DOMESTIC TAXES DIVISION

PRACTICE NOTE NO. 1/2011

CONTENTS PAGE

1.0 FOREWORD 2

2.0 SUMMARY OF CHANGES TO THE INCOME TAX

ACT (ITA) 3

3.0 SUMMARY OF CHANGES TO THE PROPERTY

TRANSFER TAX (PTT) ACT 4

4.0 SUMMARY OF CHANGES TO THE VALUE ADDED

TAX (VAT) ACT 4

5.0 AMENDMENTS TO THE FIRST SCHEDULE OF VAT ACT 5

6.0 AMENDMENTS TO THE SECOND SCHEDULE OF VAT ACT 5

7.0 AMENDMENTS TO THE (GENERAL)(AMENDMENT) 6

REGULATIONS OF VAT ACT

8.0 AMENDMENTS TO THE COMMISSIONER GENERAL

RULES OF VAT ACT 6

9.0 COMMENTARY ON THE INCOME TAX (AMENDMENT) ACT NO. 49 OF 2010 6

10.0 COMMENTARY ON THE PROPERTY TRANSFER

TAX (AMENDMENT) ACT NO. 50 OF 2010 11

11.0 COMMENTARY ON THE VALUE ADDED TAX

(AMENDMENT) ACT NO. 48 OF 2010 12

12.0 COMMENTARY ON THE STATUTORY INSTRUMENT

# 49 OF 2011 (PRINCIPAL EXEMPTION ORDER) 13

13.0 COMMENTARY ON THE STATUTORY INSTRUMENT

# 50 OF 2011 (VAT ZERO-RATING ORDER) 18

14.0 COMMENTARY ON THE STATUTORY INSTRUMENT

# 88 OF 2010 (VAT REGULATIONS) 19

15.0 COMMENTARY ON GAZETTE NOTICE 816 OF 2011

THE RULE # 4 - TAX INVOICES 20

16.0 OTHER MATTERS 20

17.0 ZAMBIA REVENUE AUTHORITY - DOMESTIC TAXES DIVISION

CONTACT ADDRESSES 21

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1.0 FOREWORD

This PRACTICE NOTE describes the various changes introduced by the Income Tax (Amendment) Act
No. 49 of 2010, the Property Transfer Tax (Amendment) Act No. 50 of 2010, and the Value Added Tax
(Amendment) Act No. 48 of 2010, Statutory Instruments Nos. 87 of 2010(VAT Exemption Order), 88 of
2010(VAT Zero-rating Order), 89 of 2010(VAT Regulations) and Gazette Notice No. 816 of
2010(Commissioner-General Rules).

The commentary is for general guidance only and is not to be taken as authority in any particular case.

The commentary is not exhaustive and does not, therefore, affect any person's right of appeal on any
point concerning their liability to tax, nor does it preclude any discretionary treatment which may be
allowed under the Acts.

Inquiries may be made at the nearest office of the Zambia Revenue Authority, Domestic Taxes Division
or Client Service Centres, in Lusaka and Kitwe.

Wisdom M. Nhekairo

COMMISSIONER-GENERAL

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 2.0 SUMMARY OF CHANGES TO THE INCOME TAX ACT (ITA)

ITA Section Subject

1 Title and commencement

2 Introduces the following new definitions: “electronic communications

networks”; “electronic communications services” and “licensee.”

21 Increases the exempt portion of terminal benefits from ZMK25, 000, 000 to
ZMK35, 000, 000.

43C Repeals the section for the deduction of mortgage interest.

56 Removes the requirement to submit audited accounts

100 Introduces specific penalt ies for submission of incorrect return and other
documents for mineral royalty.

Fifth Schedule Renumbers subparagraph (8) a s new subparagraph (4) and provides
Para 22 reference to the Mines and Minerals Development Act

Charging Increases the tax credit applicable to differently abled persons from K1, 920,
Schedule 000 per annum to K3, 000, 000 per annum.
Para
1(1)(b)

Charging Increases the income band taxable at zero per centum for individuals from
Schedule K9,600,000 to K 12, 000, 000 per annum
Para
2(1)(c) & (d) Increases the income band taxable at twenty -five per centum for individuals
by K2,400,000 per annum.
Charging
Schedule Reduces the income band taxable at 30 per centum for individuals by
Para K3,600,000 per annum.
2(1),(e)

Charging Increases the income band taxable at thirty-five per centum for individuals
Schedule by K 1,200,000 per annum.
Para
2(1)(f)

Charging Introduces a tax rate of 40% on income in excess of K250,000,000 per

Schedule annum for the telecommunications sector.
Para 3(c) and
(d)
Charging Corrects the drafting error by placing the fo rmula for variable pro fit tax in the
Schedule appropriate subparagraph.
Para
3(f)

General Replaces the words “Direct Taxes Division” with the words “Domestic
Amendment Taxes Division” wherever they appear in the Act

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 3.0 SUMMARY OF CHANGES TO THE PROPERTY TRANSFER TAX (PTT) ACT
PTT Act Subject
Section
1 Title and commencement

4 Increases the Property Transfer Tax rate from three per cent to five per cent.

9 Introduces anti avoidance provisions in the Property Transfer Tax Act.

4.0 SUMMARY OF CHANGES TO THE VALUE ADDED TAX (VAT) ACT

Subject
VAT Act Section
1 Title and commencement

2 (a) Amends the definition of “Commercial Property”

(b) Amends the definition of “Tribunal”

(c) Introduces the definition of “Accounting Year ”

(d) Introduces the definition of “Health facility”

.
34 Replaces the words “Commissioner of Value Added Tax” with the words
“Commissioner of Domestic Taxes”

General a) Replaces the words “Commissioner of Value Added Tax” with the words
“Commissioner of Domestic Taxes” wherever the words appear in the Act;

b) Replaces the words “Value Added Tax Division” with the words “Domestic Taxes
Division” wherever the words appear in the Act; and

c) Replaces the words “Value Added Tax Appeals Tribunal” with the words “Revenue
Appeals Tribunal” wherever the words appear in the Act.

