Maravi

Govt unveils K15.27 trillion budget

Govt unveils K15.27 trillion budget
Written by Kabanda Chulu, Chiwoyu Sinyangwe and Chibaula Silwamba
Saturday, January 31, 2009 11:08:37 AM

FINANCE minister Dr Situmbeko Musokotwane yesterday unveiled a K15.27 trillion budget for this year under the theme ‘Enhancing Growth through Competitiveness and Diversification’ aimed at reducing dependence on the copper mining industry.And Dr Musokotwane has proposed to make changes to the 2008 mining fiscal regime following pressure from foreign mining companies which disputed the windfall tax that was aimed at gaining revenue worth K917.3 billion but only K319.5 billion was collected.

Under value added tax (VAT), Dr Musokotwane proposed to zero rate agriculture equipment and related implements to support local manufacturers in order to accelerate economic diversification.

Dr Musokotwane also proposed a 37 per cent increase in the allocation to the agricultural sector this year, providing K1.096 trillion from the K800.5 billion in 2008.

He also proposed to revise Pay As You Earn (PAYE) by increasing the non-taxable monthly income threshold from K600,000 to K700,000 while those getting over K4 million per month would continue paying income tax at 35 per cent, effective April 1, 2009.

Dr Musokotwane has also allocated K41.613 billion to the Electoral Commission of Zambia (ECZ) with K5 billion is earmarked for continuous voter registration.

Presenting the 2009 budget to the National Assembly, Dr Musokotwane said this year's budget of K15.27 trillion represents 25.4 per cent of the Gross Domestic Product (GDP) estimated at K60.16 trillion.

He said of the total budget, K10.64 trillion or 67.7 per cent would be financed from domestic revenues while K2.76 trillion or 18.1 per cent would be financed by grants from cooperating partners.

The balance of K1.86 trillion or 12.2 per cent of total expenditure will be financed through domestic borrowing of K1.069 trillion or 1.8 per cent of GDP and external borrowing of K795.5 billion or 1.3 per cent of GDP.

Dr Musokotwane said the General Public Services functions would remain on top of government priorities and would account for the highest proportion of total expenditure at 31.8 per cent and would be followed by the Economic Affairs functions at 19.8 per cent with the Health and Education functions accounting for significant shares of the budget at 17.2 per cent and 11.9 per cent respectively.

"The General Public Services has been allocated K4.865 trillion while economic affairs will get K3.021 trillion with the education function getting K2.628 trillion and defence will get K1.068 trillion and public order and safety functions will receive K610.7 billion," he said.

Dr Musokotwane said the macroeconomic targets for 2009 would be to achieve economic growth of five per cent and bringing the year-end inflation target to 10 per cent and limit domestic borrowing to 1.8 per cent.

"... In order to achieve this growth objective, the government will promote diversification and enhance national competitiveness through structural reforms and infrastructure development with emphasis on agriculture development, tourism infrastructure development and the promotion of the manufacturing sector," Dr Musokotwane said.

Under concessions for the mining sector, Dr Musokotwane proposed to remove the windfall mining tax but retain the variable profit tax that would still capture any windfall gains that may arise from the sector.

"Among the adjustments to last year's mining fiscal regime include the removal of windfall tax and retain the variable profit tax which will still capture any windfall that might arise in the sector," he said.

On the performance of the mining industry, Dr Musokotwane said despite the turbulence in the latter part of last year, the sector recorded a positive growth of 4.9 per cent in 2008, comparing favourably with the growth of 3.6 per cent in 2007.

He also announced that preliminary estimates indicate that copper production increased by 3.7 per cent to 569, 891 metric tonnes while cobalt production increased by 19.5 per cent from 4, 414 metric tonnes in 2007 to 5,275 metric tonnes.

"Allowing hedging income to be part of the mining income for tax purposes and increase capital allowances to 100 per cent as an investment incentive," he said.

And Dr Musokotwane has proposed to reduce customs duty on Heavy Fuel Oils from 30 to 15 per cent and to remove customs duty on copper powder, copper flakes and copper blisters.

"In addition, I propose to include copper and cobalt concentrates on import deferment scheme for VAT purposes. These measures will reduce the operating costs of mining companies as well as encourage the utilisation of local smelting capacity. These measures will result in revenue loss of K19.3 billion and will come into effect from midnight tonight," he said.

Dr Musokotwane said the government was committed to providing tax relief to workers hence the decision to increase PAYE exempt threshold from K600,000 to K700,000 per month.

Under the current system, monthly income of up to K600,000 is not taxed while monthly income in the range of above K600,000 up to K1.2million is taxed at 25 per cent and those earning between K1.2 million and K4 million per month pay 30 per cent with those earning above K4 million pay 35 per cent.

