Value Added Tax (VAT)
1.0 What is VAT?
Value Added Tax may be defined as a consumption-based tax that is levied in the supply chain at each point were value is added to goods or services. Since it is consumption based, the primary legal way of avoiding VAT is by not consuming any goods or services that are standard rated. The other way is by consuming only zero-rated or exempt supplies.
1.1 Who pays VAT?
Value Added Tax is incurred by the final person in the chain of supply who is not registered for VAT. Persons registered for VAT will claim back through the return, the input VAT incurred in the course of their business and remit to Zambia Revenue Authority, the Output VAT collected in excess of their input VAT. Therefore, registered suppliers do not pay VAT.
STANDARD RATED SUPPLIES: These are supplies that attract VAT at the prescribed standard rate 16%.
ZERO RATED SUPPLIES: These are supplies that attract VAT at 0%.
EXEMPT SUPPLIES: These are supplies that do not attract any VAT at all.
- What is Excise Duty?
Excise Duty is a tax on particular goods or products whether imported or produced domestically, imposed at any stage of production or distribution, by reference to weight, strength or quantity of the goods or products, or by reference to their value.
1.1 On what goods is excise duty levied?
- Tobacco and manufactured tobacco substitutes such as Cigarettes
- Clear Beer
- Opaque Beer
- Hydrocarbon oils such as petrol, diesel, fuel oils and Liquified Petroleum Gas(LPG)
- Spirits and Wines
- Electrical energy
- Air time
- Cosmetics e. beauty and skin care products
- Plastic Bags
- In order for any person to manufacture any of the goods set out in the Excise Tariff in quantities above the minimum quantities specified in the Customs and Excise Act, he/she must apply to the Commissioner General for a license, with the exception of Mobile Phone service providers and Oil Marketing Companies. However, any person may produce without a license and without payment of duty for domestic use but not for sale or dispose for profit to any other person, the following goods:
- Fermented liquor, other than opaque beer, containing not more than 2% of alcohol by volume.
- Tobacco in form of cigars, cigarettes, pipe tobacco or snuff when made from manufactured tobacco on which duty has been paid or from raw tobacco.
- Opaque beer being not more than twenty-three decalitres in volume in any period of four consecutive days.
1.3 Who applies for license?
Any person manufacturing, distilling, mixing, brewing or packaging the following:
- Any portable liquid containing more than two per centum of alcohol by volume
- All types of spirits and wines
- Opaque beer in containers exceeding twenty-three decalitres
- Cigarettes, cigarette tobacco, pipe tobacco, cigar and sniff
- Hydrocarbon oils and their by-products
- Electrical energy
- Plastic Carrier bags
1.4 How to apply
Application forms for License to Manufacture Goods subject to excise duty or surtax can be obtained from our Zambia Revenue Authority (ZRA) website www.zra.org.zm or visit Indirect Taxes – Tax Payer Services on the 1st floor of Revenue House or any other ZRA office near you.
- An applicant for a license should state and provide:
- the nature of goods to be manufactured;
- the process of manufacture;
- the cost structure and selling price of the goods;
- The premises and equipment to be used in manufacturing of excisable goods;
- The business, its shareholding, assets, related businesses and accounting practices; and
- Such other matters as the Commissioner General may require.
- Approval of application for a license is at the discretion of the Commissioner General.
1.5 Right of appeal
Any person whose application has been rejected or whose license has been revoked has the right to appeal to the Tax Appeals Tribunal.
1.6 Suspension/Cancellation of license
- Submit returns on or before the 15th day of the month following that month to which the return relates, and payment made within five days i.e. by the 20th day.
- Keep books of Accounts recorded in English language for inventory, production and sales.
- Display the license at the manufacturing premises.
- Application for excise license renewal should be submitted to Zambia Revenue Authority before or on 30th September each year.
If a licensee fails to comply with the requirements of the law, the license may be suspended or cancelled.
- Late payment of tax and late submission of returns will attract interest at the prevailing Bank of Zambia rate plus (2%) per centum per annum and penalties of 1000 penalty fee units with an additional 1000 penalty fee units for each day the return is late respectively.
Insurance Premium Levy
1.0 What is Insurance Premium Levy
The Insurance Premium levy is a tax imposed on all insurance premiums for all classes of insurance business excluding re-insurance and commissions earned on brokerage.
With effect from 1st January, 2016 Act number 21 of 2015 provides for a three percent (3%) levy on premiums for all classes of insurance business excluding re-insurance.
However, the commissions that are earned on insurance brokerage are not subject to a charge of the levy because commissions are not classified as insurance business. The brokers merely facilitate or act on behalf of the insurer and the insured.
1.1 What is the rate for Insurance Premium Levy?
The Insurance Premium levy is charged at the rate of 3% on premiums for all classes of insurance business excluding re-insurance.
1.2 When is the Insurance Premium Levy due?
The return filing due date for Insurance Premium Levy is the 18th day of the month following the end of the prescribed period and the due date for payment of the Levy is also the 18th day of the month following the end of the prescribed accounting period.
1.3 Who has the obligation to collect and remit the Levy?
The obligation to remit the levy lies with the insurer, insurance agent or broker.
1.4 Premiums paid in 2018 for 2019 insurance covers
Where a payment is made in 2018 for the 2019 cover or where an invoice is issued in 2018 for the 2019 contract period. The insurance premium will be deemed to have been paid in January 2018 and the levy shall be paid by 18th February 2019.
