Zambia Budget 2022 Recovery. Repair. Revive October 2021 - Deloitte
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Zambia Budget 2022 Recovery. Repair. Revive October 2021
Zambia Budget 2022 |Recovery. Repair. Revive Zambia Budget 2022 |Recovery. Repair. Revive
Contents
Economic Analysis - 2022 National Budget 04
Taxation Changes 18
Sector Analysis 32
Conclusion 50
Appendix: Macroeconomics review
Statistics 53
2022 Budget Summary 54
Graphical Economic Trends 56
2021 Vs 2022 Expenditure Budget by Function 58
2021 vs 2022 Revenue Budget 60
Contacts 65
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crippling fiscal deficits; escalating was the highest since March of
inflation; dwindling foreign reserves; 2005. The increase in inflation was
Economic Analysis – and unsustainable debt service
obligations.
primarily on account of the pass-
through effects of the depreciation
of the kwacha and the elevated
2022 National Budget
Over the 2011 to 2020 period, for
food and transport prices. Post
example, the Zambian economy
the general elections, the monthly
assumed a declining growth
increase in inflation has been
Unbundling the 2022 National Budget trajectory. The country’s Real GDP
moderating, reducing to 21.1
contracted by an estimated 4.9
On 29 October 2021, the Honourable Minister of Finance and National percent growth in October 2021
percent in 2020, subsequent to a
Planning, Dr. Situmbeko Musokotwane (The Minister), presented to the (from 22.1 percent in September
growth of 4.0 percent in 2018 and
National Assembly the 2022 National Budget. Under the theme “Growth, 2021).
1.9 percent in 2019 (Source: World
Jobs and taking development closer to the people,” the Budget Address sets Bank). The output contraction Additionally, Zambia’s external
both the tone and tempo of the new Administration of President Hakainde resulted from an unprecedented position worsened in 2020 with
Hichilema regarding how it intends to pursue its economic and social deterioration in all the key sectors dwindling reserves (averaging
transformation from 2022 onwards. This analysis attempts to understand of the economy. 1.6 months import cover), and
and interpret some of the main messages of the New Dawn Administration, remained depressed much of
checking their integrity and realism in a country where there is considerable Manufacturing output fell sharply
2021 due, in part, to rising public
anticipation from the new Administration against the backdrop of as supply chains were disrupted by
debt payments and elevated non-
constrained economic growth opportunities occasioned by the effects of the effects of COVID-19, while the
oil imports. As at end of August
Covid-19 and pre-existing poor macroeconomic performance. service and tourism sectors faced
2021, gross international reserves
challenges as private consumption
The macroeconomic landscape During the official opening of the First increased to US$2.9 billion following
and investment weakened due
has been disabling… Session of the Thirteenth National receipt of Special Drawing Rights
to measures taken to contain the
Assembly, the President emphasized (SDRs) equivalent to US$1.33 billion
The Minister of Finance and spread of the pandemic.
the need to rebuild the economy, from the IMF, also supplemented
National Planning, in his 2022 Similarly, growth in agriculture by the Central Bank’s net market
deliver jobs and better the livelihoods
Budget Address, made the following experienced significant declines in purchase of foreign exchange. The
of our people. He also placed emphasis
observation that spoke directly to 2013, 2015 and 2018 while mining implication being that currently,
on creating an environment to
the macroeconomic challenges that output, which declined initially due Zambia’s foreign reserves sit at the
invigorate economic activity in which
the new Administration perceives to falling global demand for copper, equivalent of 5.5 months of import
every citizen will have the opportunity
to face: has been recovering for quite a cover.
to participate and benefit.”
“This Government has inherited an while now.
What are these challenges that It is noteworthy that the previous
economy suffering from the effects of The annual inflation rate in the Government’s expansionary
the Minister is referring to? In the
extreme indebtedness and COVID-19. country worsened exponentially fiscal policy that targeted public
last couple of years, the Zambian
The immense task we have as a New in recent months reaching an investments, resulted in widening
economy has witnessed significant
Dawn Government is not only to inflationary rate of 24.6 percent fiscal deficits (8.3 percent of GDP
headwinds, which have resulted
overcome these effects but also to in July 2021, a month prior to the in 2019 and 11 percent of GDP
in significant disturbances to the
transform the economy, help the poor August 2021 Presidential and in 2020). The expansionary fiscal
macro economic environment
escape the vicious cycle of poverty and Parliamentary elections, which policy, mainly financed by external
not least the low GDP growth;
bring prosperity to all Zambians…
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and local borrowing, resulted of 2017 when the International in a reduction in long-term funding the lack of a robust framework
in Zambia’s public and publicly Monetary Fund (IMF) and the World sources. The weak exchange rate within which debt was to be
guaranteed debt to reach 91.6 Bank declared that Zambia was at a during much of the pre-August managed, which calls upon the new
percent of GDP in 2019 and 104 high risk of debt distress. 2021 period also contributed to the Administration to manage the debt
percent in 2020. increases in interest payments. contraction process more effectively
This had a specific meaning for
through a robust Medium-Term
Zambia’s GDP contracted the IMF and the World Bank, When the Kwacha weakened,
Debt Management Strategy. There
signigicantly in 2020, which resulted which relates to debt and debt external debt, mostly borrowed
is a clear need under the new
in the country experiencing its first interest payments breaching pre- in foreign currency, increased in
Administration for closer monitoring
recession in two decades. This was determined thresholds that were Kwacha terms, as did the required
and management of portfolio risks
attributed mainly to the COVID-19 deemed appropriate for a country debt service payments. The foreign
against the inherited high external
containment measures put in place such as Zambia. The substantial currency risk of external borrowing,
debt payments and better planning
by the Government, which included accumulation of public debt in thus, increasingly became a source
for the nearing Eurobond maturities
the closure of schools; imposition recent years has resulted in a large of concern particularly in the face
to avert further defaults.