But in the proposed system, those earning below K700,000 will pay no tax and those getting above K700,000 up to K1.335 million would pay 25 per cent with those earning above K1.335 million up to K4.1 million per month would pay 30 per cent while those earning above K4.1 million would pay 35 per cent.

"... The government would have wished to provide greater relief to workers this year, but is constrained by the prevailing economic environment and this measure will result in a revenue loss of K100.7 billion," Dr Musokotwane said. "... I propose to provide further relief by increasing the tax credit for differently-abled persons from K600,000 to K900,000 per annum; increasing the exempt portion for terminal benefits from K20 million to K25 million and increasing the allowable pension contribution from K135,000 per month to K155,000 per month. These measures will result in a revenue loss of K23.6 billion."

Dr Musokotwane also proposed to increase the period for carry forward of losses for companies operating in the power generation sector from five to 10 per cent for income tax purposes in order to stimulate investment in the power sector.

He also proposed to increase advance income on commercial imports by non-registered traders from three per cent to six per cent.

"This was introduced to encourage them to register for income and value added taxes. However, there is evidence to suggest that traders have opted to remain unregistered, paying the advance income tax at the border rather than a higher turnover tax inland. I therefore propose to increase this tax from three to six per cent in order to encourage registration and improve tax compliance and government expects to raise K75 billion from this measure," Dr Musokotwane said.

He also proposed to increase the income tax rate on profits from export of cotton from 15 to 35 per cent.

"This is to encourage local value addition and improve supply to local processors and where local processing capacity has been reached, government will, under permit, allow income tax rate on profits from export of cotton at 15 per cent and these measures will be effective from April 1, 2009," Dr Musokotwane said. "And government has observed with interest the growing local capacity of manufacturers to produce windmills and maize dehullers and in order to support local manufacturers and I propose to zero rate dehullers and windmills for VAT purposes."

He said with the slump in the mining sector, there was need to accelerate Zambia's economic diversification programme through prioritising the agricultural sector.

"In this regard, I propose to zero rate the following agricultural equipment and spares: two wheel tractor and accessories, tractors up to 60 horse power, ploughs, harrows, planters, seeders, rippers, sub-soilers cultivators, pump sets sprayers among other related agriculture equipment and this measure will result in revenue loss of K38.9 billion," Dr Musokotwane said. "I also propose to remove customs duty on various capital equipment in order to encourage investment and reduce the cost of doing business and these include survey and geophysical instruments, earth working and levelling equipment, refrigerating or freezing equipment for cold rooms, bull dozers, graders, front ended shovel loaders, excavators, fork lift trucks, mechanical horses among other related machines and these measures will result in revenue loss of K22.5 billion."

He said smuggling and tax evasion on certain imports has been a worrying trend hence the need to introduce prohibitive excise duty on certain imports.

"I therefore propose to reduce excise duty on clear bear from 75 to 60 per cent and this measure will lead to tax compliance and as a result I do not expect any revenue loss and I also propose to increase customs duty on cellular phone handsets from five to 15 per cent to encourage local production of handsets and this measure will result in revenue gain of K3.6 billion," Dr Musokotwane said. "Sir, the government introduced an export levy of 15 per cent on cotton-seed in order to encourage local value addition and to increase local processing capacity. I propose to increase export levy on cotton-seed from 15 per cent to 20 per cent and this measure will result in a revenue gain of K282 million."

Dr Musokotwane has proposed for the establishment of industrial parks that were to carry the same incentives as Zambia Development Agency provides under the Multi-Facility Economic Zones (MFEZ).

Dr Musokotwane also announced that the country's narrow manufacturing base had significantly contributed to its high import bills over the years.

He said the move was aimed at expanding the country's manufacturing base and enhances national competitiveness and that measures introduced would enable the country to attract both local and foreign private investors to open up and invest in the MFEZ and industrial parks in the country.

"I propose to remove withholding tax on management fees, consultancy fees, and interest re-payments to foreign contractors. Zero rate supplies to developers of MFEZ and industrial parks from reverse VAT charge, and exempt equipment and machinery imported for the development of MFEZ and Industrial parks from customs duty," Dr Musokotwane said.

However, Dr Musokotwane gave conditions for developers' industrial parks to qualify for the above incentives.

"The layout of the development plan is approved by the relevant planning authority, the park to be developed should be at least 15 acres in size, the park will have paved roads and water and electricity supply within the park is provided," he said.

Dr Musokotwane also made some amendments to the fuel levy paid by Railway Systems of Zambia (RSZ) to ensure that revenue goes towards the support of the rehabilitation of the railway infrastructure and improve rail support unlike currently when it was absorbed in the fuel levy for improvement of road network.