5.0 AMENDMENTS TO THE FIRST SCHEDULE OF VAT ACT

Statutory
Instrument Subject
# 50 of 2011
(a) Revokes Statutory Instrument # 50 of 2010.

(b) Consolidates all statutory instruments for VAT exemptions

(c) Introduces the definitions of life policy and poultry

(d) Exempts re-insurance transactions

(e) Exempts fees for agents and broker for re-insurance

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(f) Exempts insurance policies entered into before 1 January 2011

(g) Removes non-life insurance policies from the exemption schedule thereby making
them standard rated

(h) Provides a revised list of exempt financial services

(i) Itemises the funeral services that are exempt from VAT

(j) Aligns the reliefs at importation to the Customs and Excise (General) Regulations,
2000 and Customs and Excise (Public Benefit Organisation ) ( Rebate, Refund or
Remission) Regulations, 2009.
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 6.0 AMENDMENTS TO THE SECOND SCHEDULE OF VAT ACT

Statutory Subject
Instrument # 49
of 2011 (a) Revokes Statutory Instrument # 49 of 2011

(b) Consolidates all statutory instruments for the VAT zero -rating.

(c) Amends the definitions of “donor funding” and “tourist”

(d) Removes the definition of “poultry”

(e) Introduces zero-rating for hammer mills

7.0 AMENDMENTS TO THE (GENERAL)(AMENDMENT) REGULATIONS OF VAT ACT

Statutory
Instrument # 88
of 2010
Regulation Subject

(a) Consolidates all statutory instruments for the VAT Regulations ;

(b) Limits the value of allowable gifts or goods supplied as promotional materials to
any individual in a tax year to K100,000; and

(c) Removes the provision for Government Agencies (except those that make taxable
supplies) to register for VAT for purpose of accounting for VAT on disposal of
assets.

8.0 AMENDMENTS TO THE COMMISSIONER GENERAL RULES OF VAT ACT

Gazette Notice #
816
Of 2010 Subject

Allows banks to use bank statements as tax invoices

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 9.0 COMMENTARY ON AMENDMENTS TO THE INCOME TAX ACT

9.1 SECTION 1: TITLE AND COMMENCEMENT

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The amendments to the Income Tax Act shall come into effect on 1 April 2011.

9.2 SECTION 2: INTERPRETATION

Section 2 of the Principal Act is amended by the insert ion in

the appropriate places of the following new definitions:

9.2.1 “electronic communication network” has the meaning assigned to it

in the Information and Communications Technologies Act, 2009 ;

The Information and Communications Technologies Act defines ‘electronic

communication network’ as transmission systems and where applicable, switching or
routing equipment and other resources which permit the conveyance of signals by wire,
by radio, by optical or by other electro -magnetic means, including satellite network, fixed
(circuit and packet switch, including internet) and mobile terrestrial networks, electricity
cable systems, to the extent that they are used for the purpose of transmitting signals,
networks used for radio and television broadcasting and cable television networks,
irrespective of the type of information conveyed.

9.2.2 “Electronic communications service” has the meaning assigned to it in the

Information and Communications Technologies Act, 2009;

The Information and Communications Techno logies Act defines ‘electronic

communications service’ as a service normally provided for remuneration which consists
wholly or mainly in the conveyance of signals on electronic communication networks,
including telecommunications services and transmission services in networks used for
broadcasting, but excluding editorial control over, content transmitted using electronic
communication networks and services; it does not include information society services

9.2.2 “Licensee” has the meaning as signed to it in the Information and Communications
Technologies Act, 2009.

The Information and Communications Technologies Act defines Licensee as the holder of
a network license and /or a service license. A network license means an electronic
communications license entitlin g the holder to construct, on and make available an
electronic communications network and /or to provide a network service to a customer.
Service licence means an electronic communications license entitling the holder to
provide one or more electronic communications services.

This amendment is intended to provide clarity in determining businesses that are

operating in the electronic communications sector.

9.3 SECTION 21: APPORTIONMENT OF GRATUITIES AND

COMPENSATION FOR LOSS OF OFFICE

Section twenty-one of the principal Act is amended in

Sub section (5) by the deletion of the words “twenty-five million kwacha” and the
substitution therefor of the words “thirty-five million kwacha”.

This amendment increases the exempt threshold of terminal benefits from ZMK25 million
to ZMK35 million. The balance remains taxable at 10%.

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9.4 SECTION 43(C): DEDUCTION FOR MORTGAGE INTEREST

The principal Act is amended by the repeal of section forty-three C which was reintroduced
in the 2008/09 charge year.
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This implies that mortgage interest incurred after 31 March 2011 is not deductible.
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NB. Interest incurred between 1 April 2008 and 31 March 2011, may still be deductible.

9.5 SECTION 56: DOCUMENTS IN SUPPORT OF RETURNS

Section fifty-six of the principal Act is amended by:

(a) The deletion of subsection (2); and
(b) The renumbering of subsection (3), (4), (5) and (6) as (2), (3), (4) and (5) respectively.

This amendment revokes the requirement to sub mit audited accounts for companies . In
addition, it is not mandatory for other taxpayers to submit audited accounts.

9.6 SECTION 100: PENALTY FOR INCORRECT RETURNS ETC

Section one hundred of the principal Act is amended by the Deletion of subsection (1) and
the substitution therefor of the following Subsection:
(1) A person who negligently, fraudulently or through wilful default -
(a) Fails to furnish a return of income in accordance with the requirements of
subsection (2) of section forty-six;
(b) Fails to furnish a provisional return of income and tax in accordance with the
requirements of section forty-six A;
(c) Makes an incorrect return by omitting or understating any income of which the
person is required by this Act to make a return;
(d) Gives any incorrect information in relation to any matter affecting the person’s
own liability to tax or the liability to tax of any other person; or
(e) Submits any incorrect balance sheet, account, or other document;

Shall pay a penalty equal to:

