The Income tax Act (Chapter 323 of the Laws of Zambia) is the legislation that governs Income tax in Zambia. Income tax is tax on profits made by Limited Companies, Partnerships and Self-Employed individuals as well as on emoluments earned by employees. All profit making persons have an obligation to pay Income tax on their profits. Similarly, all individuals in employment have an obligation under the Income Tax Act to pay tax on their emoluments. An overview of some of the contents of the Income Tax Act are as follows:
If the taxpayer is unsuccessful, he/she may appeal to the Tax Appeals Tribunal (TAT) for further determination.
Taxation of Business profits
Section 2 of the Income tax Act defines 'assessable income' as the amount of a person's income liable to tax which may be included in an assessment and which remains after allowing the deductions, to which that person is entitled under the provisions of the Act. The assessable income is returned in an annual income tax return in accordance with section 46(1), 46(2) and 46(3) of the Income tax Act.
The provisions of the Act dealing with returns (in particular Sections 46 and 47) do not apply to taxpayers covered by Section 64A (2). Section 64A (2) excludes from Income tax, persons with turnover of K800, 000.00 and below. These have an obligation of paying turnover tax monthly at the rate of 3% of their gross turnover. This part prescribes the documents and other supporting documentation, which should be submitted with the returns in order for the Commissioner-General to determine with reasonable accuracy, the assessable income and the tax due. Part V also deals with penalties that are charged on late submission of returns. Section 64(a) empowers the Commissioner-General to estimate tax due from a person in the event that they fail to submit an Income tax return. Section 64(b) empowers the Commissioner-General to estimate tax due from a person in the event that their return is unsatisfactory.
The Tax Computation.
Legally speaking, the return must be accompanied by a Tax Computation, section 46 (2) (b).
Part IV (Sections 29 to 44) of the Income tax Act provides guidance on what items of expenditure are allowed to be deducted in ascertaining the taxable business profits. Generally speaking, the Income Tax Act allows as a deduction the following: -
(a) Expenditure incurred wholly and exclusively for the purposes of the business (S29)
(b) Revenue and not capital expenditure (S29)
(c) Losses brought forward from the same source, provided that a loss can only be carried forward for a period of five years (S30)
(d) Capital allowances, Investment allowance and Development allowance (S33 and 34)
(e) Approved fund deductions (S37)
(f) Payments in respect of technical education (S38)
(g) Subscriptions to professional bodies of knowledge relevant to the business(S39)
(h) Donations to approved public benefit organizations (S41)
(i) Revenue expenditure on Research (S43)
(j) Deductions for bad and doubtful debt and deduction for employing a handicapped person (S43A and S43D)
(k) Any other deductions as prescribed by Section 44.
The sufficient condition is that except for capital allowances, all this expenditure must not be capital in nature.
All taxpayers in receipt of income, other than emoluments from employment or office, are required to make advance payments in the course of the tax year, on account of their estimated tax liability. This estimated liability is referred to as Provisional Tax.
Under the Income Tax Act, all taxpayers whose income is not from employment are required to submit a return of provisional tax. The return should contain:
- An estimate (based on information reasonably believed to be true) of the person's income liable to tax;
- A computation of tax based on the rates of tax applicable for the charge year;
- A declaration by the taxpayer that it includes a full and reasonable estimate of his income for the charge year.
- The deadline for the submission of the provisional tax return is as follows:
(i) in the case of an electronic return, not later than 31st March of the charge year to which the return relates; and
(ii) in the case of a manual return, not later than 5th March of the charge year to which the return relates.
- Late return submission will attract penalties.
- If at any time during the charge year, there are some changes in the business affecting the estimated income, the taxpayer is allowed to submit an amended provisional return.
- Where it is discovered that the taxpayer had under estimated his income by one third or more, penalties are chargeable.
- Provisional Tax is due and payable on the following dates in the charge year:
1st installment - 31st March, payable by 14th April
2nd installment - 30th June, payable by 14th July
3rd installment - 30th September, payable by 14th October
4th installment - 31st December, payable by 14th January
Part XI of the Income Tax Act (covering sections 106-114) deals with the right of taxpayers to react to an assessment raised as above. Section 106 states, "Subject to the Commissioner-General's power relating to assessment, every assessment under this Act shall stand good unless proved otherwise by the person assessed upon objection or appeal under this part". This means that if the assessment does not accurately reflect the tax liability of a person, the person must produce evidence to this effect (i.e. object) within thirty days and the assessment may be amended (Section 108).