Dr Musokotwane disclosed that the government would this year reduce significantly the fees for the international gateway to regional averages.

Outlining the performance of the transport and communications sector which last year recorded a reduced growth rate of 16.4 per cent compared with 19 per cent in 2007, Dr Musokotwane blamed the decline on the high costs and low quality of service.

"To address these issues, the government will improve the regulatory framework and promote competition in the sector, as it is one of the potential sectors for job creation. In this regard, the government will remove barriers in the communications sector by significantly reducing the international gateway licence fees to regional level," he said.

Dr Musokotwane also disclosed that the government was exploring ways to improve Tanzania Zambia Railways Authority (TAZARA) through identification of a strategic private partner and that RSZ had committed to invest US$30 million over and above their commitment in the concession agreement towards infrastructural development.

And Dr Musokotwane also announced the increase in electricity tariffs in the country that would start this year to reach cost recovery levels by 2010.

Outlining the projections of the energy sector this year, Dr Musokotwane said the government's immediate focus would be to complete the Zesco power rehabilitation project by the end of this year.

"In addition to the K98. 5 billion disbursed in 2008, K16. 8 billion has been allocated this year to ensure the completion of the project," he said. "In an effort to sustain existing capacity as well as attract additional investments in the sector, electricity tariffs will be adjusted this year to reach cost recovery levels by end-2010. With these tariff adjustments, the government expects Zesco to improve its performance and service delivery."

On construction sector, Dr Musokotwane predicted a further sluggish performance as Zambia faced the effects of the economic slow down.

Until recently, the local construction sector had recorded a sharp decline in average growth rate mainly on account of supply constraints, particularly cement and other materials, and had led to a slowdown in residential and commercial construction.

"Average growth rate in the sector reached 15.8 per cent per annum over the past three years, despite growth in 2008 sharply declining to five per cent from 20 per cent in 2008," he announced.

Dr Musokotwane announced a 37 per cent increase in the allocation to agriculture sector, providing K1, 096.3 billion from K800.5 last year.

Dr Musokotwane expressed optimism the increase in allocation to the agriculture sector would work towards improving output in the sector.

He also said during 2006-08, the agricultural sector performed poorly, contracting by an average of 1.2 per cent per annum while last year, crop production declined by seven per cent contributing to a contraction of the agricultural sector by 4.0 per cent.

He also said the decline was followed by a 2.7 decline in 2007.

"This is largely due to the following constraints; high cost of fuel, limited access to credit, inputs and extension services, inadequate infrastructure, poor livestock management, weakness in the Fertilizer Support Program (FSP) and failure to attract adequate private investment in the sector," he said.

He also disclosed that the government would this year increase allocation to the FSP to K435 billion in 2009 and that with lower fertilizer prices, it was expected that a larger number of small scale farmers would benefit from the scheme in the next crop season.

Dr Musokotwane also announced that this year's allocation to the livestock development had been increased from K29.2 billion last year to K70.7 billion this year and that this amount would include the creation of at least one disease-free zone, and at the same time, K56. 6 billion had been allocated for various irrigations projects.

Dr Musokotwane also announced that the government had increased budgetary allocation to the Food Reserve Agency (FRA) to K100 billion from K80 billion while K10 billion had been allocated to continue with the Food Security Pack as part of measures to mitigate the high cost of food and ensure food security at household level.

On tourism, Dr Musokotwane announced an increase of the allocation to the sector to K77.6 billion as a way of reversing the trends, which saw the tourism sector's growth to slow down to 6.3 per cent last year compared with 9.6 per cent in 2007.

He cited inadequate infrastructure and service delivery and limited market access as some of the challenges impeding the growth of the local tourism sector.

"In order to improve access to the Northern tourism circuit, K24 billion has been allocated towards the rehabilitation of the road from Mbala to Kasaba Bay," Dr Musokotwane said. "Additionally, K11 billion has been allocated towards the construction of a terminal building at Mbala airport and the rehabilitation of Kasaba Bay airstrip. An amount of K10 billion has been allocated towards the preparation of an integrated development plan for the Kasaba Bay tourism area and a further K14.7 billion has been allocated for electrification of Kasaba Bay. Once these infrastructural developments were completed, we hope to attract to the area more than 12 world class hotels thereby creating thousands of jobs for our people."

Dr Musokotwane also announced that K59.1 billion had been allocated to the rehabilitation of roads in key national parks while, additionally, K99 billion had been allocated to the Zimba-Livingstone to improve access to the tourism capital.

"K30.6 billion will be used for the upgrading of the Chipata-Mfuwe road, and K24 billion will be used for the Kafue National Park spinal road," Dr Musokotwane said

Labels: 2009 BUDGET

posted by MrK @ 11:08 AM