(i) In relation to a person liable to pay mineral royalty under the Mines and Minerals
Development Act, 2008:
(A) In case of negligence, one point five per cent of the gross value or norm value
(B) In case of fraud, four point five per cent of the gross value or norm value; and
(C) In the case of wilful default, three per cent of the gross value or norm value ;
Omitted or understated, in consequence of such failure, incorrect return, information or
submission; and

(ii) In any other case:

(A) In the case of negligence, seventeen point five per cent of the amount;
(B) In the case of fraud, fifty-two point five per cent of the amount; and
(C) In the case of wilful default thirty-five per cent of the amount;
Omitted or understated, in consequence of such failure, incorrect return, information or
submission; and
(i) In any other case:
(A) In the case of negligence, seventeen point five per cent of the amount;
(B) In the case of fraud, fifty-two point five per cent of the amount; and
(C) In the case of wilful default thirty-five per cent of the amount;
Of any income omitted or understated, or any expenses omitted or overstated, in consequence of
such failure, incorrect return, information or submission.
The amendment introduces specific penalties for submission of incorrect mineral royalty returns
of 1.5%, 3%, and 4.5% for negligence, wilful default and fraud respectively.
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9.7 FIFTH SCHEDULE PART VI: MINING DEDUCTIONS
The fifth Schedule of the principal Act is amended in paragraph 22 by the deletion of
subparagraph (8) and the substitution therefor of the following new paragraph:
(4) A deduction shall be allowed in ascertaining gains or profits of a person involved in mining
operations in respect of actual costs incurred by way of restoration and rehabilitation works or
amounts paid into the Environmental Protection Fund pursuant to section one hundred and
twenty-two of the Mines and Minerals Development Act, 2008.

This amendment renumbers paragraph (8) as (4) and also makes reference to the Mines and
Minerals Development Act, 2008. Previously, it made reference to the Mines and Minerals Act
which was repealed in 2008.

9.8 CHARGING SCHEDULE

(a) Paragraph 1(1) (b) Tax Credit –
This amendment increases the tax credit for differently-abled persons from one million
nine hundred and twenty thousand kwacha per annum to three million kwacha per
annum.

The tax credit is in addition to the K12, 000, 000 exempt portion of taxable emoluments
per annum.

Example:
Mr. X who is differently -abled earns K70,000,000 and Mrs Y who is not differently -abled also
earns K70,000,000.00 as taxable income in the charge year 2011/2012.

Their tax computations will be as below:

Table 1 Mr. X Mrs. Y

Annual Taxable Income K70,000,000 K70,000,000
First K12, 000, 000 @ 0% 0 0
Next K8, 820, 000 @ 25% K2, 205, 000 K2, 205, 000
Next K29, 580, 000 @ 30% K8, 874, 000 K8, 874, 000
Balance K19, 600, 000 @ K6, 860, 000 K6, 860, 000
35%
TOTAL TAX K17, 939, 000 K17, 939, 000
Less: Tax Credit K3, 000, 000 Nil
Tax Payable K14, 939, 000 K17, 939, 000
Note that according to section 14(3) of the ITA, where the tax credit exhausts the tax payable, the
excess shall not result in a tax refund.
(a) Paragraph 2(1) (c) and (d) Rates of Tax –
The amendment increases the annual income band taxable at zero per centum for individuals
from K9, 600,000 to K12, 000, 000. This means that an individual who earns up to K1, 000,000
per month or up to K12, 000, 000 per annum shall not pay Income Tax.

The income bands have equally been adjusted as shown in the table below:
Table 2
Rates
2011/2012 CHARGE YEAR 2010/2011 CHARGE YEAR
Income Bands Income Bands

First K12, 000,000 First K9, 600,000 @ 0%

Above K12, 000, 000 up to K20, Above K9, 600, 000 up to @ 25%
820, 000 K16, 020, 000
Above K20, 820, 000 up to K50, Above K16, 020, 000 up to K49, 2 00, @ 30%
400, 000 000
Above K50, 400, 000 Above K49, 200, 000 @ 35%
The adjustment means that the income bands taxable at zero per centum and thirty per centum
respectively have been increased by K 2,400,000 per annum.
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 Further, the income band taxable at thirty per centum has been reduced by K 3,600,000 per
annum. While the upper income band taxable at thirty -five per centum has been increased by
K1,200,000 per annum.

(b) Paragraph 3(c) and (d) Rates of tax for companies

The amendment introduces a tax rate of 40% on income exceeding

K250, 000,000 per annum for electronic communications network and electronic communications
service licensees. Profits up to K250 million will continue to be taxed at 35%.

(c) Paragraph 3
This amendment corrects the drafting error by placing the following formula for
variable profit tax in the appropriate subparagraph:

Y=30% + [a-(ab/c)]
Where:
Y=the tax rate to be applied per annum
a=15%
b=8% and
c=the percentage ratio of the assessable income to gross sales

10.0 COMMENTARY ON AMENDMENTS TO THE PROPERTY TRANSFER TAX ACT

10.1 SECTION 1: TITLE AND COMMENCEMENT

The amendments to the Property Transfer Tax Act shall come into effect on 1st April 2011.

10.2 SECTION 4: PROPERTY TRANSFER TAX RATE

Section four of the principal Act is amended in subsection (2) by the deletion of the words “three per cent” and the
substitution therefor of the words “five per cent”.

This amendment increases the rate of property transfer tax from 3% to 5%.

10.3 SECTION 9: TRANSACTIONS DESIGNED TO AVOID TAX LIABILITY

The principal Act is amended by the insertion immediately after section nine A of the following new section:

9B (1) Where the Commissioner General has reasonable grounds to believe that the main purpose or one of the main
purposes for which any transaction was effected was the avoidance or reduction of liability to tax for any charge
year, or that the main benefit which might have been expected to accrue from the transaction within the three years
immediately following the completion therefor, was avoidance or reduction of liability to tax, the Commissioner
General may, if the Commissioner General determines it to be just and reasonable, direct that such adjustments
shall be made as respects liability to tax as the Commissioner General considers appropriate to counteract the
avoidance or reduction of liability to tax which would otherwise be effected by the transaction.

