The year 2020 has shown no signs of waning in terms of economic deterioration. The Covid-19 pandemic has exacerbated Zambia’s economic position with a negative growth rate of 5 percent projected for 2020 according to the IMF[1] or 4.2 percent according to Ministry of Finance[2]. Covid-19’s disruptive nature has compounded Zambia’s economic woes by stifling the growth of multiple sectors which propel the economy such as tourism, mining, and agriculture. Therefore, several stakeholders and the citizenry were anxious to hear the 2021 Budget Address presented on Friday, 25th September, where Government proposed to spend ZMW 119.6 billion compared to ZMW 106 billion in 2020.
To stimulate economic activity in various sectors and to offer tax relief to people and businesses, a few notable changes to the tax regime have been employed.
The Minister proposed the raise of the exempt threshold for Pay-As-You-Earn to ZMW 4,000 from ZMW 3,300 per month and adjusted the income tax bands accordingly. Though Zambia’s income tax brackets may be relatively progressive compared to other regimes in Southern Africa, this sort of adjustment was long overdue given the rocketing inflation which stood at 15.5 percent as of August 2020. Therefore, the impact of this adjustment may not be substantial at present where the food basket for a family of 5 for the month of June in Lusaka stood at ZMW 7,060.80 according to JCTR[3].
The increment in import duty on some imported products in the quest to boost the local industry is justified. For example, the increase of 40 percent from 25 percent on agro products such as beef and beef processed products, pork and pork processed products, chicken and chicken processed products as well as fish imported from outside the SADC and COMESA regions is welcome as there is no reason Zambian super markets should be flooded with related imported agro commodities which can be produced locally. However, there is a need to ensure that local products remain competitive and government must ensure an enabling effective environment or else consumers will bear the brunt of the repercussions. It would be interesting, also, to see with time what this means for trade liberalisation in the region- how nations outside SADC and COMESA respond.
The boosting of the tourism sector which was immensely affected by the pandemic, where announcements of dropping corporate tax to 15 percent from 35 percent have been made, is very commendable by government. The same can be said for the mining and textile industries where import duties have been reduced or removed for specific commodities. There has been a removal of import duty on copper ores and concentrates to encourage local processing and a reduction of import duty to 5 percent from 25 percent on selected trimmings. Of course, this may translate to diminishing of government revenue, but desperate times call for desperate measures and such is cardinal in spurring activity in these targeted sectors.
One other major announcement that has been made is the reduction of the threshold for qualification of tax incentives as per the Zambia Development Agency Act No.11 of 2006 to US$ 100,000 from US$ 500,000. This is vital in promoting investments in sectors that are essential in driving the economy to recovery. Another remarkable announcement is the increment in the tax rate on betting to 25 percent from 10 percent of gross takings. Earlier this year, the ZRA Commissioner General announced that the betting industry revenue had increased from ZMW 10. 9 Million in 2018 to ZMW 49.8 Million in 2019. It is only logical that this spike in revenue generation be met with a well assessed tax obligation.
It would have been interesting to see an announcement in the budget address around taxation addressing inequality. The absence of wealth taxes is still an issue that should be addressed in relation to mitigating inequalities. Further, impact and needs assessments are vital in understanding how women are affected by taxes so that in times of an economic recession like this, deliberate tax policy changes are made precisely to empower women and other vulnerable groups.
Ultimately, these tax measures announced in the budget speech are progressive, but it is not certain that the gains will be immediately realised because of factors like high inflation and exchange rates. Therefore, this is more of a step in the direction to recovery. Government must continue to extend efforts in a consistent manner to the main sectors if the targeted growth rate of real GDP growth rate of at least 1.8 percent is to be met. Lastly, tax expenditure is costly for Zambia whose fiscal space is limited and has a huge need for debt financing, therefore ZRA has a huge task to limit tax evasion and continue to increase the tax base.
[1] https://www.imf.org/en/News/Articles/2020/07/15/pr20260-zambia-imf-staff-completes-virtual-mission#:~:text=Growth%20is%20forecast%20at%20around,collections%20and%20higher%20spending%20needs.
[2] 2021 Budget Address by Honourable Dr. Bwalya K.E. Ng’andu, Mp, Minister of Finance, delivered to the national assembly on friday, 25th september, 2020.
[3] https://www.jctr.org.zm/uploads/1/1/8/1/118170975/lusaka.pdf
LET AQUILA SPEAK 
Good analysis.
What are your views on the measures put in place for debt servicing?