Maravi

Magande revises income tax

Magande revises income tax
By Post Reporters
Saturday January 26, 2008 [03:00] P

FINANCE and national planning minister, Ng'andu Magande yesterday unveiled a K13.76 trillion budget for the year 2008 under the theme, 'Unlocking Resources for Economic Empowerment and Wealth Creation' aimed at engaging Zambians in productive activities. The budget also proposes new tax measures. Under customs and excise duties, Magande proposed to reduce value added tax (VAT) from 17.5 per cent to 16 per cent, as a wealth creation measure that would result in consumers having K21.6 billion that the government would forego in revenues.

Magande also proposed to revise Pay As You Earn (PAYE) by increasing the non-taxable monthly threshold income from K500,000 to K600,000 while those getting over K4 million per month would be paying 35 per cent instead of the previous 30 per cent effective April 1, 2008.

Magande has also proposed a windfall tax that would be triggered at different price levels for base metals including copper, on the international market and government estimates to raise US$415 million this year.

He further proposed that new tax measures for the mining sector would include corporate tax at 30 per cent, mineral royalty at three per cent and a variable profit of up to 15 per cent on taxable income, which is above eight per cent, would be introduced.

Presenting the 2008 national budget to the National Assembly, Magande said this year's budget represents 26.7 per cent of the Gross Domestic Product (GDP) estimated at K51.55 trillion for 2008.

He said of the total budget, K9.828 trillion or 71.4 per cent would be financed by domestic revenues while K2.278 trillion or 16.6 per cent would be grants from donors and the balance of 12 per cent is the deficit of K1.654 trillion or 3.2 per cent of GDP that would be financed by domestic borrowing of K618.8 billion or 1.2 per cent of GDP and external financing of K1.035 trillion or two per cent of GDP.

Magande said the general public services, education and health functions would remain on top of the government's priorities in 2008.

"The general public services has been allocated K4.514 trillion while education functions will get K2.11 trillion with the health sector getting K1.58 trillion and the defence sector will get K981 billion with the public order and safety functions getting K581 billion," he said.

He explained that tax measures to be introduced in the mining sector would contribute revenues estimated at US$415 million about K1.56 trillion in 2008.

Magande said the government's macroeconomic objectives were to achieve real Gross Domestic Product (GDP) growth of at least seven per cent, bringing down end-year inflation to more than seven per cent, limit domestic borrowing to 1.2 per cent of GDP and maintain the coverage of gross international reserves at no less than 3.6 months of import cover.

"Mr. Speaker, in 2008, the government proposes to spend a total of K13.76 trillion or 26.7 per cent of the GDP estimated at K51.55 trillion. Of this amount, K9.82 trillion or 71.4 per cent will be financed by domestic revenues while K2.27 trillion or 16.6 per cent will be grants from our cooperating partners," Magande said. "The balance of 12 per cent is the deficit of K1.65 billion or 3.2 per cent of the GDP. This will be financed by domestic borrowing of K618.8 billion or 1.2 per cent of GDP and external financing of K1.03 trillion or two per cent of GDP."

Magande said there had been an understandable concern that the tax burden was high and the government was mindful of the burden that workers faced especially those in the lower income group.
"I propose to revise the PAYE by increasing the non-taxable monthly threshold income from K500, 000 to K600, 000," he said.

Under the existing system monthly income up to K500, 000 is not taxed, while monthly incomes in the range of K500, 000 to K1.2million pay 25 per cent and those earning between K1.2million and K5.2 million pay 30 per cent while those earning over K5.2 million pay 35 per cent.

But in the proposed system, those earning below K600, 000 will not pay tax, and those getting above K600, 001 and K1, 235, 000 per month will be paying 25 per cent and those earning between K1, 235, 001 and K4 million would have to pay 30 per cent.

Unlike in the current system where those earning above K5.2 million pay 35 per cent tax, the new system will hit hard on those earning above K4 million, who will now be paying 35 per cent.

"This measure will give tax relief to workers in formal employment earning below K4.5 million per month. The measure will result in a revenue loss of K64.8 billion, which will go in the pockets of the workers," Magande said.

"Mr. Speaker, last year, this August House approved the proposal to increase the tax credit applicable to persons who are differently-abled from K36, 000 per annum to K144, 000 per annum. The government believes that this increase was insufficient, I therefore propose an additional increase so that the threshold will now be K600,000 per annum."