(1) Without prejudice to the generality of the powers conferred by subsection (1), the powers conferred thereby
extend to:
(a) The charging with tax the income of persons who, but for the adjustments, would not be chargeable with
any tax or would not be chargeable to the same extent; and
(b) The charging of a greater amount of tax than would be chargeable but for the adjustments.
(2) Any direction of the Commissioner General under this section shall specify the transaction giving rise to the
direction and adjustments as respects tax.

The amendment empowers the Commissioner General to make adjustments where he believes that transactions are
entered into or carried out to avoid or reduce the liability to tax.

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11.0 COMMENTARY ON AMENDMENTS TO THE VALUE ADDED
TAX ACT

11.1 SECTION 1 : TITLE AND COMMENCEMENT

All amendments to the Value Added Tax Act shall come into effect on 1st January 2011.

11.2 SECTION 2 : INTERPRETATION

Section 2 of the Principal Act is amended by insertion of the following definitions:

11.2.1 “Accounting Year” means a period of twelve months ending on 30th June or such other period
as the Commissioner General may prescribe.

The amendment provides the definition of accounting year which was not previously provided
for. The Commissioner General may by administrative rule prescribe different
accounting years.

11.2.2 “Commercial Property” means a building that is used for

commercial purposes and includes an office building, industrial building, health
facility, hotel, shopping mall, retail store, shopping centre, warehouse, garage,
recreation centre, dwelling house and multi-facility dwelling apartment.

The amendment corrects the drafting error contained in the VAT Amendment Act # 29 of
2009 where “shopping mall” was spelt as “shopping mail”.

11.2.3 “Tribunal” means the “Revenue Appeals Tribunal” established under the Revenue Appeals
Tribunal Act of 1998.

The amendment replaces the words “Value Added Tax Appeals Tribunal” with the words
“Revenue Appeals Tribunal” in the VAT Act.

11.2.4 “Health Facility” has a meaning assigned to it in the Health Professions Act”

The Health Professions Act defines Health Facility as any site fixed or mobile providing
services for the prevention, diagnosis and treatment of disease or illness and includes
a diagnostic centre, a hospice and a hospital.

11.3 SECTION 34: DELEGATION BY THE COMMISSIONER GENERAL

The principal Act is amended in Subsection (2) of Section thirty-four by the deletion of the
words “Commissioner of Value Added Tax” and the substitution therefor of the words
“Commissioner of Domestic Taxes”.

The amendment aligns the VAT Act to the administrative changes that have taken place under
the Zambia Revenue Authority modernization programme which has seen the merging of
former Direct Taxes and VAT Divisions.

11.4 GENERAL

11.4.1 The principal Act is amended by the deletion of the words “Commissioner of Value Added Tax”
wherever they appear and substitution therefor of the words “Commissioner of Domestic Taxes”.

11.4.2 The principal Act is amended by the deletion of the words “Value Added
Tax Division” wherever they appear and substitution therefor of the words “Domestic Taxes Division”.

These amendments align the VAT Act to the administrative changes that have taken place
under the Zambia Revenue Authority modernization programme which has seen the
merging of former Direct Taxes and VAT Divisions.

11.4.3 The principal Act is amended by the deletion of the words “Value Added Tax Appeals Tribunal” wherever
they appear and substitution therefor of the words “Revenue Appeals Tribunal”.

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 The amendment changes the wording “Value Added Tax Appeals Tribunal” to “Revenue Appeals
Tribunal.”

12.0 COMMENTARY ON STATUTORY INSTRUMENT # 49 OF 2011 (PRINCIPAL EXEMPTION ORDER)

12.1 Statutory Instrument # 49 of 2011 revokes and replaces Statutory Instrument # 87 of 2010.

The amendment replaces the First Schedule with a new First Schedule and also provides the
definitions for life insurance and poultry.

12.2 GROUP 6 – CONVEYANCE, ETC OF REAL PROPERTY

Paragraph (b) has been amended to read as follows:

“The sale or lease of dwelling houses, other than the development of dwelling houses.”

The amendment excludes the development of dwelling houses for sale from the exemption schedule,
thereby making them standard rated.

12.3 GROUP 7 – FINANCIAL AND INSURANCE SERVICES

12.3.1 Paragraph (a) exempts the provision of ownership of any contract of life insurance policy.

“Life Policy” means a policy under which the insurer assumes a contingent obligation dependent on
human life, or a life insurance contract, but does not include-

a) a funeral policy; or

b) a policy under which the contingent obligation dependent on human life forms a subordinate part
of the insurance effected by the policy.

This means that an insurance policy qualifies as a life policy if the main purpose of the policy is to insure
human life.

The fees earned by agents and brokers dealing in life insurance are also exempt.

Paragraph (b) exempts the provision of any re-insurance transactions.

The fees earned by agents and brokers dealing in re-insurance are also exempt.

Paragraph (c) exempts all insurance policies which were underwritten before 1st January 2011.

For example, if a non-life policy was bought on 1st August 2010 and runs to 31st July 2011, the portion
that relates to the period after change in law shall be exempt. This means that the provisions of Section
47 of the VAT Act Cap 331 shall not apply to insurance transactions.

12.3.2 Accounting for VAT on non-life insurance premiums and commissions:

a) VAT on premiums:

Scenario 1: Direct Transaction between the Insurance Company and Insured

This scenario covers transactions where the insurance company issues the policy directly to the
insured. In this case, the insurance company will issue a tax invoice for the premium. The insured will be
entitled to claim back the VAT paid if they are VAT registered and the premium is incurred in the course
of or furtherance of the business carried on by them. Where the insured is the ultimate consumer
(unregistered for VAT), they will not be able to claim the insurance

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 INSURED
INSURANCE

Scenario 2 – Policy Issued Through Broker

This scenario covers transactions conducted through a broker. Section 8(3) of the VAT Act places the
responsibility of accounting for VAT on the supplier of the goods and services. Therefore, the supplier of the
policy is the insurance company and is liable to account for the tax and not the broker/ agent. Further Section
13(2A) defines the time when the tax is due to Zambia Revenue Authority as the earliest of the following:
1. The time the invoice is issued;
2. The time when payment is made; or
3. The time the service is rendered (policy is underwritten).

