Finance Minister Releases the 2016 National Budget
Mr. Speaker, in 2016, Government proposes to spend K53.14 billion, representing 25.8 percent of GDP. This will be financed through domestic revenues of K42.11 billion and grants from co-operating partners of K550 million. Financing will comprise K6.07 billion in net external financing representing 2.9 percent of GDP and net domestic borrowing of K1.75 billion representing 0.9 percent of GDP. Amortisation is projected at K2.66 billion. (Download full document)
The K53.14 billion figure was a surprise to a lot of people because the Medium Term Expenditure Framework (MTEF) for 2016 to 2018 (basically a preview of the next 3 national budgets) had pegged that figure to K48.8 billion.
The 2016 budget is projected to have more tax revenue financing at K42.1 billion (79% of total) this year versus K35.1 billion (75% of total) in 2015. Domestic debt financing will be less by 33% where as foreign program and project financing will be higher by about 90% in 2016. Grants are projected to finance 1% of the total budget.
Here are 4 charts comparing the major differences between 2015 and 2016:
By far the biggest increase will come from the non-tax revenue category of ‘fees and fines’ which are forecast to increase 16-fold from 2015 to K7.6 billion. The Government recently increased all user fees and fines significantly “as a way to capture the full cost of providing the services”. The forecast for mineral royalties has been slashed by 51% year-on-year because of the revision of the 2015 mining tax and depressed global copper markets.
According to the MTEF 2016-18, public wages are set to increase by 14% to K18.9 billion or 45% of projected tax revenues. Other than that, the top 3 most notable expenditure items are road infrastructure (K6.6bn), external debt interest (K3.6bn) and domestic debt interest (K3.5bn):
The country’s debt servicing costs have increased significantly – the combined debt servicing costs of K6.9bn will exceed the entire amount allocated to road infrastructure again in 2016! Wages and debt servicing will consume slightly over 61% of projected tax revenue.
The Minister included a number of tax breaks which will affect the following sectors:
Energy: In addition to the raising of electricity tariffs from around $0.056 per Kwh to $.1053 per Kwh, the Government added the following tax breaks:
Beverages: Excise duty on clear beer will be reduced from 60% to 40%.
Horticulture: Removal of the 15% and 5% customs duty rates currently applicable on greenhouses and rose seedlings, respectively.
Government Securities: Restructuring of the taxation of interest on Government bonds by removing the withholding tax applicable on the discount income while maintaining it on the coupon income.
Property Transfer: Property Transfer Tax on land and shares will be reduced to 5% from 10%.
Media: Customs duty on transmission apparatus for television and radio will be suspended for 2 years.
Taxes and Amendments
A number of revenue-raising measures and some tax rule adjustments were proposed in the following sectors:
Real Estate: Restructuring of the taxation on withholding tax to provide for a landlord to account for tax on rentals in circumstances where the tenant cannot withhold the tax.
Consulting: 15% withholding tax on income earned from the provision of management and consultancy services by resident consultants. This will not be a final tax.
Insurance: Removal of Value Added Tax and introduction of a 3% levy at on insurance premiums.
Cigarettes: Increase the specific excise duty rate on cigarettes to K200 from K90 per 1,000 sticks.
Wood and Timber: Introduction an export duty on unprocessed wood of 40% and semi processed wood at 20%. In addition, the customs duty on all wood and wood products will be increased to 40%.
Edible Oils: The specific customs duty rate on refined edible oils will be increased from K2.20 to K4.0 per litre.
Plastic bags: Excise duty on plastic carrier bags will be increased from 10% to 20%.
Transport: Customs duty on selected categories of motor vehicles excluding buses and trucks will be revised upward. A surcharge of K2,000 on motor vehicles older than 5 years from the year of manufacture will be introduced.
Real Estate: Consideration fees for any category of land to be acquired by non-Zambians will be adjusted upwards relative to the market value. Consideration fees for high cost residential, commercial and industrial land will also be revised relative to market value. These took effect on Friday 9th of October at midnight.
Fees and Fines: Various fees and fines will be increased including those collected under the Ministries responsible for Immigration and Forestry.
VAT administration: The Government will put in place measures that will require VAT registered vendors to use electronic fiscal cash registers which will be interfaced with the TaxOnline System.
Trade: Government will accelerate the implementation of an Electronic Cargo Tracking System.
All the proposals will take effect from January 1 2016 unless specified otherwise.
Overall, there is a lot to like in the 2016 national budget and a number of growing sectors such as insurance and alternative energy will be buoyed by some of the proposals. Cutting back on domestic borrowing should also boost businesses by resulting in lower lending rates (currently averaging at 20.5%). A lot of the measures will complement those which were detailed in President Lungu’s speech to open parliament last month e.g unbundling of certain Ministries, measures in Agriculture etc.
However, as we all know (or should), the Government can set out as many policies as they like but what matters is how they execute – which, judging from their financials over the last few years, could use significant improvement. Now would have been the best time to also provide tax break for players in the ICT segment with a view to a reduction in the cost of services over the long run and it is unfortunate that this has been left out again. It has the potential to contribute significantly the the country's economic growth and employment.
The Government has also set out a very ambitious fiscal deficit of 3.8% (6.9% in 2015) of Gross Domestic Product (GDP) in 2016, an election year. Election years drive politicians mad so it’s difficult to say with certainty whether the Government will be disciplined enough to stay on course and achieve the targets they have outlined. We’ll have to wait and see!
Zambia's Performance on the Latest Mo Ibrahim Index
Download full report here under Southern Africa.
Trying to decipher this puzzle that is Zambia by using a variety of publicly available data (structured and unstructured) in conjunction with my own skill/experience. * * *