1.5 Recovery of Insurance Premium Levy
The Value Added Tax Act will apply in enforcement and administration of Insurance Premium Levy for the following:
- Recovery of the levy
- Filing of returns
- Keeping of records
- Furnishing of information and production of documents
- Delegation of authority
- The appointment of authorised officers
- Penalties and sanctions
- Reviews and appeals and
- The priority of tax debts in bankruptcy.
|No||Penalty Type||Penalty rate|
|1||Late Registration||10,000 penalty units|
|2||Late Submission Of Returns||1,000 penalty units per day or 0.5% of the tax due|
|3||Late payment||1,000 penalty units per day or 0.5% of the tax due|
|4||Late payment interest||Interest Bank of Zambia discount rate plus 2%|
Note: One penalty unit is equal to K0.30
What is Turnover Tax?
This is a tax that is charged on gross sales/turnover (i.e. earnings, income, revenue, takings, yield and proceeds)
Who is liable to pay Turnover Tax?
Any person carrying on any business with an annual turnover of K800,000 or less.
Any person whose business earnings are subject to withholding tax and it is not the final tax such as, rental income, commissions, interest earned by companies, royalties earned by residents, etc.
Who is not liable to pay Turnover Tax?
- Any person carrying on a business with an annual turnover of more than K800, 000.
- Any individual or partnership carrying on business of public service vehicle for the carriage of persons.
- Partnerships carrying on any business irrespective of whether the annual turnover is K800, 000 or less. Partners’ income from the partnership is also excluded from Turnover Tax. This is because it is the partnership that carries on business and not the partners. Partners are distinct from the firm (partnership) as stipulated by Section 4 of the Partnership Act of 1890.
- Consultancy fees are not part of Turnover Tax as per Amendment to the Income Tax Act # 1 of 2005.
- Any person whose turnover is K800, 000.00 or below and is voluntarily registered under Value Added Tax (VAT).
- Any person who is involved in mining operations as provided under the Mines and Minerals Development Act.
- Any person whose business earnings are subject to withholding tax and it is the final tax,
- Bank interest for individuals
- Interest on Government Bonds
- Interest earned on Treasury Bills for Charitable Institutions and other exempt persons.
- Management and Consultancy fees paid to non – residents.
- Payments made to non – resident contractors.
- Public Entertainment Fees paid to non – residents.
- Royalties paid to non – residents, etc.
At what rate is Turnover Tax calculated?
The Ninth Schedule to the principal Act is amended by the deletion of Part II and the substitution therefore of the following:
|Turnover per annum||Tax Rate|
|K800,000 or below||4 %|
This amendment introduces a flat rate of 4% for turnover tax. Therefore, the tax payable will be calculated by applying 4% on the total turnover. Prior to this change turnover tax was computed using the graduated tax bands.
Furthermore, this amendment removes the K3,000 exemption that was applicable under the graduated tax bands. When determining the tax payable for the period, the K3,000 monthly exemption will no longer be applicable.
The example given below can be followed:
Example 1: Computation of Tax on Turnover of K8,000.
AB limited carries on business as a retailer. In the month of January 2019 the business made the following sales:
– Cash sales K3,000.00
– Credit sales K5,000.00
Total Sales K8,000.00
Turnover tax payable = K8,000.00 X 4% = K320.00
Net sales will therefore be = K8,000.00 – K320.00 = K7,680.00
How is Turnover Tax calculated?
Turnover Tax is calculated on gross sales/turnover.
Are there any returns to be submitted for Turnover Tax?
Yes. Turnover Tax Remittance Cards are to be submitted by the 14th of the month following the month in which the transactions occurred.
- Manually by the 5th of the following month to which the return relates and
- Electronically by the 14th of the month following the month in which the transactions occurred.
When should payment for Turnover Tax be?
Remittance for Turnover Tax is due by the 14th of the month following the month in which the sales are made.
For how long are taxpayers expected to keep business records?
Taxpayers will be required to keep all business records pertaining to turnover for a period of up to 6 years. They are also encouraged to keep other business records for purposes of determining their tax liabilities in case they exceed the turnover threshold of K800,000.00.
Does a taxpayer who is under Turnover Tax have to submit provisional tax returns?
No. Provisional tax returns are only required for taxpayers whose gross sales/turnover is above K800,000.00
Registration and other procedures
Taxpayers will be required to notify the Commissioner General within 30 days of commencement of business. They will be registered and given a Taxpayer Identification Number (TPIN), Individual or Company Income Tax account number and a Pay As You Earn (PAYE) number where applicable.
A new taxpayer will be required to register as stated above and they will use their estimated turnover on the registration. It will be necessary to register for all eligible tax types at initial registration. Note that all tax matters starting from registration can be done online.
Cessation of business
If a taxpayer closes down his business for whatever reasons, such as business failure, bankruptcy, winding up, etc., they are advised to send a notification to the Commissioner General immediately after such cessation.
Change in Annual Turnover
Where a taxpayer whose turnover is below the threshold discovers that his annual turnover will exceed K800, 000.00 during the course of the year, he will notify the Commissioner General immediately. However, he shall continue to pay Turnover Tax till the end of that particular charge year and shall be assessed under the Income Tax System.
Any change from Turnover Tax to Income Tax and vice versa shall take effect only at the beginning of a charge year. No change will be effected during the course of the charge year.
The changeover can either be initiated by the Taxpayer or indeed by ZRA where the system detects the change in turnover.
PAY AS YOU EARN (PAYE)
What is Pay As You Earn (PAYE)?
This is a method of deducting tax from employees’ emoluments in proportion to what they earn. Under this system, the employer is empowered to:
- calculate tax payable by every employee
- deduct tax due from the emoluments, and
- remit tax deducted to ZRA
What are emoluments?
The term “emoluments” means total earnings of an employee from employment. These include wages, salaries, overtime, leave pay, commissions, fees, bonuses, gratuities and any other payments from employment or office. (Section 2 of IT Act).
How is tax calculated?