Therefore, the respective insurance companies will be expected to account for VAT on policies underwritten
in the month by their brokers on or before the 21st day of the following month. Insurance brokers will only be
expected to issue receipts and not tax invoices for premiums received on behalf of insurance companies.

a) VAT on commission by insurance brokers/ agents

Insurance Brokers/ Agents render arrangement services between Insurance companies and the Insured and
they earn a commission for services rendered. Following this amendment the arrangement services shall be
taxable at standard rate if the policy being arranged is non-life insurance.

Irrespective of the method of payment (commissions paid through offsets or withholding from premium
remittances, etc.), VAT is payable on the full commissions earned.

The diagrammatic presentations below show the flow of transactions for VAT purposes:

INSURANCE INSURANCE
AGENT/ COMPANY

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The insurance broker/ agent will issue a tax invoice to the insurance company on the commission earned for
arranging the insurance policy on behalf of the insurance company. The insurance company is entitled to claim back
the VAT charged on the commissions by the insurance broker/ agent.

Where an Insurance Broker arranges policies on behalf of the insured, the broker will be required to account for VAT
on the commission earned from the insured. The insured is entitled to claim back the VAT charged on the
commissions by the insurance broker/ agent as long as the insured is registered for VAT.

12.3.3 Paragraph (b) has been repealed and replaced by the following new paragraph (d):

i. Up-country cheques;
ii. Returned cheques;
iii. Buying and selling of foreign currency;
iv. Commission on on-line and TT transactions;
v. Commission on local drafts and transfers;
vi. Commission on foreign drafts and transfers;
vii. Negotiable bills;
viii. Electronic transfers;
ix. Special clearance;
x. Traveller's cheques;
xi. Letters of credit;
xii. Interest on lending to banks;
xiii. Interest on lending to customers;
xiv. Any charge on savings account;
xv. Maintenance activity or ledger fees;
xvi. Account maintenance;
xvii. Closure of accounts;
xviii. Cheque books;
xix. Internet banking;
xx. Bank of Zambia treasury bills handling charges;
xxi. Commission on postage;
xxii. Commitment fees; and
xxiii. Arrangement fees in provision of credit

This amendment lists the banking services that are now exempt from VAT. It further standard rates the following
banking services which were previously exempt:

1. Commission on certified vouchers;

2. Manager's or banker's cheque;
3. Commission on guarantees negotiable;
4. Commission on invoices discounted;
5. Own acceptances;
6. Cable charges;
7. Administrative charges imposed on a customer who exceeds an overdraft limit;
8. Stop payments;
9. Standing orders;
10. Commission on lost connect card;
11. Excess withdrawal fees; and
12. Commission on status enquiries.

NB. All other financial services not listed in the exemption schedule are standard rated.

12.4 GROUP 9 – FUNERAL SERVICES

The amendment specifies the following funeral services that are now exempt:

(a) Caskets and coffins

(b) Tombstones
(c) Embalming of a dead person
(d) Services provided at the burial of a person by a funeral home, including hire of hearse, provision of furniture,
tents and other funeral accessories but excluding meals, beverages and other hospitality services.

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Previously there was a general exemption of funeral services which made it difficult to identify the actual services that
were exempt.

It is important to note that the auxiliary services that are exempt in Paragraph (d) are only services that are provided
by funeral homes/ funeral parlours/ undertakers during the funeral of a person and does not extend to hospitality
services.

12.5 GROUP 10 – RELIEF AT IMPORTATION

The amendment deletes paragraph (a) and (b) and replaces them with the following:

(a) Goods in respect of which a rebate, refund or remission of duty is available under the Customs and Excise
(Rebates, Refunds and Remissions) (General) Regulations, 2000, subject to the same limitations and
conditions as pertain to such a rebate, refund or remission.

(b) Imported goods in respect of which a funding of duty is available under the Customs and Excise (Public
Benefit Organisation) (Rebate, Refund or Remission) Regulation, 2009, subject to the same limitations and
to such modification as may be specified therein.

The amendment provides for effecting any future changes made to this provision in the Customs and Excise
(General) regulations, to also apply to the VAT Act. Previously any amendment in the Customs and Excise
(General) Regulations required a corresponding amendment in the VAT Act.

13.0 COMMENTARY ON STATUTORY INSTRUMENT NUMBER 50 OF 2011 (ZERO-RATING ORDER)

13.1 GENERAL

Statutory Instrument 50 of 2011 revokes and replaces Statutory Instrument # 89 of 2010.

13.1.1 INTERPRETATION

a) Amends the definition of donor funding as:

“Donor funding means funding provided by a donor but does not include funding provided in the
form of a loan other than development credit to the Government of the Republic of Zambia”
The amendment clarifies the definition of donor funding by including the source of funding.

b) Amends the definition of tourist as:

“tourists means a person who travels to, and stays in, places outside that person's usual residence
for leisure, business and other purposes not related to the exercise of an activity remunerated from
within the place visited, but does not include a citizen or a person resident in Zambia”.

The amendment clarifies the circumstances under which a person qualifies to be a tourist.

c) Deletion of the definition of “poultry” from the zero-rating schedule.

The amendment removes the definition of poultry from the zero-rating schedule which became
redundant in 2004 after “Food and Agriculture” became exempt.

13.2 GROUP 8 – AGRICULTURAL EQUIPMENT AND SPARES

Group 8 is amended by inserting new paragraph (b) and renumbering paragraphs (b), (c), (d), (e), and (f) as
(c), (d), (e), (f), and (g) respectively.

The following paragraph has been inserted:

(b) Hammer mills of HS Code 8436.10.00

The amendment zero-rates hammer mills which were previously standard rated.

14
14.0 COMMENTRY ON STATUTORY INSTRUMENT NUMBER 88 OF 2010
(VAT REGULATIONS)

14.1 GENERAL

Statutory Instrument # 88 of 2010 revokes and replaces Statutory Instrument # 75 of 1995.

The amendment simplifies tax administration by consolidating all statutory instruments for regulations.

