Zambia - Key changes in the tax system
1.0 INTRODUCTION
On behalf of the Zambia Revenue Authority, I wish to give the highlights of the key tax changes for the 2020 charge year that were presented by the Honorable Minister of Finance Dr Bwalya Ngandwe, which have since been assented into law and became operational on 1 st January 2020.
2.0 INCOME TAX CHANGES
2.1 Taxation of Extractive Industry
The extractive sector is a major contributor of income in the Zambian economy and it usually involves a number of multinational entities. Hence, the Zambian Revenue Authority has continued to make strides to improve domestic tax law so as to align it with international taxation principles.
We recognise the fact that the pricing of base metals or precious metals varies in the international market. Domestic legislation now allows for the use of the reference price in determining the purchase price of base metals or any substance containing base metals or precious metals between related or associated persons. Therefore, we no longer have to strictly use the LME price as the basis of computing tax. Furthermore, auditors can now adjust the reference price for base or precious metals to take into account premiums or discounts. For cases where the selling price is higher than the reference price the higher price can be considered for purposes of tax.
2.2 Taxation of International Transactions
Domestic tax law has now restricted claims made on related party transactions involving a resident and a non-resident to transactions where the non-resident is from a treaty partner jurisdiction. In addition, a time frame has been provided in which a claim for a corresponding adjustment can be made.
2.3 Administration of International transactions
In order to improve on the administration of transfer pricing, key definitions in relation to transfer pricing have been introduced, redefined and reinstated. Furthermore, in order to assist with the taxation of multinational enterprises, domestic legislation now empowers the Revenue Authority to make requests for third party information in relation to the sale of base or precious metals.
2.4 Measures to Enhance Compliance
Penalties have been introduced for non-submission of returns on income that is subject to withholding tax. Further, the withholding tax rate on interest earned by non-residents from treasury bills and government bonds has been reduced to 15% from 20%.
2.5 Reduction of capital expenditure claimable
The capital expenditure claimable in a charge year, by persons carrying on mining operations has been reduced to 20% from 25%.
3.0 CHANGES IN PROPERTY TRANSFER TAX
3.1 Changes in the Definition of Shares
The Property Transfer Tax Act has broadened the definition of shares to include equivalent rights. This is to enable the taxation of instruments that have the characteristic of shares.
3.2 Taxation of indirect transfer of shares
The base of computing the realized value on indirect transfer of shares has been broadened by providing two additional valuation methods and providing for selecting the option that gives a higher value as the basis on which tax will be charged. The law now exempts from property transfer tax, indirect transfers that are strictly for re-organisational purposes and do not change the effective shareholding with respect to the Zambian company. This is subject to the company of interest being part of the group for not less than 3 years.
4.0 CHANGES IN VALUE ADDED TAX
4.1 Services that are now liable to Value Added Tax (VAT)
VAT zero-rating for goods-in-transit is now restricted to freight transport services.
4.2 Initiatives to Combat Fiscal Evasion
Taxpayers liable to VAT are required to use electronic fiscal devices in the recording of sales and issuing of invoices. Further, it is now mandatory for taxable suppliers to have an electronic payment machine to facilitate non-cash payments. Furthermore, taxpayer identification numbers are to be recorded in all Business-to-Business and Business-to-Government transactions.
Issued by:
Mutinta C. Chumba
CATA Country Correspondent