Under the PAYE system, the amount of tax which the employer deducts from any pay depends on:
- The employee’s total gross pay
- The applicable tax rates;
For an employee with a gross pay of K15, 000.00 / month in January 2021 – which is month 1 under the Tax Tables – tax will be calculated as follows:
- a) Calculation of Taxable Pay K
Gross pay 15,000.00
Taxable pay 15,000.00
- b) Calculation of tax
First K 4,000.00 0% – 0
Next K 800.00 @ 25% – 200.00
Next K 2,100.00 @ 30% – 630.00
Balance K 8,100.00 @ 37.5% – 3,037.50
Total tax due – 3,867.50
Total tax payable – 3,867.50
- c) Calculation of Net Pay
Gross Pay K 15,000.00
Less tax K 3,867.50
Net Pay to employee K 11,132.50
The tax deducted must be remitted to ZRA by the 10th day of the subsequent month.
What should I do if I leave employment?
When you leave your current employment obtain a form showing all pay – roll details (ITF/P13 (2) from your former employer. This enables your new employer to deduct the correct tax deductions when you are re – employed. If the ITF/P13 (2) is not provided to your new employer, the tax deductions could be higher than you should suffer.
If you are not re-employed, you may be entitled to a tax refund as explained below.
How does a tax refund arise?
A tax refund may arise in the following situations:
Pay-roll errors, for example;
- use of wrong tax bands and rates
- arithmetical errors in calculating tax
- complete or partial omission of statutory deductions
If employment ceased at any time, but before the end of the charge year, unemployment repayment may arise due to incorrect use or non-use of tax tables.
This repayment is part of the tax that you may have paid during the tax year in which the employment is terminated.
How can I make a claim?
You will be required to complete an Income Tax Return for Individuals (ITF/1A) which is available at all Domestic Taxes Front Office Centers or indeed from the ZRA website. Please attach the following documents:
- letter of termination of employment
- last pay-slip
- particulars of employee leaving (form ITF/P13 (1)); and
- Any other payment vouchers. This will enable the tax office to calculate the refund of tax due. A notice of advice (assessment ITF302) will then be raised and availed to you.
Upon receipt of notice of assessment, the claimant should complete a Refund Claim form (ITF/ CF56 to complete the process for the payment of the refund.
Where should I collect the tax refund cheque from?
Refunds are usually posted in the availed bank account but for those without a bank account the refund cheques may be collected from the paying office or indeed posted to the postal address given to ZRA.
What if the tax deducted is wrong?
If there is an over-deduction of tax, a refund will be made to the employee by the employer and only in the same charge year. The employer has an opportunity to correct the error in the subsequent month.
If there is an under-deduction of tax, the employer will pay the difference to the Revenue Authority through the tax returns.
What if the tax deducted by the employer is not remitted on time to ZRA?
If tax is not remitted on time by the employer, a penalty of 5% will be charged on the amount due, and interest @ 2% above the BOZ discount rate.
Are allowances received together with the salary taxable?
All cash benefits paid in the form of allowances such as education, housing, transport, utility and settling etc. are taxable.
Are utility bills, school fees and school association fees taxable under PAYE?
Where an employer discharges the liability of an employee by paying his/her rent, electricity, telephone, water bills, school fees or professional association fees, club membership fees and similar payments, the employer is required to add such payments to the employees emoluments and deduct tax under PAYE.
Are there any benefits that are not subjected to PAYE?
The following benefits are not subjected to PAYE:
- Labour day Awards
- Ex-gratia payments
- Medical expenses
- Funeral expenses
- Sitting allowances for councillors
- Benefits that cannot be converted into cash such as free residential housing provided by the employer, canteen expenses and personal to holder cars.
Are payments for casual workers and daily paid workers supposed to be taxed?
Yes. They are taxed using tax tables for casual workers and daily paid workers.
Are persons who are employed by foreign missions and international organizations which are exempted from remitting tax under the Diplomatic and Immunities Act supposed to be taxed?
In such cases the employee is treated as his own employer and tax is collected directly from such an employee. The employee of such a mission or organization is not exempt from paying taxes
What is Income Tax?
The Income tax Act (Chapter 323 of the Laws of Zambia) is the legislation that governs the taxation of Income 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.
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. 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:-
- Expenditure incurred wholly and exclusively for the purposes of the business (S29)
- Revenue and not capital expenditure (S29)
- Losses brought forward from the same source, provided that a loss can only be
carried forward for a period of five years (S30)
- Capital allowances, Investment allowance and Development allowance (S33 and 34)
- Approved fund deductions (S37)
- Payments in respect of technical education (S38)
- Subscriptions to professional bodies of knowledge relevant to the business(S39)
- Donations to approved public benefit organizations (S41)
- Revenue expenditure on Research (S43)
- Deductions for bad and doubtful debt and deduction for employing a handicapped
person (S43A and S43D)
- 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.
Under the Income Tax Act, 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 asProvisional 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 hiincome 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; and
(iii) in the case of a person who registers after 31st March of the charge year, within 90 days from the date of registration for Income Tax.
– 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 10th April
2nd installment − 30th June, payable by 10th July
3rd installment − 30th September, payable by 10th October
4th installment − 31st December, payable by 10th January
Annual Income Tax returns
Annual Income Tax returns accompanied by financial statements are to be submitted by 21st June following the year under review.
When a taxpayer who has been paying Provisional Income Tax discovers that his annual turnover will not exceed K800, 000.00 during the year, he shall notify the Commissioner General immediately. However, he shall continue to pay Provisional Income Tax till the end of that particular charge year and shall be assessed under the Income Tax System. At the end of the year, the taxpayer will be required to submit a Turnover Tax Return and a set of accounts with supporting documents covering the whole year.
Tax payer rights
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).
If the taxpayer is unsuccessful, he/she may appeal to the Tax Appeals Tribunal (TAT) for further determination.
What is Withholding Tax?
