2019 tax legislative changes 

1.0 INTRODUCTION

The national budget was presented to the National Assembly on Friday 28th September 2018 by the Honourable Minister of Finance, Mrs. Margaret D. Mwanakatwe.

The following key changes were enacted and became operational on 1st January 2019:

1.1 INTEREST DEDUCTION

The Income Tax Act has been amended to limit the amount of gross interest expense that can be deducted. The cap has been set at a rate of 30% of the tax earning before interest, tax, depreciation and amortisation (EBITDA).

The amendment further provides for the disallowed interest expense in a given charge year to be carried forward up to a maximum of 5 years.

The 30% cap applies to all sectors (except those regulated under the Banking and Financial Services Act, Pension Scheme Regulation Act or the Insurance Act) and to all borrowings irrespective of whether the parties are related or not.

Prior to this change, the cap was set at a debt to equity ratio of 3: 1 and was only applicable to a company carrying on Mining Operations. This provision has consequently been repealed.

Of further note is the fact that where the interest is arising from a related party, such a transaction will be subject to transfer pricing tests irrespective of whether or not such interest is within the allowable range.

1.2 RETENTION OF DOCUMENTS

The provision relating to retention of documents and information has been amended as far as it pertains to related party transactions by increasing the period of retention to 10 years from the 6 years. Transactions between independent parties will remain subject to the 6-year limitation (save for cases of fraud and wilful default) whereas transactions between related parties are now subject to the 10 year limit.

1.3 ASSESSMENT PERIOD

The period within which the Commissioner-General may raise an assessment on a business transacting with an associated person has been extended to 10 years from 6 years. However, the period within which an assessment can be raised for all other cases (except for fraud and willful default) involving independent parties shall remain 6 years.

1.4 NON COMPLIANCE WITH TRANSFER PRICING REGULATIONS

The Income Tax Act has been amended to increase the penalty for non-compliance with Transfer Pricing Regulations to 80,000,000 penalty units from 10,000 penalty units. The offence under the Transfer Pricing Regulations that attracts these penalties is the failure to comply with the Commissioner-General's notice to submit transfer pricing documentation.