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Consolidating Growth and Social Justice: Zambia 2013/14 Budget Speech

 

While the global economy continues on a slow recovery path, Zambia’s projected GDP remains strong at above 6%. This has been attributed to favorable performance in the mining, construction, manufacturing, transport and communication sectors. Zambian Minister of Finance, Honourable Alexander B. Chikwanda, recently delivered the 2013/14 National Budget, highlighting macro-economic objectives, policies and strategies for the year ahead.

Macroeconomic Objectives for 2014

Job creation and real GDP growth ranked as two of the top objectives outlined for 2014. Chikwanda highlighted that Zambia aims to deliver at least 200 000 decent jobs, and a GDP growth rate of above 7%. Further objectives outlined included:

  • Attain end year inflation of no more than 6.5%.
  • Increase international reserves to over 3 months of import cover.
  • Maintain a fiscally sustainable public external debt level so that debt service and amortisation do not exceed 30% of domestic revenues.
  • Increase domestic revenue collections to over 21 percent of GDP.
  • Limit domestic borrowing to 2.5% of GDP and contain the overall deficit to no more than 6.6% of GDP.

As part of the address, the Minister announced that the Zambian Government has formulated a National Strategy for industrialization and Job Creation with a focus on agriculture, tourism, manufacturing, energy and construction sectors.

Key International Tax Changes

Encompassed in the 2013/14 Budget speech were a few key international tax changes, these include the introduction of a 15% withholding tax on branch profit repatriation and the introduction of a 0.2% service charge on money transferred to a recipient within or outside Zambia.

  • 15% withholding tax on branch profit repatriation

Previously, profit distributions by Zambian branches of foreign companies were not subject to withholding tax. The 2014 budget proposes to introduce a 15% withholding tax on profit distributions by Zambian branches to their foreign head offices.  It is expected that the imposition of withholding tax may take effect as early as 1 January 2014; we await further clarification on the timing.

The introduction of the withholding tax on branch profit repatriation aims to equalize the tax treatment between branches and subsidiaries. The statutory rate of dividend withholding tax is 15%. In the case of a company, the dividend withholding tax may be reduced under the relevant double tax agreement.  However, for branches, no equivalent relief is available. Companies may now wish to revisit their existing corporate structure in Zambia.

  • 0.2% service on money transferred to a recipient within or outside Zambia

The 2014 budget introduces a monetary transfer service charge of 0.2% of the value transferred to a recipient within or outside Zambia.  The change will come into effect from 1 January 2014.

Download our comprehensive Budget Highlights document for more information on the various components of the 2013/14 Zambian Budget Speech.

David Okwara

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