of international travel restrictions; increase in interest payments. of serious volatility of the Zambian
public gatherings restrictions; and exchange rate that stood at close to Zambia defaulted on a Eurobond
Currently, debt servicing, combined
the closure of public places. K23 to one US Dollar shortly before $42.5 million payment in November
with civil service salaries, account
the new Administration took office 2020 and $56.1 million in January
Notwithstanding these challenges, for over 90 percent of Government
in August. 2021, which made the country
output and employment moderated revenue, which leaves very little
become Africa’s first COVID-19
towards the end of 2020 and allocation for other government In recent years, fast-growing
pandemic-era sovereign to
business confidence in the country expenditures particularly in social external debt has been
default. This was closely followed
increased. The notable improved sectors such as education and accompanied by a significant
by the rejection by bondholders
mining production during 2020 and health. This is a situation that the increase in domestic debt, with the
of the previous Administration’s
to-date is on account of significant new Administration aims to correct issuance of Government securities
application for a six-month
improvements in copper prices with its first National Budget being one of the main drivers. As
moratorium. The absence of clarity
on the global market, which has targeting enhanced social sector of end of September 2021, the
on debt management in the past
watered-down the severity of the spending in a substantial manner. stock of public external debt (both
brought about a higher degree of
economic contraction. Copper price government and guarantees to
Since 2011 when the PF uncertainty to the economy.
on the London Metal Exchange was State Owned Enterprises, mainly
Government came to power,
selling (as at 30 October 2021) at ZESCO) stood at US$14.71 billion. With help from external
external debt portfolio has
around US$9,955 per tonne (cash sources, a solution seems to be
been moving significantly from The Minister, in his 2022 Budget
offer). in sight…
concessional to non-concessional Address, observed that the ongoing
…and worsened by the Debt debt. Concessional sources, for debt service standstill, combined The new Administration’s approach
Menace example, dropped to 21 percent in with principal arrears, amounts to to resolving the debt challenge
2016 from a high of approximately US$1.8 billion, which highlight the seems to be the most rational
The growth of Zambia’s fiscal
60 percent in 2011. Private banks’ crippling cost of defaulting. solution under the current
deficits resulted in mounting
and investors’ share of debt rose to circumstances. Addressing the
concerns over the last few years. The speed of debt escalation in
around 50 percent last year (2020), problem as a “good governance”
The situation became more Zambia in the recent past suggested
a phenomenon that has resulted issue, the Minister defined the new
prominent during the second half
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Government’s approach as follows: of public investment projects, Similarly, in areas where the e-voucher business opportunities, support
particularly the need to reduce the system is being used, some farmers agroindustry, support viable outgrower
“To provide an anchor to our debt
appetite for unsustainable road have not been receiving inputs despite schemes and earn foreign exchange.
restructuring engagement, the New
infrastructure projects; reduction making a contribution.” A good example of a successful estate
Dawn Administration is actively
of debt accumulation; adequately is the Nakambala Sugar Estate.
engaging the IMF for a funded As a solution to this, the
tight monetary policy to secure [Therefore] the Government will
programme... Once attained, Zambia Minister announced that the
macroeconomic stability; foreign promote the establishment of large-
will be able to engage creditors new Administration, from the
reserves replenishment; and making scale agricultural estates across the
to restructure its debt under the 2022/2023, will put in place “a new
businesses more profitable and country that will produce and process
Common Framework... For now, we comprehensive agriculture support
viable by paying steady attention to agricultural products that are suitable
aim to conclude with creditors for programme” whose elements are yet
the business environment to support in the respective areas…The task of
restructuring of debt [which] will be to be made known though save for
private sector growth through Government in realizing this initiative is
realised by the first quarter of 2022… his stating that “this programme will
realistic stimulus packages/incentives to provide the necessary infrastructure
There is no option to this otherwise be cost effective, better targeted and
especially under COVID-19 pandemic for farm blocks to be operational.”
the debts we owe will choke this equitable across beneficiaries” and
conditions.
nation to a stand-still…debt service that “it will also support the supply of While the enthusiasm and spirit with
and public service salaries exceed Private sector-targeting quality inputs, attain diversification of which this planned policy direction
domestic revenues. In 2022, we incentives are already visible… crops as well as increase production are understandable given the high
shall only manage to finance other and productivity.” unemployment levels in the country,
In the agriculture, livestock
activities [from] grants or gifts we the new Administration will need to
and fisheries sectors, the new Looking at the ineffective
shall receive and [from] borrowing… tread carefully with this approach for
Administration aims to address the management of FISP over the years,
We are engaging collaboratively with a host of reasons.
perennial structural challenges that this new policy direction is music
our various categories of creditors…
have included low production and to the ears of those that have been Firstly, Zambia has had experience
to work towards a consensual
productivity, limited market access, calling for the re-engineering of the with government-supported large-
debt resolution…To curtail further
underdeveloped value chains and Government support system for scale estates and farming blocks
accumulation of debt, Government
dependence on rain-fed agriculture. smallholder farmers. and the record of success has been
will not contract any external non-
quite marginal and, in some cases,
concessional loans except in instances Taking a swipe at the delivery A word of caution though on the
regretted. Unless carefully crafted,
of refinancing.” modality of the Farmer Input Support best approach to promote large
out grower schemes in Zambia
Programme (FISP), the Minister scale estate production…
This Government position deserves and elsewhere in other developing
lamented that the:
support going forward as the The Minister made the following countries have had a checkered
State has to ensure that a large, “Direct Input Support mode of announcement: record not least because of the unfair
frontloaded, and sustained fiscal delivering inputs is unsustainable contractual relationship between the
“It is only right that we continue to
effort is put in place during this to the Treasury with expenditures contracted farmers and agribusiness.
support our small-scale farmers…
‘honeymoon period’ to bring debt increasing significantly over the years
But we can do more in agriculture Experience in sugarcane and
down to relatively reasonable levels. with limited change in the number of
by promoting large scale estate tobacco growing in Zambia utilizing
This should include a moratorium beneficiaries and input package. It is
production for both domestic and contract farming/out grower
on contracting new external non- also characterised by serious challenges
export markets. The estates can schemes modalities has revealed
concessional borrowing; halting the in delivery as beneficiaries have received
employ many people at different some serious equity challenges in
build-up of domestic expenditure fewer inputs than what they have paid
levels of skills, create associated terms of who benefits more from
arrears; better prioritization for.
