Zambia Weekly Wrap - October 11 Edition

​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)
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​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.

Revenues
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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.

Expenditure

​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.
 
Tax Concessions 

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:

• Capital allowance for implements, machinery and plant used in the generation of electricity increased from 25% to 50%
• 10 year period for carrying forward losses for  businesses engaged in the generation of electricity using hydro and thermal will now include businesses generating electricity using other sources of energy such as wind and solar, but excluding wood
• Increasing of the period for claiming input Value Added Tax, as an intending trader, for electricity generation  from 2 to 4 years
• Removal of the 5% customs duty on Pitch Coke and the 15% customs duty on Petroleum Coke

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. 

Additional Measures

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.
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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!
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SA Corporate buys 50 pct stake in a property portfolio in Zambia

The Proposed Transaction will be implemented as follows:

- the purchase of 50% of the shares of, and loan claims in, Graduare Mauritius, to acquire an interest in the property referred to as East Park Mall;
- the purchase of 50% of the shares of, and loan claims in, LM&C Mauritius, to acquire an interest in the property referred to as Acacia Office Park; and
- the purchase of 50% of the shares of Ancona Mauritius, to acquire an interest in the property referred to as Jacaranda Mall. (Read more)

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Government Launches US$500 million building materials Industrial Park

Government has launched the US$ 500 million Simona Group Building materials industrial park in Lusaka which will produce cement, pan bricks and other building materials for both export and domestic markets. (Read more)


Hisense enters Zambian market

Chinese electronics manufacturer, Hisense, has officially entered Zambia as of today. The announcement was made at a gala event held in Zambia's capital city Lusaka.The company used the opportunity to showcase its products, including a new range of smartphones and televisions, including ultra LED (ULED) models. (Read more)

President Lungu Appoints New Ministers for Newly Created Ministries

President Edgar Lungu has appointed new Ministers for the newly created Ministries. In a Statement released to the media by his Special Assistant for Press and Public Relations Amos Chanda, the President has elevated UPND MP Greyford Monde to full Cabinet Minister to head a newly created Ministry of Fisheries and Livestock and the appointment takes effect immediately. (Read more)


Zambian mining firms ask for reduced royalties to cope with slump

Mining companies in Zambia have asked the government to set mineral royalties for both underground and open pit operations at 6 percent to mitigate the negative impact of falling copper prices on the industry, sources said. (Read more)

Millers increase Price of Mealie Meal as Government says there is no justification
Government has said that there is no justification for millers to increase the price of Mealie meal. Chief Government Spokesperson Chishimba Kambwili has said that the depreciation of the Kwacha has not affected the millers in anyway because the maize they have now was bought last year and at a reduced price. (Read more)


ECZ captures 301,103 new voters
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The Electoral Commission of Zambia has disclosed that 301,103 new voters were added to the voters register during the first phase of the voter registration exercise.The exercise ran from September 14 to September 21 2015. A further 324,941 voters verified their details wit regard to transfers, card replacements and amendments. (Read more)

​​Zambia's Performance on the Latest Mo Ibrahim Index

Download full report here under Southern Africa.

​Key Data