Magande further proposed to increase the allowable deduction for any employer who employs a differently-abled person from K500, 000 per annum to K1 million per annum for each such person employed, effective April 1, 2008.

He observed that the current interest paid on mortgage for residential property is not tax deductable and the government fully recognises the aspiration of most families to construct or purchase their own houses.

"I, therefore, propose to allow mortgage interest to be deducted for tax purposes to any Zambian individual who obtains a mortgage for residential property," Magande said. "It is envisaged that this concession will encourage home ownership. I also propose to increase the low cost housing unit capital expenditure limit for tax purposes from K2 million and K10 million to K20 million. This is meant to encourage employers to build decent housing units for their employees."

Magande proposed to reduce the withholding tax applicable from 25 per cent to 15 per cent in an effort to encourage savings and streamline the collection of withholding tax on interest earned on savings and deposit accounts.

In order to encourage local value addition, Magande proposed an export levy of 15 per cent on export of copper concentrates and cotton seed effective last night.

"This is in recognition of the availability of local capacity to process these products. This measure will result in an estimated revenue gain of K148.7 billion," he said.

He also gave further concessions to the music industry by reducing duty on musical instruments and art equipment falling under tariff heading 32, 92, and 96 from 15 per cent to zero and those under heading 85 from 15 per cent to five per cent.

On VAT, Magande said the issue of the 17.5 per cent standard rate of the VAT was a matter on which he had received numerous representation for many years and had always promised that he would respond when the economic conditions were appropriate.

"As part of government's 2008 theme, which is 'Unlocking Resources for Economic Empowerment and Wealth Creation', I propose to reduce the Value Added Tax standard rate from 17.5 per cent to 16 per cent. This is a wealth creating measure that will give the consumers K21.6 billion which the government will forego in revenues.

This measure will take effect on 1 April, 2008," Magande said. "Mr. Speaker, infant formula is a major nutritional supplement for babies. Given that infant formula attracts VAT, it makes the product unaffordable to many families. I, therefore, propose to exempt infant formula for VAT purposes. The measure will result in a revenue loss of K2.1 billion."

He also lifted the waiver on visa fees under tour packages.

"This will level the playing field for all tourists visiting the country. In addition, I propose to increase the visa fees by 100 per cent. The government will raise an estimated amount of K35.4 billion from this measure," he said.

On the changes to the mining fiscal and regulatory regime, Magande said effective April 1, 2008, the new fiscal regime for the mining sector would include: "the corporate tax rate will be 30 per cent, mineral royalty rate on base metals will be three per cent of the gross value, withholding tax on interest, royalties, management fees and payments to affiliates or subcontractors in the mining sector will be at the rate of 15 per cent, withholding tax on dividends will be at zero per cent, a variable profit tax of up to 15 per cent on taxable income which is above eight per cent of the gross income, will be introduced."

He added that a windfall tax would be introduced to be triggered at different price levels for different base metals.

"For copper, the windfall tax shall be 25 per cent at the copper price of US$2.5 per pound but below US$3 per pound, 50 per cent at price for the next 50 cents increase in price and 75 per cent for price above US$3.5 per pound," Magande said.

"Hedging as a risk management mechanism shall be treated as a separate activity from mining."
He said capital allowance, that is a depreciation of capital equipment, shall be reduced from 100 per cent to 25 per cent per year.

"A reference price, which shall be the deemed arm lengthy price shall be introduced for the purpose of assessing mineral royalties and any transaction for the sale of base metals, gemstones or precious metals between related or associated parties.

The reference price shall be the price tenable at the London Metal exchange, Metal Bulletin or any other commodity exchange market recognised by the Commissioner General," Magande said.
Magande said capital expenditures on new projects shall be ring-fenced and only become deductable when the projects start production.

"Mr Speaker, these measures are competitive, reasonable and balanced. The expected additional revenues, in 2008, as a result of these new measures are estimated at US $ 415 million about K1.56 trillion," he said.

He said the Citizens' Economic Empowerment Fund would have over K120 billion.
"Furthermore, retired public workers will receive a total of K269 billion in terminal benefits," said Magande.

Labels: 2008 BUDGET, MAGANDE, MINING AGREEMENTS, WINDFALL TAX

posted by MrK @ 4:28 AM