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the contractual arrangement Private Partnership approach, with positive sentiments. Young consistent and predictable tax regime
and at whose expense. Thus, the private sector (not the State) entrepreneurs, including those to be did worsened an already volatile
although the promotion of taking the lead, thus, seems to hold supported in agro-industries, could situation. The frequent reference to
government-supported large greater promise for an otherwise be given a special consideration in mining companies not contributing
estates could be one of the well-meaning intention on the part their access to these Zones. sufficiently to the treasury could have
solutions to the challenges of of the new Administration. been perceived as misleading (given
The current approach of viewing
unemployment and improvements that tax payments are only a fraction
One low-hanging fruit to support Multi-Facility Economic Zones as
of rural livelihoods, it has to be of a host of other contributions
livelihoods and employment exclusive enclaves for the ‘well-to-
approached with caution with to the national economy through,
creation in the agriculture sector is do’ players partially explains why
Government taking keen interest for example, many multipliers) but
through the allocation of land (which these facilities have remained white
to ensure that the partnerships generally missed better appreciation
is abundantly available in Zambia) elephants. The Lusaka South Multi-
between the smallholders and of the nature of the sector.
to the youth and supporting them Facility Economic Zone is not easily
their ‘counterparts’ (agribusiness)
with easier access to Government- accessible There is also almost zero The mining tax regime has had a
is mutually rewarding and results in
underwritten guarantees marketing of these facilities and debilitating effect on both investment
win-win benefits.
for financial access (through yet young people are clamoring for expansion and tax revenue collection.
Secondly, perhaps more partnerships with commercial business premises along crowded In 2019, the previous Government
importantly, an alternative to the banks) and providing extension motorways. Something does not instituted a barrage of new fiscal
Government pouring Treasury- services to the ‘young farmers,’ seem right. measures that for the mining
sourced significant investments which should include providing sector, significantly informed by the
The mining sector remains a
into “the necessary infrastructure for market linkages, both locally and mounting resource nationalism.
major driver in the economy…
farm blocks,” the same results could regionally (like in the DRC).
but… While maintaining the price-based
be achieved more cost-effectively
The young farmers can engage in royalty, they increased mineral
through smart partnership with the One of the main issues around
a host of income-yielding farming royalty rates by 1.5 percentage-points
private sector using commercial copper mining development in
activities, which may include crop at all levels of the existing scale and
principles. Zambia since privatization relates
farming, poultry, piggery, livestock, introduced a fourth-tier rate at 7.5
to the impact of the sector on the
Many times, in the past, past aquaculture, etc. Again, linking the percent when the copper price is
larger economy, in general, and
Governments in Zambia have farmers to agro-industry through between US$7,500 and US$9,000
whether the country has benefited
invested in heavy machinery and well thought-out partnership per tonne, and a fifth-tier rate at 10
sufficiently from the foreign-
equipment in their quest to support arrangements, especially at the percent, when the copper price goes
owned mining activities. This issue
farmers but, quite often, realize level of giving them skills in value- beyond US$9,000 per tonne.
reached its apex when the price
that the model used could not addition, could be rewarding.
of copper on the global market Similarly, mineral royalty tax
yield the anticipated outcomes
In the same context, the announced began to increase exponentially. remained non-deductible for
and impact. Without relying on
plans by the new Administration The raging debate during the income tax purposes. This meant
market forces, poor targeting of
to support manufacturing and previous Administration created that mineral royalty that is paid
such schemes has often resulted
industrialisation value addition an atmosphere that threatened by mining companies in Zambia is
in imprudent application of scarce
through reinvigorating the the attractiveness of mining as a not a deductible expense during
public resources with marginal
programme of Multi-Facility preferred sector for FDI. the computation of what is due for
benefits to the intended and
Economic Zones and industrial income tax payment.
targeted beneficiaries. The Public- The historical absence of a
parks has been received with
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In the light of this, the fiscal regime boom, Zambia must not depend just …Is the new Administration The new Administration set its
under the previous Administration on the high prices. Rather, it is now going to attend to the sliding eyes on the value of Human
was unlikely to secure a sustained time to ramp up production. The New scale issue? Development Index
fiscal flow into the Treasury Dawn Administration will facilitate
One remaining hurdle that the Perhaps the most visible and exciting
simply because its effects drained the increase in copper output from
2022 Budget proposals has not part of the 2022 budget relates
investment in the sector; slowed the current 800,000 to over three
addressed relates to the formula of to how Administration wants to
down growth for the mining sector million metric tonnes in a decade…
the sliding-scale of mineral royalties. fix the human welfare side of his
as well as for the larger economy; Complications surrounding the existing
Briefly, rather than applying the development equation. The UNDP
reduced both direct and indirect mines will be addressed… The targeted
sliding scale principle along the lines Human Development Index (HDI)
employment; and diminished tax copper production level will bring
of Pay-As-You-Earn (i.e. taxing at the provide a glimpse of what has
revenue in the medium term. higher earnings, more jobs, business
higher rate only the segment of the happened to human welfare in a
opportunities, taxes and foreign
The overall effect of the 2019 mining copper price that is above a given country.
exchange… To attract investment
tax regime was to significantly band), the previous Administration
and boost production in the mining The HDI measures average
raise the tax burden on mining opted to apply the higher mineral
sector, I propose to reintroduce the achievement in three basic
companies to unsustainable and royalty rate to the whole copper
deductibility of mineral royalty for dimensions of human development,
uncompetitive levels. price.
corporate income tax assessment namely, (a) a long and healthy life; (b)
Then comes the new purposes. This measure is in line with The adverse consequences are knowledge; and (c) a decent standard
Administration to find a international best practice”. numerous and serious not least the of living. The HDI is, therefore, a
solution… unusual situation whereby copper broader measure of human welfare
The significance of this measure is
producers in Zambia have ended up than per capita income.
