Zambia 2015 National Budget: What you need to know

Minister of Finance Alexander Chikwanda announced the K46.7 billion 2015 national budget today - up 9.6 percent from last year’s figure. Here is a look at how it will be financed in comparison to 2014:

The key differences are that more tax will be used to finance the 2015 budget (75%), slightly less debt (22%) and less grants (5%). The fiscal deficit is targeted to hit 4.6 percent of Gross Domestic Product (GDP) (within 5.5% range in 2014).

Key spending areas

Here is a chart comparing 2014 and 2015 spending areas by function:

Biggest increments were in Housing and community services (up 20.8%), Defense (up 18.3%) and General public services (up 12.2%). 44 percent of Economic Affairs spending will be on road infrastructure. Some interesting additions:

-          K100 million has been allocated to the recently created sovereign wealth fund which will be sustained by dividends from state-owned entities.

-          K586.7 million has been allocated to recently created Local Government Equalization Fund

-          K254.9 million has been allocated towards the E-Voucher System

-          500 extension officers and 2,000 front-line health personnel to be recruited in 2015

Debt

Domestic debt stood at K29.1 billion as at September 2014 whereas external debt was $4.7 billion. This means that total debt as a percentage of GDP is approximately 35.8 percent of GDP.

Key economic data

 Here is some other key data compared with figures from 2014:

A positive Balance of Payments of $486 million has been projected for the end of this year. Average Copper prices per metric ton (MT) are down over $700. 

VAT rule 18

Not much clarity was given in the resolution of this matter. Here is what the Minister of Finance said:

“It has been noticed that some exporters have not complied with the requirements of Rule 18 and this has led to non-payment of VAT refunds. It is Government’s desire that these concerns are resolved expeditiously and amicably.”

Key tax changes

 ·         Mining

         The following changes will replace the current two tier tax system:

          a) 8 percent mineral royalty for underground mining operations as a final tax

          b) 20 percent mineral royalty for open cast mining operations as a final tax

          c) 30 percent corporate income tax rate on income earned from tolling

          d) 30 percent corporate income tax rate on income earned from processing of purchased mineral ores,                                  concentrates and any other semi-processed minerals, currently taxed as income from mining operations.

           The proposed changes to the mining tax regime will not apply to mining of industrial minerals.


·         Aviation

           Removal of 5 percent customs duty on aviation fuel

·         Edible oils

           Increase the specific duty rate on refined edible oil to K2.20 per Kilogram from 85 Ngwee per kilogram in order to                bring it at par with the ad valorem rate of 25 percent charged on imported refined edible oil.   
  
·         Alcohol

           Increase excise duty on imported un-denatured spirits of alcoholic content of 80 percent or higher by volume to                  125 percent from 0 percent – applicable to importers not licensed to manufacture excisable products.

·         Public service vehicles

          Doubling of the presumptive tax payable by these operators.

·         Explosives

          Increase customs duty on explosives to 25 percent and on roofing sheets to 30 percent.

The 2015 budget is largely similar to last years with a few changes of which the change in taxation of the mining sector will be the big story. You can find the full speech here.