Withholding Tax is not a tax but a means of collecting that tax. Withholding Tax is deductible from a payment by the person who is liable to make payment (the payer) at the point in time the person to whom it is due to be made (the payee) becomes legally entitled to it (date of accrual). The payer is required to pay the tax deductible to the Zambia Revenue Authority by reference to the date of accrual no matter how, when or where payment is made.
What payments will be subject to Withholding Tax under Section 81, 81A and 82A?
Dividends – Section 81
Dividend means any amount distributed or credited by a company to its shareholders, or any amount deemed to have been distributed. All companies registered in Zambia are required under this section to deduct Withholding Tax (WHT) from payments of dividends other than dividends paid to the government of the Republic of Zambia.
Dividends accrue on the day of the resolution provided that where the resolution states that the dividend is to be paid to share or stockholders registered on a day in future, then the dividend is deemed to accrue on that day. The rate of WHT on dividends is 15% and it is the final tax for residents and non – residents.
WHT on dividends for Companies carrying on mining is 0%.
Payments to Non – Resident Contractors – Section 81A
These are payments made to non – resident contractors who are engaged in construction and haulage operations.
Who is a Non – Resident Contractor?
Non – resident Contractor means;
- An individual who is neither resident nor ordinarily resident in Zambia; Or
- Any other person or partnership which is not resident in Zambia and does not have a permanent establishment in Zambia.
Construction Operations include: –
- The erection, alteration, maintenance, repair, extension, demolition or cleaning of any building or structure, whether permanent or not;
- The installation in any building or structure of heating, lighting, lift, air conditioning, ventilation, power, drainage, sanitation, water, fire protection or like supplies or services;
- The painting or decoration of the internal or external face of any building or structure;
- Any operations which are an integral part of or prior to or to render complete the operations described in (1) and (2).
Haulage Operations include: –
Transportation by land, water or air, of persons or produce of a like nature or ores and minerals, food stuffs and merchandise. Withholding tax rate for non-resident contractors developing or operating on a multi facility economic zone or an industrial park is at 20%.
Payments under Section 82A
Interest is not defined in the Income Tax Act, but it is to be taken as an amount calculated according to a fixed ratio on debt or money lent. Interest can be earned on savings or deposit accounts, treasury bills, government bonds or any other financial instruments, or on debt or money lent.
No Withholding Tax shall be paid on interest earned by individuals from savings or deposit accounts held with financial institutions such as banks and building societies.
Persons other than individuals:
The Withholding Tax Rate is 15%. However, this is not the final tax. At the end of the charge year, the taxpayer will be required to submit an Income Tax Return containing all sources of income, including income from interest. The final tax will be determined through an assessment. The Withholding Tax deducted is taken into account before arriving at the final tax
Charities and other Exempt organizations:
The Withholding Tax Rate for interest earned on Government Bonds and Treasury Bills by exempt organizations and charities is 15% and it is the final tax.
A Royalty is defined in Income Tax Act as meaning a payment in any form received as a consideration for the use of, or the right to use, any copy right of literary, artistic, or scientific work (including cinematograph films and tapes for radio or television broadcasting), any patent, trademark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.
The Withholding Tax Rate for Royalties is 15% for residents and 20% for non – residents. However, in the case of non – residents, this is the final tax.
Rent means “a payment in any form including a fine, premium or any like amount, made as a consideration for the use or occupation of or the right to use or occupy any real property including personal property directly connected with the use or occupation or the right to use or occupy such real property”. It is important to note that the property from whose rentals the Withholding Tax is deducted must be situated in Zambia. The rate of Withholding Tax is 10%.
The payer (tenant) is responsible for deducting Withholding Tax from gross rentals on the date of accrual of any amount due to the payee (landlord).
The tenant should remit the amount so deducted to the Zambia Revenue Authority. This is the final tax. At the end of year, the taxpayer will be required to submit an Annual Income Tax Return containing all sources of income, including rental income. The final tax will be determined through an assessment. The Withholding Tax deducted is taken into account before arriving at the final tax.
For cases where the tenant is either a diplomat, diplomatic mission or any other persons who by law is exempt from paying tax, the landlord is mandated to pay the WHT on their own.
(The Income Tax Act makes provision for a landlord to account for tax on rental income at 10%, subject to approval by the Commissioner General, depending on occupancy and privileges of the tenant). (Income Tax (Amendment) Act No. 19 of 2016)
Management Consultancy Fees
Management and Consultancy Fees means “payment in any form, other than an emolument, for or in respect of any administrative, consultative, managerial, technical or any service of a like nature or any creation, design, development, installation and maintenance of any information technology solution, programme, system or a combination”.
- a) It should be noted that Withholding Tax is deductible from a payee who is not in business in Zambia but renders a service to a person carrying on business in Zambia. The WHT rate for management and consultancy fees for non-residents is 20% and is the final tax.
- b) A management or consultant fee from a source within or deemed under section 18 to be from a source within the republic; The WHT rate for management and consultant fees for local consultants will be 15% and will not bethe final tax. The consultants will be required to submit annual returns and the tax (i.e. WHT) paid will granted as credit against any tax liability that may arise. (Income Tax (Amendment) Act No. 19 of 2016)
Public Entertainment Fees
Public Entertainment Fee means “a payment in any form other than an emolument to, on behalf of, or in respect of, any person or persons in partnership, including theatre, motion picture, radio or television artists, musicians, athletes or sports persons, in respect of those persons’ personal activities in any entertainment, competition or similar activity within the Republic”.
The Withholding Tax is deductible from payments made to non – resident entertainers and sportsmen for performances within Zambia.
The WHT rate is 20% and is the final tax.
Commissions for Withholding Tax purposes means, any Commission other than Commission received by an individual whose income is from employment or office.
The WHT rate for residents is 15% and 20% non-residents and it is not the final tax.
- Submission of returns & Payments.