Unlike in the case of the previous far-reaching as, effective January
hoping for a lower price for them to
regime, the new Administration, as 2022, it would reverse the punitive Zambia’s human development index
earn better profit margins. Under
demonstrated in the 2022 Budget, provision that was part of the 2019 value for 2019 (the latest available as
this formula, the effective tax rate
maintains that an effective and mining tax regime introduced by the reported in the March 2020 Human
for Zambian miners could be as high
efficient mineral tax regime should former Administration. Development Report) is 0.584, which
as 105 percent if the copper price
aim to attract FDI as well as seek to puts the country in the medium
This singular measure should surpasses $9,000 per tonne, as it
adequately compensate the country human development category and at
enhance the mining sector’s has done recently.
while remaining internationally position 146 of the 189 countries.
contribution to job creation, to
attractive and competitive. At high prices, this has resulted in
investment and to economic While Zambia has recorded that
the extraordinary situation where
The new Administration maintains development because it should level of improvement, the country is
a mine would be obliged to pay
that overtaxing the mines today encourage expanded mining still far from reaching its vision 2030
more in tax than the profit it had
will discourage the development of development/investment. Zambia aspirations. Poverty levels are still
made. The new Administration is
existing and new mining projects, is presently the only jurisdiction very high, particularly in rural areas,
requested to urgently think through
which would translate into low tax globally (among comparator and access to quality educational
this issue.
receipts tomorrow. As the Minister countries) where mineral royalties services and medical facilities has
of Finance and National Planning are not deductible against profit- deteriorated. This is the situation the
aptly put it in his 2022 Budget based corporate tax, which has new Administration has to attend to.
Address: effectively introduced double
In his address to Parliament, the
taxation.
“To benefit from the expected copper
12 13Zambia Budget 2022 |Recovery. Repair. Revive Zambia Budget 2022 |Recovery. Repair. Revive
Minister of Finance outlined what [to] secondary schools for a child to has been little correlation between singular decision to increase the
is intends to do at the level of be allowed to attend class are done the provisions of the Zambian amount of what is transferred, not
improving learning achievements: away with. To this end, grants from Government’s Decentralisation even to councils (city, municipal
the Government to public schools will Policy as reflected in actionable and district councils) but to CDFs
“The New Dawn Administration
be increased to meet the operational activities in the two Decentralisation would not solve the huge challenges
believes that education is the greatest
costs that were previously financed Implementation Plans thus far that ought to be contended with
equalizer. Sound education requires
by the fees. Regarding boarding fees adopted, on the one hand, and when wanting to move forward
teachers. Unfortunately, most of
for secondary school learners, a actual devolution of power, and positively with the policy of
our schools, especially those in rural
bursary scheme will be introduced for authority and resources (through decentralisation. The following
areas, do not have enough teachers.
vulnerable learners.” fiscal decentralisation) to sub- are food for thought for the
The New Dawn Administration has
national authorities, on the other. Administration and the Minister as
found money to recruit teachers and Similarly, with respect to the health
they ponder over decentralisation:
it will always prioritise education…We sector, the Government will recruit Much of what has transpired
will recruit 30,000 teachers in 2022… and equitably deploy 11,200 has been the deconcentration
The recruitment will help reduce the health personnel… [Furthermore], of power from the centre rather a. CDFs’ institutional location
backlog of unemployed teachers. Over measures have been put in place than real devolution of authority and how they operate at
the next five years, the Government will to improve supply management and resources to sub-national sub-national levels require
continue to hire more teachers…These systems to ensure availability of authorities. The enthusiasm to serious introspection prior to
recruitments are aimed at improving essential medicines and medical decentralise varied from one them receiving considerable
the quality of education by reducing supplies.” All this has been welcome political regime to another since amount of money to apply
the pupil-teacher ratios.” to the Zambian people. independence in 1964 and the to development projects.
differing governance styles of Presently, most, if not all, of
This announcement was greeted …Lastly, decentralisation
successive governments. This has them do not have a systematic
with jubilation on the floor of the
One of the flagship strategies by the influenced the level of commitment way of inclusively consulting the
House and from both sides of the
new Administration, as expressed to the ideals of devolution over the constituency stakeholders that
political divide, for that matter.
in the 2022 National Budget, decades. they represent.
The expectation is that significant
speaks to one of the most elusive
improvements in the quality of The perceived loss of political and
modality of service delivery, namely, b. The relationship between
education will be recorded, which is economic control by the centre
decentralisation. CDFs and Councils need
a plus for the country’s HDI. seems to have significantly defined
to be redefined and better
The Minister is proposing to the level of effort-cum-commitment
To address the ‘equity in access’ understood. There has been
Parliament that he increases the over the years towards the
issue, which has been a big weak management capacity
Constituency Development Fund devolution of power and authority
challenge in the country given the in the institutions that are
(CDF) allocation from the current to sub-national authorities.
high poverty levels, the Minister responsible for implementing
K1.6 billion to K25.7 billion per
announced that: Notwithstanding the Political Will decentralization. Almost all
constituency starting in 2022. It
expressed, the new Administration Councils in Zambia under
“Tuition, Parent Teachers Association was not surprising that there was
still needs to take a more holistic the previous Administrations
and examination fees that learners so much jubilation on the floor of
view of decentralisation to ensure struggled with integrated
pay in public schools will be abolished. the House among MPs, but perhaps
that all its facets are taken into planning and budgeting,
For the avoidance of doubt, the fees for quite varied reasons, I should
account and to be clear that a strategic planning and
charged [from] public early childhood add. It is noteworthy that there
14 15Zambia Budget 2022 |Recovery. Repair. Revive Zambia Budget 2022 |Recovery. Repair. Revive
performance management. service delivery. over the years remained
significantly partisan, should
c. The Central Government’s f. Besides weak capacity and be reviewed. At present,
power and authority over limited co-ordination at the they have caused more
sub-national authorities have local level, the co-ordination complications in reporting
remained overwhelming to mechanism between the lines, which has adversely
a level where it has begun to centre and provinces/districts affected service delivery at
invalidate the assumptions is known to be inadequate. sub-national levels.
behind the Policy of
By Oliver S. Saasa
Decentralisation and its g. District Councils are particularly
enabling provisions in the weak with respect to their Professor of International
2016 Republican Constitution. capacity to discharge their Economic Relations
The provision of the 2019 assigned devolved mandates.
