On 27 September 2019, 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 2020:
Corporate tax amendments:
- Penalties and interest will be imposed on overdue payments of withholding taxes on dividends, payments to non-resident contractors, interest, royalties, rents, commissions, management and advisory fees and public entertainment fees;
- Penalties for late filing of dividend and non-resident contractor returns will be introduced;
- Interest payments to local banks and financial Institutions will be exempt from withholding tax; and
- The withholding tax rate on interest on Government Securities will be reduced from 20% to 15% in the principal Income Tax Act.
Transfer pricing amendments:
- According to the budget, the law redefines the terms “Actual conditions”, “Arm’s length conditions” and “related or associated persons”. Some selected definitions that were previously revoked have been restored. In addition, a definition of the term “taxpayer” will be introduced.
- Transfer pricing provisions will now apply in Double Taxation Agreements that Zambia has with other countries. As a result, taxpayers will now be eligible to make claims for tax credit in relation to their related party transactions. The tax authority (ZRA) will now make corresponding adjustments to avoid the double taxation of group income.
- Amend the Transfer Pricing provisions under Section 97A (13) and (14) of the Income Tax Act to:
- provide for price premium adjustments;
- empower the Commissioner General to issue specific guidelines on pricing of minerals;
- empower the Commissioner General to request a resident or non – resident person to provide, upon request third party sales Agreements and third party invoices relating to the sale under Subsections (13) and (14) of Section 97A;
- extend the use of the reference pricing to adjust the pricing of purchases between Related or Associated Persons(Parties); and
- Deem the Agreed Sale Price between a resident person or nonresident person with an unrelated person to be the reference sales price for tax purposes of the Zambian person where the agreed price is higher than the reference price and the sale to the unrelated person of the base or precious metal does not involve further milling, blending, treatment, refinement or transformation.
Customs and excise amendments:
- The excise duty on cigarettes has been increased to K265per mille from K240 per mille to maintain competitiveness of domestic producers of cigarettes and increase revenue collections; and
- Customs duty on liquefied petroleum gas has been removed. This is to promote the use of alternative sources of energy and thereby mitigate the effects of climate change.
