal value of the
Transfer Tax Act by Amendment Act, the transferred shares that
redefining the means basis of determination relates to the value of
of determining the the realised value of an the Zambian company.
realised value on the indirect share transfer was
indirect transfer of extended to include the However, given the
shares. This is in order proceeds of the transaction implication of the error
to capture only the and the nominal value, in on the tax valuations of
Zambia proportion addition to valuation based transfers made until the
of the value of the calculations. However, proposed amendment
consideration or the due to an evident drafting is passed, we would
nominal value. error, the amendment had recommend that the
the effect of taxing the minister makes the
proceeds of the worldwide amendment retrospective
transaction or the nominal to avoid unintended tax
value of the globally liabilities.
acquired entity rather than
the portion attributable What this means for you
to the Zambian entity. Given the drafting error,
The proposed amendment taxpayers are advised to
is welcome as it seeks continue seeking binding
to correct the drafting private rulings on the
error and clarify that the valuation of shares subject
alternative methods are to to indirect transfer until
be based on; the amendment comes
• the
proportion of the into effect. This is despite
consideration for the the obvious intention of
transferred shares that the legislators to only tax
relates to the value of the Zambian portion of the
the Zambian company; transactions.
and
EY Zambia 2021 National Budget Analysis 31Amend the Transfer Our comments What this means for you
Pricing Regulations to This amendment extends Local related taxpayers that
increase the threshold the exemption, particularly earn an unconsolidated
to K50 million from for small to medium annual turnover that is
K20 million for local sized businesses that below the K50 million
companies which are have an annual turnover threshold will no longer be
not required to provide of K50 million, from required to prepare Transfer
transfer pricing providing transfer pricing Pricing documentation.
documentation. documentation. However, the ZRA will still
require taxpayers to comply
The current Transfer Pricing with the Transfer Pricing
legislation and regulations regulations. Therefore,
require local taxpayers that taxpayers will still need to
have an annual turnover ensure that all related party
K20 million and above transactions are undertaken
to prepare local transfer at arm’s length and to
pricing documentation keep contemporaneous
contemporaneously. This documentation as relates
places a considerable to the related party
administrative burden on transactions.
small to medium sized
businesses. It is unclear
whether this exemption
will apply to other transfer
pricing matters such as
Transfer Pricing Audits.
Amend the Property Our comments What this means for you.
Transfer Tax Act to This housekeeping measure Taxpayers are encouraged
clarify that only Trusts functions to align the PTT to ensure that their trusts
that are approved Act with the provisions are appropriately approved
as Public Benefit of the Income Tax Act on PBOs. We note that many
Organisations (PBO) exemptions. The proposed trusts, including educations
are exempt from amendment seeks to clarify institutions operating as
Property Transfer Tax. that exemption from PTT trusts do not have approved
will only apply to Trusts that PBO status and would
are approved Public Benefit therefore incur PPT on the
Organisations (PBO). transfer of assets including
fixed property.
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