On 25 September 2020, the Minister of Finance (MOF) presented the budget for 2020 to the National Assembly. Under the budget the following important amendments to the Income Tax Act will take effect from 1 January 2021:

Corporate tax amendments:

  • Proposes to reduce the Corporate Income Tax (CIT) rate from 35% to 15% on income earned by hotels and lodges on accommodation and food services;
  • Proposes to increase the presumptive tax on betting from 10% to 25% on gross earnings;
  • Proposes to introduce 2% local content allowance under the corporate tax for utilization of local raw materials such as mangoes, pineapples, and cassava;
  • Insert a subsection in the appropriate place in Section 29 of the Income Tax Act to clarify that the rule limiting the interest deductibility is applicable to aggregate interest expense.

Transfer pricing amendments:

Amend the Transfer Pricing Regulations to provide for the Country by Country (CbC) Report. The measure will provide for the automatic exchange of the relevant Country by Country reports with other tax Jurisdictions for entities operating in Zambia that are part of the Multi-National Enterprises group. The measure is one of the requirements under the Inclusive Framework on Base Erosion and Profit Shifting (BEPs) to which Zambia is a member.

Amend the Transfer Pricing Regulations to increase the threshold to ZMW 50 million from ZMW 20 million for local companies that are not required to provide transfer pricing documentation. The measure seeks to extend the exemption from providing transfer pricing documentation to local small and medium-sized businesses that have an annual turnover of ZMW 50 million and below. Currently, only businesses that have an annual turnover of ZMW 20 million and below are exempt.

Withholding Tax amendment:

Amend the Income Tax Act to provide for the charging of Withholding Tax (WHT) on payments made by a Zambian resident to a non-resident in respect of royalty financing arrangements.

Indirect Tax amendment:

  • Zero rates the following equipment used for full-body sanitization to combat the spread of Covid-19:
    • The measure intends to zero-rate full-body sanitization equipment for a specified period of one year with effect from 26th September 2020 to support the fight against the COVID-19 pandemic;
  • Extend the zero-rating of tractors to those above 90 horsepower. This measure intends to support the scaling up of agricultural productivity through mechanization;
  • Increase customs duty to 40% from 25% on the following agro-products; beef and beef processed products of HS Code heading 0201, pork and pork processed products of HS Code heading 0203, chicken and chicken processed products HS Code heading 0207, and fish of HS Code heading 0302;
  • Reduce customs duty to 15% from 30% on electric motor vehicles of HS 8703.80.90;
  • Remove 5% customs duty on copper ores and concentrates of HS Code heading 2603.