Local Government Act further This is particularly so in the
underscored the previous councils that were newly
Government’s inclination created by the former
to reclaim the power back Administration.
and re-centralise. Legislative
reforms may be required. h. Councils’ fiscal difficulties have
been worsened by their
d. Devolved ministries currently own poor record in revenue
undertake their planning collection and management
and budgeting functions as evidenced by the build-up
independently of Councils and of aggregate non-collected
the resources at the disposal revenue. This has been
of CDFs are rarely factored worsened by the existence of
in. This has reduced sector very limited and low-yielding
devolution to deconcentration revenue streams; inefficiency
of central ministries that still in revenue forecasting; and
maintain authority and control weak revenue collection
over their departments at the techniques on the part of
sub-national levels. local Councils.
e. District Councils have i. The position of District
continued to suffer from Commissioner has brought
multiple allegiance in terms about an operational
of reporting lines following complication in the discharge
sector decentralisation. of devolved functions and
This situation has triggered their role in the decentralised
considerable confusion in structures, which have
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businesses given the projected of the Tax Earnings Before Interest,
revenue loss of K3.2 billion from this Depreciation and Amortization
measure. (“EBITDA”) is allowed as a
deduction. Any amount above 30%
Taxation changes • Suspend corporate income tax for
persons carrying on the business
of manufacturing ceramic
of EBITDA is disallowed and carried
forward for 5 years. The proposed
change therefore increases the carry
products for the 2022 and 2023 forward period to 10 years.
The taxation and other changes as Deloitte Comment charge years.
contained in the Budget Speech Most businesses will welcome This is a welcome move, especially
and the Zambia Revenue Authority this measure as it is intended • Reform the rental income tax for early-stage capital intensive
(“ZRA”) publication “The 2022 to provide some level of relief, regime by charging turnover tax businesses that have significant
Budget Highlights” are summarised following the negative impact of the at 4% for income below ZMW800, finance costs to fund their
below: COVID-19 pandemic. Ironically, the 000 and to apply the income investments.
maintenance of the 40% marginal tax regime for individual and
The measures will come into effect rate for telecommunications corporates for rental income • Key housekeeping measures:
on 1 January 2022, subject to companies does not appear to above this threshold.
Parliamentary approval. sit well with the Government’s – Removal of the reference to “an
pronouncements on the promotion Deloitte Comment approved fund” in the Second
Direct Taxes of Information, Communication We anxiously await the transitional Schedule Part IV Paragraphs
and Technology (“ICT”) as a tool for mechanisms that will be put in 7 (a) and (q) of the Income Tax
Pay As You Earn innovation, financial inclusion and place for those businesses that Act to align with the provisions
The following are the proposed and creation of employment. will be migrating back to paying of the constitution.
current Pay As You Earn (“PAYE”) taxes based on profits. A number
bands: • Re-introduce the deductibility of these businesses may have had – Make Public Benefit
of mineral royalty for corporate some deferred tax assets such as Organisation Approvals
Proposed Regime Current Regime income tax assessment purposes. unclaimed capital allowances, issued under the Income Tax
Income Bands Tax rate Income Bands Tax rate
(K) (%) (K) (%) unutilised tax losses and unrealised Act renewable and align the
0 – 4,500 0 0 – 4,000 0 Deloitte Comment exchange losses at the time of renewal with the renewal
4,501 – 4,800 25 4,001 – 4,800 25 A notable and welcome response to migrating to the turnover based process under the Customs
4,801 – 6,900 30 4,801 – 6,900 30 the sustained lobby for reforms to tax but now have to revert to a and Excise Act where there is a
Above 6,900 37.5 Above 6,900 37.5 the mining tax regime that currently profit-based method of determining 3-year renewal period.
yields a very high effective tax rate income tax.
Corporate Income Tax for the sector. However, we also note – Amend Paragraph 1(1)(b) of the
• Reduce the standard rate of that the Minister has indicated that • Increase the period for which Charging Schedule to require
corporate income tax from 35% government will ensure that, the disallowed interest can be carried persons with disability to be
to 30% with the exception of determination of mineral royalty is forward from 5 to 10 years. registered with the Zambia
telecommunication companies adjusted to reflect both incremental Agency for Persons with
whose rate will be maintained at and aggregate norm values in the Deloitte Comment Disabilities.
the top marginal tax rate of 40%. medium term. It will be interesting Currently, only interest up to 30%
to see how this will pan out for
18 19Zambia Budget 2022 |Recovery. Repair. Revive Zambia Budget 2022 |Recovery. Repair. Revive
– Amend the Tenth Schedule of this measure is to enhance tax to replace the words “system nature of activities of each entity.
of the Income Tax Act, compliance on betting, casino, failure” with “systemic failure”.
which provides the list of lottery and gaming activities. Aside from complying with the
activities that can qualify an Deloitte Comment globally accepted practice, this
organisation as a Public Benefit • Amend Section 82A of the Income We consider that this proposed measure has been introduced in
organisation to: Tax Act to clarify that the due change is intended to capture order to provide clear guidance to
date for both filing of a return of repeated structural or other code MNEs operating locally on their
– include care or counselling withholding tax and payment of breaches or failures, arising in reporting requirements.
of, or the provision of, the tax falls within 14 days from the state of tax residence of the
education programmes the end of the month in which a ultimate parent entity, in meeting Regulation 22 (4) as amended
relating to abandoned, abused, payment subject to withholding their obligations to comply with by the Statutory Instrument (SI)
neglected, orphaned or tax is made. country-by-country reporting Number 117 of 2020, referred to a
homeless children; and requirements. In the event of such Standard Template as set out in the
Property Transfer Tax comment failures, a constituent entity, which Schedule of the SI.