The due dates for filing of returns and payment of Withholding tax is on the 14 day after the month of transactions. Note that both the return and payment are due on the same date.
- b) Tax Point for the deduction of withholding Tax
The time at which payment shall be deemed to have been made shall be whichever is earlier of the following times:
(A) The time when income is paid
(B) The time when Income accrues to a person; and
(C) The time when income is in any way due to a person or held to that person’s order or on their behalf, or it is in any way disposed of according to that person’s order or in that person’s favour.
The above provides guidance and clarity as to the Tax point when to deduct withholding tax and remit it to ZRA. The above must provide guidance in cases where a payment is made in advance or has not been made but only accrues to the recipient.
What is Presumptive Tax?
These are estimates of tax payable that are used in dealing with incomes or activities that are hard to tax, e.g. the informal sector.
Presumptive taxation offers the possibility of reducing tax evasion at low cost and broadening the revenue base.
What are the benefits of this tax over the regular assessed system?
- a) No filing of returns.
- b) No need for elaborate business records.
- c) Predictable amount of tax to be paid hence eased planning.
Since operators find it fairly easy to pay a whole range of fees on daily basis, such as loading fees, etc. (some out of extortion), and because the amounts do not seriously disrupt their cash – flow position, the same principle of small regular payments of tax has been adopted in the presumptive tax approach.
The levies can be broken down into smaller amounts to be paid more regularly, e.g. the K1,800.00 levy for a 17 seater bus works out to be a K150.00 a month or K 450.00 a quarter.
- No need for professional consultancy services:
Paying the levies will be straight forward as paying loading fees or other fees currently in place. Hence very little intellectual or professional effort required.
As the system is made simpler, all transporters will be expected to pay their part hence no free riders as is currently the case.
Allowance for break-down:
The levies will only be charged for vehicles that are on the road during the accountable period.
Does ZRA still audit taxpayer’s business records under the Presumptive Tax System?
As Presumptive Tax is a levy, there is no need to keep records for tax purposes and as such no audits are conducted on a transporter’s business. The only requirement is for the transporter to pay his presumptive tax as stated in the law.
Are all operators of buses, minibuses or taxis liable to pay presumptive tax?
Presumptive tax does not include limited companies. Only individuals and partnerships are taxed under Presumptive Tax. This is because (from the ZRA perspective) compliance is not a big problem with transporters in this category. They have the capacity to fully comply with all the standard requirements under the Income Tax Law.
Consequently, luxury and semi − luxury coaches are excluded. This is because most of them are, as a matter of fact, incorporated businesses and they submit returns and accounts regularly. Where necessary, audits by the tax office are carried out to verify the amounts in the accounts and returns.
How much will each category of vehicle be charged?
The rates below will apply:
|Type of vehicle(sitting capacity)||Amount of tax per vehicle per annum effective 1st June 2018|
|64 seater and above||K10,800|
|Below 12 seater (including taxis)||K900|
What are the modalities for collecting this tax?
The transporter can go to any of the ZRA offices and make payment. Alternatively, e-payments can also be made. ZRA will issue a prescribed ZRA receipt to the transporter upon collection of the levy.
Please note the following:
- Transporters are encouraged to comply with the law by registering for presumptive tax at the nearest ZRA office or using our e-services.
- Transporters are advised to pay the applicable presumptive tax regularly preferably on a weekly or monthly basis to avoid accumulating tax arrears.
- Transporters need to obtain a Tax clearance Certificate from ZRA as a pre-requisite for obtaining a license from Road Transport and Safety Agency (RTSA)
- Failure to make consistent payment of the tax within the charge year as prescribed will result in arrears and possible penalties and interest on the amount outstanding.
What are the applicable penalties for non-compliance?
For late or non- payment of presumptive tax, 5% of the amount that remains unpaid plus interest – charged at the Bank of Zambia Discount Rate plus 2% shall apply.
PRESUMPTIVE TAX ON BETTING AND GAMING
Presumptive tax on betting and gaming businesses
Persons carrying on betting and gaming business are no longer eligible to register for income tax or turnover tax.
This regulation makes it mandatory for a betting and gaming business to notify the Commissioner-General of its establishment as provided below:
A person liable to pay presumptive tax under section sixty-four A of the Act shall, within thirty days of establishing a business, notify the Commissioner-General of the establishment of the business.
What happens to businesses that are already registered on other tax types and are eligible for registration under presumptive tax?
Businesses that are already registered with the Zambia Revenue Authority either on income tax or turnover tax will be required to migrate to the presumptive tax regime effective 1st January 2019.
What is the due date for return submission and payment of presumptive tax?
The due date for return submission and payment of presumptive tax is the 14th day of the month following the end of the tax period.
What specific tax rates and presumptive tax amounts apply to betting and gaming businesses?
TAX ON BETTING AND GAMING
|Type of Game||Monthly Tax Rate or Monthly Tax Amount|
|1. Casino Live games||20 percent of gross takings|
|2. Casino Machine Games||35 percent of gross takings|
|3. Lottery Winnings||35 percent of net proceeds|
|4. Betting||25 percent of gross takings|
(a) Slot Machines (Bonanza)
(b) Gaming Machines
(Limited Pay Out)
K250 per machine
K500 per machine
PROPERTY TRANSFER TAX
What is Property Transfer Tax (PTT)?
The Property Transfer Tax Act Cap 340 provides for the charge of Property Transfer Tax on the transfer of property.
Property is defined as:
- Land, including any improvements on it
- A share issued by a company incorporated in the Republic or a share issued by a company incorporated outside the Republic where the company directly or indirectly owns at least ten percent of the shares in a company incorporated in the Republic.