14.2 REGULATION 3: GOODS NOT CONSTITUTING A SUPPLY

The amendment deletes paragraph (1) and replaces it with the following new paragraph (1):

“The supply of goods by any person in the course of a business conducted by that person shall not constitute a
supply of goods for the purposes of the Act, if the goods are supplied as samples or for promotional or publicity
purpose and fulfil the following conditions:

i. the goods are supplied without consideration;

ii. the open market value of items supplied to any individual does not exceed one hundred thousand
kwacha in any accounting year; and

iii. the supplier of such goods should provide to the Commissioner General such documentary evidence
as the Commissioner General may by administrative rule require.

The amendment changes the restriction for goods not constituting a supply from K25, 000 per item to K100,
000 per individual in an accounting year.

14.3 DISPOSAL OF ASSETS BY GOVERNMENT AGENCIES

The amendment deletes Regulation 4 stated below:

“The disposal by a Government agency of any asset of the agency shall constitute a supply of goods for the purposes of the Act.”

The amendment removes the regulation for registration of Government Agencies for the sole purpose of accounting for
output tax on disposal of assets. Note that Government Agencies which make taxable supplies are still required to
register for VAT and account for tax on their supplies.

“Government agency” means: -

(a) Any Ministry department of the Government;
(b) Any statutory corporation or board;
(c) Any local authority; or
(d) Any institution or body in which the Government has direct or indirect control or which is wholly or partially
owned by the Government

15.0 GAZETTE NOTICE # 816 OF 2010

15.1 RULE # 4 - TAX INVOICES

The amendment deletes Rule 4 and replaces it with the following:

“A registered supplier, shall issue a tax invoice to a customer in respect of any taxable supply of goods or
services to the customer

d) All registered suppliers are required to issue tax invoices for all goods and services supplied, and the tax
invoices shall be taken from a serially numbered pre-printed invoice book or where approval of the
Commissioner General has been granted, a computer package with the following features:
i. Printed invoices, credit notes and debit notes bearing all mandatory features of a tax invoice;
ii. Automatic and consecutive document numbering with in built safeguard against reallocation or
resetting of the numbers in any circumstance;
iii. Transactions once posted and a tax invoice printed, become read only to all users or where editing is
possible, a read only audit trail showing original details is in-built;
iv. Period transaction reports showing invoice number, invoice date, customer name,
description of goods or services supplied value before VAT and VAT amount.
15
 Provided that for banks and other financial institutions registered under the Banking and Financial Services
Act, a bank statement shall qualify as a tax invoice.

b. Registered suppliers issuing tax invoices and banking institutions issuing bank statements in foreign currency
shall indicate the rate of conversion to Kwacha at the transaction date.

This amendment allows bank statements issued by banks and other financial institutions to be used as tax invoices.

16. OTHER MATTERS

16.1 TAXATION OF BENEFITS

(i) Payment of Employees' Bills

Where an employer discharges the liability of an employee by paying his or her rent, electricity, telephones, water
bills, school fees, or school association fees, club membership fees and similar payments, the employer is
required to add such payments to the employee's emoluments and deduct tax under PAYE.

(ii) Benefits that cannot be converted into Cash

Benefits which cannot be converted into cash are not taxable on employees. However, no deduction in respect of
the cost of providing the benefit may be claimed by the employer [section 44(L)].

(a) In the case of free residential accommodation provided by an employer in a house owned or leased by the
employer, the cost to be disallowed in the employer's tax computation is 30% of the taxable income paid to
the employee. Payments for utilities such as electricity, telephones, water bills, security and similar
payments are not included in the meaning of free residential accommodation.
(b) In the case of the provision of motor vehicles to employees on a personal-to-holder basis, the benefit to be
disallowed in the employer's tax computation is as follows:

(i) Luxury Cars (2800cc and above) K20, 000,000 per annum.

(ii) Other Cars

Ø
1800cc and below 2800cc - K15, 000,000 per annum.

Ø
Below 1800 cc - K9, 000,000 per annum.

NB. A personal - to - holder vehicle means a vehicle provided to an employee for both business and personal use
and usually involves payment by the employer of all the expenses associated with running and maintaining the
vehicle.

(iii) Cash Benefits paid in the form of Allowances.

All cash benefits paid in the form of allowances are taxable on the employee under PAYE.

Examples of such cash benefits are:

- Education allowance;
- Housing allowance;
- Transport allowance
- Domestic Utility allowances e.g. for electricity, telephone, and water;
- Commuted car allowance; and
- Settling in allowance.

16.2 EMOLUMENTS THAT ARE NOT SUBJECT TO PAYE

The following emoluments are exempt or otherwise not chargeable to income tax and, consequently, need not be
included in the taxable emoluments.

(i) Ex – Gratia Payments:

A voluntary, non – contractual, non – obligatory payment made by an employer to the spouse, child or
dependant of a deceased employee is exempt (Paragraph 7 (t) of the 2nd Schedule to Income Tax Act).

16
 (ii) Medical Expenses:
Medical expenses paid or incurred by an employer on behalf of an employee or refunds of actual medical
expenses incurred by an employee are exempt (Statutory Instrument No. 104 of 1996).

(iii) Funeral Expenses:

Funeral expenses paid or incurred by an employer on behalf of an employee are exempt (Statutory Instrument
No. 104 of 1996).

(iv) Sitting Allowances for Councillors:

Payments by Local Authorities to Councillors as Sitting Allowances are exempt [Paragraph 7(s) of the 2nd
Schedule to Income Tax Act].

(v) Labour Day Awards

Labour Day awards paid to employees either in cash or in kind are regarded by ZRA as non-taxable.