– clarify that the provision of • Introduce Property Transfer Tax is not an ultimate parent entity of
higher education by a public (“PTT”) on the transfer of mineral the multi-national enterprise group, The Standard Template as set out
university is a public benefit processing and other mine shall be required to file a country- in the above-mentioned Schedule
activity. related licenses at the rate of 10%. by-country report with the Zambia required the following information;
Withholding Tax Presumptive Tax • Amend Regulation 22 (4) to – Tax jurisdiction;
• Extend the tax exemption relating Below are the current and proposed introduce two new schedules – Unrelated party;
to payments of interest to all bands for presumptive taxes: to provide for submission of – Related party;
interest earning bank accounts information required under – Total;
Vehicle Sitting Current Tax Per Proposed Tax Per
held by individuals. Currently, Capacity Annum (K) Annum (K) international obligations for – Profit (loss) before Income
only interest earned in respect 64-seater and 10,800 12,960 Country by Country (“CbC”) Tax;
above
of savings or deposit accounts is 50 - 63-seater 9,000 10,800 reporting provided in the annex. – Income Tax Paid (on cash
exempt from withholding tax. 36 - 49-seater 7,200 8,640 basis);
22 – 35-seater 5,400 6,480 Deloitte Comment – Income Tax Accrued (current
• Introduce 20% withholding tax 18 – 21-seater 3,600 4,320 This measure intends to update year);
on re-insurance placed with re- 12 – 17-seater 1,800 2,160 and align the Regulations with – Stated capital;
Below 12-seater 900 1,080
insurers not licensed in Zambia. international guidance relating – Accumulated Earnings;
to Country by Country (CbC) – Number of Employees; and
• Introduce a mandatory Transfer Pricing Reporting. This will require – Tangible Assets other than
requirement for tickets to display Key Housekeeping Measures: Multinational Enterprises (“MNE”) cash or cash equivalent.
the withholding tax payable on to include two new schedules in
potential winnings. The objective • Amend Regulation 22A (5) part (iii) their reports, listing the constituent The foregoing is already in line
entities of an MNE’s group with the first table of the model
aggregated per tax jurisdiction and CbC reporting template provided
providing additional information. for in the OECD Transfer Pricing
This additional information will Guidelines for Multinational
include such information as the Enterprises and Tax Administrations
20 21Zambia Budget 2022 |Recovery. Repair. Revive Zambia Budget 2022 |Recovery. Repair. Revive
as published in 2017. ultimate parent entity of a multi- another person equally resident
national enterprise group resident Deloitte Comment in Zambia. Further, amend the
The second table in the OECD for tax purposes, for filing of CbC The above proposed change seeks definition so as to remove or
Transfer Pricing Guidelines for report with the Zambia Revenue to clarify the conditions under expand on the element of royalty
Multinational Enterprises and Tax Authority: which a local entity will not be financing.
Administrations as published in required to file the Country by
2017, however, was not included Consolidated group revenue Country (CbC) Report, by making Indirect taxes
in SI number 117 of 2020. This exceeding seven hundred and fifty sub-regulation 7 rather than sub-
could be the intended amendment million Euros; or Regulation 8, for consistency. Value Added Tax
as its inclusion would then align Consolidated group revenue Sub-regulation 7 provides for • Zero-rating of various agricultural
local legislation with international exceeding four thousand, seven conditions for non-filing of a equipment such as Manure
guidance relating to Country by hundred and ninety-five million country-by-country report with Spreaders, Balers, Combine
Country (CbC) Reporting. Kwacha in the immediately if the multi-national enterprise Harvesters, Commercial Sprinkler
preceding accounting year group of which it is a constituent Irrigation Systems, Animal
However, no further guidance has entity has made available a Feed Grinder-Mixers, Pelleting
been provided at this point and The proposed change provides country by-country report with Machines, Sprayers, Trailers of a
the proposed wording of the new for the use of a single threshold respect to that accounting year specific HS code and Dryers for
Regulation is yet to be shared. denominated in Kwacha for CbC through a surrogate parent entity agricultural products of a specific
reporting, and is a welcome move that files that country-by-country HS code.
• Amend Regulation 22A (4)(b) of given the recent (and perhaps report with the tax authority
the Transfer Pricing Regulations expected) fluctuations in Kwacha of its State of tax residence. On • Zero-rating of Solar Charge
to clarify how the Country by against international currencies the other hand, Sub-regulation Control Units and Solar Street
Country (CbC) Report should be such as Euro. The absence of this 8 provides for notification Lights.
submitted to the Commissioner clarification may have created procedures.
General. confusion on the part of taxpayers, • To introduce VAT of 16% on
on which threshold to apply, for • Amend the Transfer Pricing property and non-life insurance
• Amend the Regulation which compliance with CbC reporting Regulations to allow Regulation 11 services.
provides for the threshold for obligations. refer to Section 97A (1) and 97A (2)
which Multinational Enterprises of the Income Tax Act in order to • To introduce VAT of 16% on
are expected to report under • Amend Regulation 22A (7) (D) align it with the changes made by supplies of booklets and
Country by Country (CbC) through the following proposed amendment Act No. 20 of 2020. newspapers.
reporting to only refer to the local wording “The State of tax
currency threshold of 4.795 billion residence of the Surrogate • Amend Section 6 of the Income • Housekeeping measures
Kwacha. Parent Entity has been notified in Tax Act to correct the side note. including:
accordance with Sub-Regulation 7
Deloitte Comment by the Constituent Entity resident • Amend the definition of • Amending Section 7A (1) to
Currently, the TP Regulations for tax purposes in its jurisdiction commodity royalty (“CR”) so as provide a clearer meaning
provides for either of the following that it is the Surrogate Parent to include payments made by a of recording daily sales.The
thresholds, applicable to an Entity; and” person resident in the republic to objective of this is to ensure
22 23Zambia Budget 2022 |Recovery. Repair. Revive Zambia Budget 2022 |Recovery. Repair. Revive
that taxable suppliers use an at entry is provided for in the Act; 2021. – Removal of 5% customs
electronic fiscal device to record and duty on importation of
each sales transaction for any • Removal of 5% customs duty cattle breeding stock.
supply in observance of the tax • Change in the tax collection on filler masterbatch and
points stipulated in the VAT Act. point for VAT on mobile phones concentrates on improving the – Removal of the 5% Surtax
from importation and point of competitiveness and efficiency on importation of Bovine
• Amending Regulation 7 of the sale to point of registration by of local manufacturers of plastic Semen.