- Mining rights or interest granted under the Mines and Minerals Development Act and include −
- prospecting licence;
- a large scale mining licence;
- a large scale gemstone licence;
- a prospecting permit;
- a small scale mining licence;
- a small scale gemstone licence; and
- an artisans mining right.
- Intellectual Property such as trademarks, patents and brands.
The value of the property liable to charge is:
- If it is land, the open market value, or
- If shares, the net realizable value or nominal price whichever is greater.
- If a mining right, the actual price of that mining right or interest.
The term “transfer”:
(a) in relation to land, excludes
- letting or sub-letting
- leasing, under-leasing or sub-leasing, for a period of less than five years;
(b) in relation to a share, excludes – the allocation of the same by the company to the member in whose name it is first registered but includes transfers of property within a group of companies whose holding company is incorporated in Zambia.
Rate of Tax
The rate of tax applicable on the transfer of land or shares is 5% and 10% for a mining right.
Transfer to immediate family
Where a person transfers his property to a member of his immediate family, the Realised Value of such property is the actual price, if any received by transferor.
The term “Immediate Family” means, with respect to the person transferring the property: “a spouse, child, duly adopted child or step-child”
Internal Re-Organisation within a group of companies.
Where, within a group of companies, a company transfers property to another company (other than a company which is not resident in Zambia) within the group for the purposes of internal organization of the group, the Commissioner General may treat such transfer as having no Realised Value.The term group of companies means a holding company together with its subsidiary companies but excludes a situation where there is common shareholding.
Holding company means:
- a company that holds the majority of the voting rights in another company;
- is a member of another company and controls the majority of the voting rights on its own or pursuant to an agreement entered into with the other members; or
- is a member of another company and controls and has the right to appoint or remove a majority of the board of directors in that other company.
(1) The following organizations are exempt from Property Transfer Tax:
- The Government of the Republic of Zambia;
- Any foreign government;
- Any international organization, foundation or agency as the Minister of Finance may approve for the purpose;
- Any charitable organization or trust registered under section 41 of the Income Tax Act Cap 323;
- Any co-operative society registered under the Co-operative Societies Act is exempt from tax in that particular charge year when it is exempt under the requirements of the Income Tax Act;
- A Local Authority;
- Registered Trade Unions;
- Any Club, Society or Association registered under Section 41 of the Income Tax Act as a charitable organisation or as the Minister may approve for the purpose;
- Approved Pension Fund and Medical Aid Society;
- Employees` Savings Scheme or Fund;
- Any Political Party registered as a statutory society under the Societies Act.
(2) Shares or stocks that are listed on a stock exchange duly registered under the Securities Act, e.g. the Lusaka Stock Exchange, is exempt from property transfer tax. Listed shares are those that are readily transferable or disposable on that Stock Exchange.
(3) Contributions towards the equity of a company:
The Commissioner General may treat the transfer of property by a shareholder of a company incorporated under the Companies Act, as having no realizable value, if such transfer is his contribution towards the equity of that company.
However, for exemption applications involving the transfer of shares or other properties in a re-organization, proof of ownership of the number of shares held must be made by attaching the relevant share certificate.
Under section 10 of the Property Transfer Tax Act, any determination or assessment for PTT may be objected to or appealed against by any affected person.
Objections against PTT assessments must be made in writing stating the grounds for objection. If the grounds of objection are not satisfactory, the assessment will be upheld. However, a taxpayer has a right to appeal to the Revenue Appeals Tribunal should they be dissatisfied with the Commissioner General’s determination.
Refund of tax paid
There will be instances when a transaction is aborted for various reasons well after the tax has been paid and a tax clearance has been issued. Such cases will be refunded upon application. Applications for refunds will be scrutinized to ensure that the tax was actually paid. The following documents will be required:
- Original Tax Receipt
- Original Tax Clearance Certificate
- Original PTT Certificate
- Any proof that the transaction did not take place, (e.g. confirmation from the Registrar of Lands and Deeds)
- Formal letter of sale from the vendor, or their legal representatives
The following documents will be required:
- Copies of NRC for both the buyer and seller (in the case of individuals)
- A Certificate of Incorporation ( in the case of limited companies) or a certificate of registration (in the case of a Partnership);
- State consent to assign
- Seller’s and buyer’s TPINs
- Contract of Sale/ Deed of Transfer or Gift
- Legal practitioner’s certification (where the legal practitioner is representing both parties; letters of administration or probate for deceased cases; and valuation report ( where ZRA requests for valuation report).
For transfer of shares
- Share Transfer Form 18
- PACRA form 3
- Latest financial statement of the company in which the shares are held
- Shareholders` resolution
- Return form
- TPIN for seller and for the buyer
- Identification number for both the buyer and seller
- Contract for sale
- Certificate of share capital
- Certificate of incorporation.
Group companies seeking nil transfers via internal re-organisations, will have to provide evidence of the existence of a group structure by presenting a Share Ownership certificate and will require to meet the definition of a group.
What is Mineral Royalty?
Mineral Royalty is a payment received as consideration for the extraction of minerals.
Who is liable for Mineral Royalty?
- a) Holders of the following mining rights are liable to mineral royalty on minerals produced under their respective licenses:
- large scale mining license
- large scale gemstone license
- small-scale mining license
- small scale gemstone license, and
- artisan’s mining right,
- b) Any person without a mining right but in possession of minerals on which mineral royalty has not been paid by the supplier of the minerals.
- c) Note that all persons carrying out quarrying of industrial minerals are liable to mineral royalty; this includes the quarrying of gravel, clay and sand.
- d) All persons that mine minerals for use as inputs or raw materials in their manufacturing process are also liable to mineral royalty
How are minerals classified for tax purposes?