16.3 TAX TREATMENT OF EXPENSES INCURRED ON ENTERTAINMENT, HOSPITALITY AND GIFTS

Expenses incurred on entertainment, hospitality and gifts are not allowable, subject to the following exceptions:

a) Where the business is one whose purpose is to provide entertainment or hospitality, e.g. hotels, restaurants,
cinemas and theatres, the cost of providing these services is allowable;

b) Where the entertainment is provided free with the purpose of obtaining publicity to the general public, e.g. free
seats for critics at a cinema;

c) Where an employer provides entertainment or hospitality for employees, e.g. meals, accommodation etc on
business trips or a Christmas party for employees;

d) Where a person gives gifts which bear an advertisement for the donor, e.g. calendars, pens, ashtrays, spirits,
food, and other such like, as long as the cost of the gift(s) to any one person does not exceed K100, 000 in a
charge year. The cost of gifts in excess of K100, 000 to the same person is disallowable.

Note: a) Employees receiving entertainment allowances would be taxed under PAYE and the amount would be
disallowable to the employer.

b) Where an employer defrays entertainment expenses directly, the cost would be disallowable to the
employer but there would be no charge on the employee unless the normal rules as to benefits apply.

16.4 TAX TREATMENT OF CANTEEN EXPENSES AND REFRESHMENTS.

Where the employer incurs expenditure on the provision of refreshments or canteen meals or any other meals
(except on business trips) to employees, the benefit arises in the hands of the employees.

As the benefit cannot be converted into money's worth, it is not taxable on the employee.

Under the provisions of Section 44(L) of the Income Tax Act, the whole expenditure on refreshments, canteen
meals, etc. is disallowable on the employer.

16.5 PAYMENTS ON CESSATION OF EMPLOYMENT

Payments on cessation of employment fall into the following categories;

(a) Payments made on dismissal or resignation;
(b) Payments made to an employee at the end of a contract;
(c) Payments made to an employee on redundancy;
(d) Payments made to an employee on retirement; and
(e) Payments made on termination of employment due to death.

(a) DISMISSAL OR RESIGNATION OF AN EMPLOYEE

Where an employee has been dismissed or resigns, he may receive the following payments:
i. Emoluments (i.e. salary, wage, overtime, leave pay, commission, bonus, fee and such like),
ii. Cash in lieu of leave (leave days due but not taken),
iii. Salary in lieu of notice,
iv. Severance pay. 17
 These payments are taxable by reference to the PAYE Tax Tables applicable for the month in which the payment
is made and do not qualify for the K35 million exemption under Section 21(5) of the Income Tax Act.

(b) EXPIRY OF EMPLOYMENT CONTRACT

Where employment ceases on the expiry of a contract, the following payments are usually made to the
employee:
(i) Final Salary;
(ii) Gratuity;
(iii) Leave pay;
(iv) Repatriation pay.

These payments are taxed as follows:

§Leave pay, repatriation pay and the salary are added and taxed under PAYE with respect to the tax table
applicable for the month in which payment is made.

Qualifying gratuity paid is taxed as follows:

Table 5
Qualifying Gratuity Bands Rates
First K12,000,000 @ 0%
Above K12,000,000 @ 25%

Non - qualifying gratuity is added to the salary for the month in which it is paid and taxed with reference to the
appropriate P.A.Y.E tax table.

(c) REDUNDANCY /RETRENCHMENT

The following payments may be made to an employee who has either been declared redundant or has been
retrenched:

(i) Salary;
(ii) Leave pay;
(iii) Repatriation pay;
(iv) Refund of pension contributions (from an approved pension scheme);
(v) Salary in lieu of notice;
(vi) Severance pay;
(vii) Accrued service bonuses;
(viii) Compensation for loss of office.

The above payments are taxed as follows:

·Salary, Leave pay and Salary in lieu of Notice are taxed under PAYE in the month in which they are paid;
·Accrued service bonuses, repatriation pay, severance pay and compensation for loss of office are added
together and taxed as follows:

The first K35 million is exempt from tax and the balance is taxed at 10%

·The refund of employee's pension contribution is taxed as a lump sum payment at the rate of 10%
(Section 82).

·The refunded employer's pension contribution will be subjected to tax under the PAYE system.

(d) EARLY OR NORMAL RETIREMENT

Where an employee has been retired early or normally, the following payments may be made:
(I) Salary;
(ii) Leave pay;
(iii) Repatriation pay;
(iv) Pension from an approved pension fund;
(v) Accrued service bonuses;
(vi) Severance pay.

18
 The above payments are taxed as follows:
§ Salary and Leave Pay are taxed under PAYE in the month in which payment is made.
§ Repatriation Pay, Severance Pay, Accrued Service Bonuses, and compensation for loss of office are
added together and taxed as follows:
-The first K35 million is exempt from tax and the balance is taxed at 10%;
-Pension is exempt from tax (Paragraph 7(q) of 2nd schedule to the Income Tax Act).

(e) TERMINATION OF EMPLOYMENT DUE TO DEATH

The following payments may be made upon the death of an employee:

(i) Salary;
(ii) Leave pay;
(iii) Gratuity;
(iv) Ex-Gratia payment;
(v) Accrued service bonuses.
(vi) Pension
The above payments are taxed as follows:

§The salary up to date of death and leave pay is taxed under PAYE in the month in which payments are
made.
§Gratuity is taxed as in paragraph 16.5(b) above.
§Ex-Gratia payments are exempt from tax.
§Accrued service bonus is taxed as follows: The first K35m is exempt from tax and the balance is
taxed at 10%.
§The tax treatment of pension is the same as for early or normal retirement in 16.5(d) above.

16.6 TAX TREATMENT OF LEAVE PAY AND SALARY IN LIEU OF NOTICE

All employers should take note that Leave Pay and Salary in Lieu of Notice received on resignation, dismissal,
expiry of contract, redundancy or retrenchment, early retirement, or on termination of employment due to death,
will not be classified as terminal benefits under Section 21(5) of the Income Tax Act. Payments made in such
cases should be subjected to tax under PAYE scheme in the normal way.

16.7 LUMPSUM PAYMENTS MADE ON MEDICAL GROUNDS

Where the employer, on medical advice, determines that an employee is permanently incapable of discharging
his/her duties through infirmity of mind or body, one may terminate the services of an employee.

With effect from 1st April 2001, a lump sum payment made to an employee on termination of employment on
medical grounds is exempt from tax.