VAT Electronic Fiscal Device the Zambia Information and products.
Regulations to allow a taxable Communications Technology – Suspension of 5% customs
supplier to only use an accounting Authority (“ZICTA”). The measure • Removal Increases the surtax on duty on grandparent and/
software integrated with the Tax also intends to encourage flexible intermediate bulk (FIB) or parent stock of day-old
Invoice Management System. compliance and enhance proper containers from 5% to 20%. chicks imported by a
identification of mobile phones breeding company for a
• Amending Section 7 (5) of the and security. • The following measures are period of 12 months from
VAT Act so as to provide for an proposed to support the agro- 1 November 2021 to 31
escalatory fine chargeable on Customs and Excise processing sector: October 2022.
false returns and statements as • Increases customs duty on floor
follows: and wall tiles imported outside • Extension on the suspension of • The following measures are
Offence Applicable Penalty
COMESA and SADC regions from customs duty on refrigerated proposed to raise revenue for the
First Occurrence Up to 30,000 penalty units per period 15% to 25%. trucks to 31 December 2022. government through excise duty:
audited
Second Up to 60,000 penalty units per period
occurrence audited
Third occurrence Up to 90,000 penalty units per period
audited
• Increase customs duty on yarn • Suspension of customs duty – Introduction 5% excise
made from acrylic fibre of specific to processors of milk and duty on coal;
Deloitte Comment HS codes imported from outside manufacturers of medicaments
This measure intends to compel the COMESA and SADC regions for a period up to 31 December – Increases the specific
taxpayers to issue tax invoices for from 5% & 15% to 25%. 2022. excise duty on opaque
all their supplies of goods and/ beer from 15 ngwee to 50
or services. The measure also • Introduction of surtax at the 10% • The following measure is ngwee per litre (packaged)
introduces a graduated penalty percent of imported cement bags proposed to support green and K1(unpackaged); and
regime. Currently, a penalty unit is energy:
equal to 30 ngwee. • Introduction of surtax at the 5% – Increase excise duty on
on imported floor and wall tiles. • Reduction of customs duty on unmanufactured tobacco,
• Amending Section 18(3)(c) of the solar streetlights and solar charge tobacco refuse and
VAT Act to clarify the documents • Introduction of surtax at the 20% control units from 15% and 25% smoking tobacco, whether
in support of an import by on imported glass on selected HS respectively, to 0% for both. or not containing tobacco
replacing the word “or” with “and”. codes. substitutes, water pipe
This measure clarifies that the • The following measures are tobacco and cutrag from
provision in the Commissioner • Removal of 10% export duty on proposed to support the local K240 to K355.
General’s Rules pertaining to bills maize effective 1st November livestock subsector mitigate cost
of livestock: – Adjustment of specific
excise duty rate on
24 25Zambia Budget 2022 |Recovery. Repair. Revive Zambia Budget 2022 |Recovery. Repair. Revive
cigarettes from ZMW302 – Introduce a time limit of hours for goods that – Amend the Customs and
per mille to ZMW355. 30 days within which an remain within customs Excise (Spirit) (Refunds,
objection to an assessment premises after release Rebates and Remissions)
• The following are other measures or any other objection from customs control Regulation, 2004,
proposed by the Minister: can be lodged with the without the payment of Statutory Instrument No.
Commissioner-General. a storage fee, to eight (8) 16 of 2004 to update and
– Harmonize the customs hours, from forty-eight (48) consider current trends
duty rates for tyres for – Extend the time frame hours. and manufacturing of
lorries, buses, construction within which a taxpayer methylated spirit and its
and agriculture equipment may appeal to the Tax – Increase Storage fees to usage.
from 40% or K5/kg, Appeals Tribunal, after a K150 (500 fee units) from
whichever greater, to 15%. notice has been served by the current K30 (100 fee – Reduce the license fee for
the Commissioner General, units) per day to be paid on excisable manufacturers to
– Increase in the exemption to 30 days from the current goods that remain within K4,500 from K9,000.
value of goods on a single 20 days. customs premises after
petty consignment from eight (8) hours of being Tax Incentives
$50 to $500 inclusive of – Provide for the released from customs • Introduction of zero percent tax
freight and insurance but Commissioner General to control. for a period of 10 years from the
excludes consignments waive ASYCUDA processing first year of commencement of
through post or air freight. fees that arise as a result of – Provide a five (5) day works in a Multi Facility Economic
administrative omissions limit, prior to the arrival Zone or Industrial Park on
• The following Housekeeping and/or errors that are not of goods, for which an dividends declared on profits
measures have been proposed in any way attributed to a application for Advance made on exports by companies
under the Customs and Excise taxpayer. Tariff Ruling may be operating in these zones under
Act and the Customs and Excise submitted. the Zambia Development Agency
(General) Regulations, 2000: – Align the First Schedule to Act No. 11 of 2006.