Minerals are classified in five categories as follows:
- a) Base metals– means a non – precious metal that is either common or more chemically active, or both common and chemically active and includes iron, copper, nickel, aluminium, lead, zinc, tin, magnesium, cobalt, manganese, titanium, scandium, vanadium and chromium
- b) Energy Mineralsmeans a naturally occurring substance in the earth’s crust used as a source of energy and includes coal, uranium and any other minerals used to generate energy but does not include petroleum
- c) Gemstones– these are non-metallic substances used in jewellery and they include amethyst, aquamarine, beryl, corundum, diamond, emerald, garnet, ruby, sapphire, topaz, tourmaline and any other non – metallic substance, being a substance used in the manufacture of jewellery that the Minister by statutory instrument declares to be a gemstone.
- d) Industrial Minerals– these are rocks or minerals other than gemstones, base metals, energy minerals or precious metals used in their natural state or after physical or chemical transformation and includes but is not limited to barites, dolomite, feldspar, fluorspar, graphite, gypsum, ironstone, when used as a fluxing agent kyanite, limestone, phyllite, magnesite, mica, nitrate, phosphate, pyrophyllite, salt, sands, clay, talc, laterite, gravel and any other mineral classified as an industrial mineral by statutory order
- e) Precious Metals – these are not defined in the Act but are high value metals and include gold, platinum, silver, palladium and selenium.
How does one compute Mineral Royalty?
Calculation of Mineral Royalty is based on:
- a) Gross Value
Gross value is applicable to the following:
- Industrial Minerals
- Energy Minerals
Under this method of calculation, Mineral Royalty is calculated based on the Gross Value of the minerals produced. For purposes of computing Mineral Royalty, ‘gross value’ is defined as “the realizable price for sale Free on Board at the point of export in Zambia or point of delivery within Zambia”
- b) Norm Value
Norm Value is used to calculate Mineral Royalty of
- Base metals
- Precious metals
Mineral Royalty is calculated based on the:-
- The monthly average London Metal Exchange cash price per metric ton multiplied by the quantity of the metal or recoverable metal sold
- The monthly average Metal bulletin cash price per metric ton multiplied by the quantity of the metal or recoverable metal sold to the extent that the metal price is not quoted on the London Metal Exchange
- The monthly average of any other exchange market approved by the Commissioner General Cash price per metric ton multiplied by the quantity of the metal or recoverable metal sold to the extent that the metal price is not quoted on the London Metal Exchange or Metal Bulletin.
Note: The Kwacha / US dollar exchange rate used to convert the US dollar norm value into Kwacha norm value is the monthly Bank of Zambia Mid-rate.
For Purposes of calculating the norm value, the metal price and monthly Bank of Zambia mid-rate can be obtained from the Large Taxpayer office or the nearest Domestic Taxes Office.
Mineral Royalty Rates
The mineral royalty rates effective 1st January 2019 are as follows:
|Description||Mineral Royalty Rate|
|Base Metals (Other than Copper)||5% on norm value|
|Energy and Industrial Minerals||5% on gross value|
|Gemstones||6% on gross value|
|Precious Metals||6 % on norm value|
The following is the five tier regime for copper based on norm value:
|Norm Price Range||Mineral Royalty Rate|
|Less than US$4,500||5.5%|
|US$4,500 but less than US$6,000||6.5%|
|US$6,000 but less than US$7,500||7.5%|
|US$7,500 but less than US$9,000||8.5%|
|US$9,000 and above||10%|
Mineral Royalty Returns
Every holder of large-scale mining license, small-scale mining license, gemstone license, or artisan mining right is required to submit a monthly mineral royalty return within fourteen days after the end of the month in which the sale of the minerals is done.
Where the mining license holder has not produced any minerals they are still required to submit a nil return, failure to which estimated assessments will be issued
Failure to submit or late submission of the monthly mineral royalty return attracts penalties as follows:
- In the case of an individual – one thousand penalty units (or K300.00) per month or part thereof;
- In the case of a company – two thousand penalty units (or K600.00) per month or part thereof.
Due Date for Payment
Mineral Royalty is due and payable within fourteen days after the end of the month in which the sale of minerals is done.
Failure or late payment of mineral royalty attracts penalty and interest.
Deductibility of Mineral Royalty
Mineral Royalty payable or paid is an admissible deduction in arriving at the gains and profits of a person carrying on mining operations.
|The following are the due dates under Domestic Taxes.
1. Returns and payments for taxes below are due on or before 14th of each subsequent month following an accounting period.
Note: Returns for Turnover tax have two (2) due dates i.e. on or before the 5th of the subsequent month in the case of a manual return and on or before the 14th for electronic returns. All Payments are due by the 14th of the subsequent month.Returns for Pay as You Earn (PAYE) have two (2) due dates i.e. on or before the 5th of the subsequent month following an accounting period in the case of a manual return with less than 10 entries and on or before the 10th of the subsequent month following an Accounting period for electronic returns. This return includes the Skills Development Levy which is due on the 10th of the subsequent month.
2. Returns and payments for Local Excise Tax are due on or before 15th of the subsequent month following an Accounting period.
3. Returns for VAT have two (2) due dates i.e. 5th for manual return with less than 10 entries and the 18th for electronic returns. All VAT payments are due on or before the 18th
NOTE: VAT DUE DATES FOR OIL MARKETING COMPANIES- UPLIFTS
4. VAT Agents are required to account for the tax withheld by the 16th of the subsequent month following an Accounting period .
5. The Annual Income Tax return has two (2) due dates i.e. on or before the 5th of June in the subsequent charge year in the case of a manual return with less than 10 entries and on or before the 21st of June in the subsequent charge year for electronic returns.
The 2018 Annual Income Tax return is due on or before 21st June, 2019. The balance of tax payments is due by the 21st of June, 2019.
6. The Income Tax Provisional return is due on or before the 5th of March in a charge year for a manual return and on or before the 31st of March in the same charge year for electronic returns.