16.8 TAX TREATMENT OF SETTLING IN ALLOWANCES

Settling in allowances, or whatever name called, paid to new employees and employees on transfer constitute
emoluments and should be subjected to tax under the PAYE scheme.

16.9 SEVERANCE PAY

In most cases employers make payments of “severance pay” upon the dismissal or resignation of an employee.
Payments made in such cases should not be classified as terminal benefits under Section 21(5) of the Income
Tax Act.

However, where severance pay is paid as part of the package when an employee is retrenched, declared
redundant, retires normally or opts for early retirement, the payment should be classified as terminal benefits.
The tax treatment is covered under Section 21(5) of the Income Tax Act.

19
17. INCOME TAX RATES
(a) Personal Income Tax Rates:
Personal Income tax rates, with effect from 1st April 2011, are as follows:
Table 6
Income Bands Rates

First K12,000,000 @ 0%
Above K12,000,000 up to K20,820,000 @ 25%
Above K20,820,000 up to K50,400,000 @ 30%
Above K50,400,000 @ 35%

(b) Other Tax Rates

Table 7
Category Rate (%)
Any Person carrying on mining operations (variable Y=30% + [15%-(ab/c)]
profit tax)
Manufacturing & other companies 35
Public Benefit Organisation (on income from 15
business)
Farming 15
Non traditional exports 15
Chemical manufacture of fertilizer 15
Trusts, deceased or bankrupt estates 35
Tax chargeable reduced
Rural enterprises by 1/7 for 5 years
st
Business enterprise operating in a priority sector O% for the 1 5 years
declared under the Zambia Development Agency
Act, 2006
Rate reduced by 50%
from 6-8 years
Rate reduced by 25%
from 9-10 years
Electronic communication business and Banks :

First K250, 000,000 35

Above K250, 000,000 40

(c) Withholding Tax Rates

Table 8
Category Rate (%)
Dividends for individuals and companies (Final Tax) 15
Dividends for companies carrying on mining operations 0
Interest on GRZ bonds (Final Tax for Individuals & Exempt 15
Organisations only)
Interest for individuals (earned from bank or building societies 15
savings and deposit accounts), (Final Tax)
Interest on Treasury Bills for Individuals (Final Tax) 15
Interest on Treasury Bills (Final Tax for Exempt Organisations) 15
Other Interest 15
Royalties, Management and Consultancy Fees 15
Rents 15
Commissions 15
Public Entertainment Fees for Non- Residents (Final Tax) 15
Non -Resident Contractors 15
Notes:
(i) When interest is awarded by Courts of Law it is still regarded as “Interest” and
withholding tax is deductible in accordance with the appropriate rates as above.
(ii) The term “Royalty” includes leasing and therefore leasing income is subject to
20 withholding tax.
 e

18 DOMESTIC TAXES CONTACT ADDRESSES:

If you have any problems concerning your taxes, please contact the Client Services Centres or your nearest Domestic Tax Offic
at the following addresses:
1 Client Services Centre 2 Client Services Centre
New Revenue Hall Nchanga House
Private Bag W136 P. O. Box 20454
Lusaka Kitwe
Tel:021 1 226227/236227 Tel: 021 2 229301
Fax: 021 1 222717 Fax: 021 2229301

3 Client Services Manager – Large Taxpayer Office 4 Assistant Director

th
6 Floor, Revenue House Design & Monitoring - Taxpayer Services
P.O. Box 35710 P .O .Box 35710
Lusaka Lusaka
Tel: 021 1 221496 Tel: 021 1 221497
Fax: 021 1220283

5 Assistant Director 6 Assistant Director

Design & Monitoring – Policy & Legislation Design & Monitoring – Processing and Enforcement
P .O .Box 35710 P .O .Box 35710
Lusaka Lusaka
Tel: 021 1 224513 Fax: 021 1 221493 Telefax: 021 1 224512

7 Assistant Director 8 Assistant Director

Design & Monitoring – Audit Large Taxpayer Office – Non-mining Audit Unit
P .O .Box 35710 P .O .Box 35710
Lusaka Lusaka
Tel: 021 1 221925 Fax: 021 1 221493 Tel: 021 1 221497
Fax: 0211 220283
9 Assistant Director 10 Assistant Director
Large Taxpayer Office – Processing Large Taxpayer Office – Mining Audit Unit
and enforcement P .O .Box 35710
P .O .Box 35710 Lusaka
Lusaka Tel: 021 1 236892
Tel: 021 1 224935 Fax: 021 1220283
Fax: 021 1 220283

11 Assistant Director 12 Assistant Director

Small Taxpayer Office - Lusaka Small Taxpayer Office - Copperbelt
P .O .Box 35710 P.O. Box 70181
Lusaka Ndola
Tel: 021 1 221497 Tel: 021 2 614694
Fax: 021 2 614096

13 Assistant Director 14 Assistant Director

Medium Tax Office – South Medium Tax Office – North
P .O .Box 35710 P .O .Box 20855
LUSAKA Kitwe
Tel: 021 1 229620 Tel: 021 2 230362
Fax: 021 1 229621 Fax: 021 2 229942
15 Provincial Manager 16 Provincial Manager
Small Taxpayer Office - Central Small Taxpayer Office - Western
P.O. Box 80909 P.O. Box 910110
Kabwe Mongu
Tel: 021 5 223642 Tel: 021 7 221662
Fax: 021 5 223642 Fax: 021 7 221662

17 Provincial Manager 18 Provincial Manager

Small Taxpayer Office - Eastern Small Taxpayer Office - Southern
P.O. Box 510632 P.O. Box 60597
Chipata Livingstone
Tel: 021 6 221155 Tel: 021 3 320772
Fax: 021 6 221155 Fax: 021 3 320772
19 Provincial Manager 20 Provincial Manager
Small Taxpayer Office - Luapula Small Taxpayer Office – North-Western
P.O. Box 710112 P.O. Box 110368
Mansa Solwezi
Tel: 021 2 821147 Tel: 021 8 821682
Fax: 021 2 821147 Fax: 021 8 821682
Website: http://www.zra.org.zm
21