the Customs and Excise – Provide a time limit of
– Introduce an application Act (HS Codes) to the 30 days within which an • Introduction of zero percent tax
form for the beneficiaries 2022 version of the World objection pertaining to for a period of 10 years from the
of the duty waiver under Customs Organisation a manufacturer’s license first year of commencement of
Regulation 87A. (WCO) Harmonised for goods subject to works in a Multi Facility Economic
Coding and Description excise and all surtax can Zone or Industrial Park on profits
– Review the categories of System. This measure be lodged with the Tax made on exports by companies
goods under the Public intends to align Zambia’s Appeals Tribunal. operating in these zones under
Benefit Organisation (PBO) national tariff book with the Zambia Development Agency
scheme for tax purposes. the updated Harmonised – Amend the Sixth Schedule Act No. 11 of 2006. This will then
Coding and Description to the Customs and progress as follows:
– Introduce separate system which is revised Excise Act to correct the
Harmonised System (HS) every four to six years. numbering of Clause (1) – For years 11 to 13 only,
codes for Popcorn. paragraph (3). 50% of the profits should
– Reduce the number of be taxed; and
26 27Zambia Budget 2022 |Recovery. Repair. Revive Zambia Budget 2022 |Recovery. Repair. Revive
– For years 14 and 15 only – Disposable hair nets • Reduce Visa fees of all categories
75% of the profits should – Protective garments for by 50%.
be taxed. surgical or medical use;
– Other protective garments of Non-tax measures
• Reduce the threshold to US textiles of rubberised textile; • Revise downward immigration
$50,000.00 from US $500,000.00 – Protective garments made permit fees under the non-
for a Zambian citizen to qualify from plastic sheeting; governmental and non-profit
for incentives provided under the – Liquid filled thermometer for organisation category.
Zambia Development Agency Act direct reading;
No. 11 of 2006. – Other thermometers; • Reduce various immigration
– Alcohol solution-undenatured permit fees for the country to
Tax policy responses to 80% by volume; remain competitive.
COVID-19 – Alcohol solution-undenatured
• Suspension of import duty and 75% ethyl alcohol; • Reduce Visa fees of all categories
VAT to zero on selected medical – Hand sanitiser; by 50%.
supplies for the period from 1 – Other disinfectant
October 2021 to 30 September preparations; • Revise upward the fees charged
2022 through Statutory – Medical, surgical or by organisation such as the
Instrument No. 78 of 2021 and laboratory sterilisers; Road Transport and Safety
Statutory Instrument No. 79 of – Hydrogen peroxide in bulk; Agency, Department of National
2021, respectively. – Hydrogen peroxide presented Registration, Passport and
as a medicament; Citizenship, Forestry department
Deloitte comment – Hydrogen peroxide put up as and Seed Certification and
The medical supplies qualifying a disinfectant preparation for Control Institute etc., among
for both import duty suspension cleaning surfaces; others.
and VAT zero-rating are as follows: – Other chemical disinfectant;
– Extracorporeal membrane • Increase the Public Service
– Diagnostic test instruments oxygenation (ECMO); Vehicles (PSV) driver’s renewal
and apparatus; – Patient motoring devices period from one (1) year to five (5)
– Textile face mask without electro-diagnostic apparatus; years.
replaceable filter; – Intubation kits; and
– Gas masks with mechanical – Paper bed sheets.
parts or replaceable filters;
– Plastic face shields; • To extend the period for which a
– Plastic gloves; reduced rate of corporate income
– Other rubber gloves; tax, at 15%, will be applied on
– Knitted or crocheted gloves income earned by Hotels and
which have been impregnated Lodges on accommodation and
or covered; food services to 31st December
– Textile gloves that are not 2022.
knitted or crocheted;
28 29Zambia Budget 2022 |Recovery. Repair. Revive Zambia Budget 2022 |Recovery. Repair. Revive 30 31
Zambia Budget 2022 |
Taking theRepair.
|Recovery. bold steps
Revive Zambia
Zambia
Budget
Budget
2022
2022
|Recovery.
|Recovery.Repair.
Repair.Revive
Revive
• Implement a new comprehensive • Strengthen monitoring and
agriculture support programme fisheries conservation efforts in
commencing in the 2022/2023 natural water bodies; and
season. The new programme
is intended to be cost effective, • Establish additional hatcheries
better targeted and equitable for fingerlings and completion
across beneficiaries; of other infrastructure such as
Sector
aquaculture parks.
• Promote large-scale agricultural
estates for both domestic and The above interventions will be
export because of their capacity complemented by a number of
Analysis
to create employment and proposed tax incentives meant to
support for viable out-grower attract investment in the sector.
schemes;
Tourism
• Promote establishment of large The tourism sector remains pivotal
Economic Transformation
scale agricultural estates across in the stimulation of economic
the country that will produce and growth. The COVID-19 pandemic
process agricultural products has had a severe adverse impact on
and Job Creation
suitable in the respective areas; the industry, and the Government
intends to extend the existing relief
• Provide necessary infrastructure measures for another year in order
for farm blocks to be operational; to continue sustaining the sector.
Agriculture, Livestock and market access, underdeveloped The Government also intends
Fisheries value chains, dependence on rain • Complete and operationalise the to maintain a stable economic
The Government has identified fed agriculture and challenges with ongoing irrigation infrastructure environment and review the
the agriculture sector as the best the current Farmer Input Support projects in order to reduce multiplicity of licenses with a view to
opportunity for growth given Programme. sector dependence on rain fed reduce the cost of doing business.
that the majority of citizens are agriculture;
dependent on it. The sector also has The fisheries sub-sector faces Furthermore, the Government
a relatively short gestation period additional challenges such as • Recruit additional extension intends to develop other parts
with low capital requirements, overfishing from natural water officers to enhance provision of the country by establishing
readily available labour, abundant bodies and limited investment in of services to livestock farmers the necessary infrastructure
water resources and arable land. fingerling and fish feed production. across the country, train and regulatory framework to
In order to provide the sector, the livestock farmers in open grazing attract private investment in
The sector however faces a much needed lift and address the management practices and tourism facilities, in addition to
number of structural and other challenges above, the Government invest in liquid nitrogen plant to the traditional tourist attraction
impediments to the realisation of is planning to undertake the support increased use of artificial areas of Livingstone and Victoria
its full potential. These include low following measures: insemination; Falls. Examples of tourism related
production and productivity, limited projects to be undertaken in 2022
32 33You can also read