The 2019 Provisional Income Tax return is due by 31st March, 2019 or within ninety (90) days after registration for Income Tax.
7. Returns and payments for Insurance Premium Levy are due on 18th of the subsequent month following an Accounting period.
Public Benefit Organisations (PBOs) play a significant role in society as they undertake a shared responsibility for the social and developmental needs of the country, thereby relieving the financial burden, which otherwise falls on the State. Tax benefits are designed to assist PBOs by supplementing their financial resources and providing them with an enabling environment in which to achieve their objectives.
Requirements and Procedures for applying for Public Benefit Organisation status.
The Income Tax Act Cap 323 defines a Public Benefit Organisation as an organisation which is-
- A company limited by guarantee incorporated in the Republic under the Companies Act;
- A trust incorporated under the Land (Perpetual Succession) Act;
- An association registered under the Societies Act;
- An educational institution registered under the Education Act;
- A health institution registered under the Medical and Allied Professions Act;
- An amatuer sporting association registered under the Sports Council of Zambia Act; or
- Any association or organisation registered under the laws of Zambia;
exclusively established for the purpose of providing a Public Benefit Activity.
Public benefit activity” means an activity listed in the Tenth Schedule of the Income Tax Act Cap 323 and any other activity determined by the Minister of Finance, by notice in the Gazette, to be of a benevolent nature having regard to the needs, interest and well being of the general public.
The Commissioner-General will only recommend an organisation for approval as a PBO if its sole or principal object is to carry on one or more of the listed Public Benefit Activities in the Tenth Schedule to the Income Tax Act.
Documents to submit
- Certified copy of the Certificate of Registration or Certificate of Incorporation;
- Certified Articles of Association if the entity is a limited company by guarantee; or
- Certified copy of the organisation’s Constitution;
- For organisations in existence for more than one year, latest Financial Statements;
- For organisations in existence for less than one year, certified copies of Bank Statements;
- Proof of carrying out Public Benefit Activities.
- The Objectives in the Constitution or Articles of Association must be clearly stated;
- The Dissolution Clause in the Constitution or Articles of Association must be clear on disposal of assets at winding up of the organisation.
- Proof of carrying out public benefit activities can be photos of activities done, recommendation letter from partners or a brochure.
Branches of foreign charities
Where a charity which has been established outside the Republic, establishes a branch in the Republic for purposes of conducting approved PBAs, the branch may be approved as a PBO.
A precondition of the approval is that the foreign charity is exempt from income tax in its country of origin. The branch will be required to submit this confirmation together with a written undertaking to comply with the provisions of the Income Tax Act (ITA)., insofar as the governance, funding and activities of the branch are concerned.
The Commissioner-General, if satisfied that the application meets the requirements will recommend to the Minister of Finance to have the application approved.
The Commissioner-General can also recommend that the application should not be approved.
Specific issues in respect of PBOs:
Income of a PBO
The income of a PBO is exempt from tax if established for the promotion of religion or education, or for the relief of poverty or other distress on condition that-
- in relation to the people of the Republic, its income may not be expended for any other purpose; and
- the Minister has approved the exemption from tax the income of that PBO.
However, if the income is the profit of a business carried on by a PBO, that income is not exempt from tax and shall be taxed at the rate specified in the Charging Schedule. Also any interest on treasury bills, government bonds, corporate bonds or any financial instrument or securities received by any PBO, shall be subject to withholding tax.
Income Tax Returns
All PBOs carrying on or engaged in business are obliged to render annual income tax returns, notwithstanding the approval which may result in no tax liability for the PBO. The return enables the Commissioner General to assess whether the PBO is operating within the prescribed limits of its exemption.
Tax deductibility of donations from taxable income
Government has recognised the need that PBOs are often dependent upon the generosity of the public and accordingly to encourage the giving of such alms, donations made to approved organisations conducting certain categories of PBAs may be deducted from the taxable income of the donating taxpayer.
What is a bona fide donation?
A donation is a gratuitous and voluntary gift which is freely given to the recipient. It entails no quid pro quo or reciprocal obligations by the recipient to the personal benefit of the donor. If the recipient gives any consideration at all, then, it is not a donation.
VAT Implications for PBOs:
PBOs approved under Section 41 of the Income Tax Act are entitled to zero-rating on the following building materials:
- Roofing sheets;
- Blocks; and
To access this zero-rating, the PBO is required to apply to the Commissioner – General for zero-rating Local Purchase Orders attaching the following documents:
- Bills of quantities for the structure the PBO intends to build;
- Building plan for the structure;
- Copy of the letter of approval under Section 41; and
- Quotations for the cement, roofing sheets, bricks or blocks
PBOs are liable to pay VAT for all their other domestic purchases.
PBOs are entitled to exemption of VAT at importation for imported goods which enjoy remission, rebate or refund of duty under the Customs and Excise (General) Regulations subject to same limitations and conditions as pertain to the remission, rebate or refund of duty.
A PBO wishing to access this exemption should apply to the Minister of Finance for approval. The Customs Services Division will be instructed to configure on ASYCUDA World the approved list of goods.
Pay As You Earn (PAYE)
PAYE is the tax that an employer has to deduct from the remuneration that it pays to its employees. The employer must then pay this deducted employees’ tax over to ZRA on behalf of each of its employees as a payment towards that employee’s personal income tax liability.
A PBO will, therefore, have to register for PAYE and operate a PAYE Scheme.
Exemption Not Granted
A non-profit organisation, which has not been approved as a PBO, has to pay income tax and other taxes and duties as normal taxpayers.
Online Application Procedure
- Sign into ZRA account;
- Select registration option;
- Click on application forms option;
- Select Public Benefit Organisation and complete application;
- Then click NEXT and upload files – i.e. Constitution, Financial or Bank Statements, Certificate of Registration and proof of carrying out Public Benefit Activities