Maravi

PF in govt honours campaign promise, reduces tax

PF in govt honours campaign promise, reduces tax
By Chiwoyu Sinyangwe
Sat 12 Nov. 2011, 12:10 CAT

THE Patriotic Front government has honoured one of its election promises of putting "more money in people's pockets" by lowering Pay As You Earn (PAYE). And the PF government's budget has revealed that it will squeeze more money out of mining companies by increasing royalties to six per cent from three per cent as it proposes to spend 50 per cent of the K27.7 trillion budget on social sectors and infrastructure development.

The proposed 2012 national budget themed "Making Zambia a better place for all" has jumped from the K24 trillion spent this year, which is 18.8 per cent higher than the budgeted K20 trillion.

The government has proposed to double the exempt threshold for PAYE to K2 million per month.

Finance minister Alexander Chikwanda yesterday announced an ambitious pro-poor budget for 2012 with a focus on cutting tax obligations of the perceived ‘over-taxed' employers while the vast mining sector expected to bridge the deficit of revenue losses from the concessions for the poor.

Key macroeconomic targets for next year include increasing domestic revenues to 19 per cent of the gross domestic product (GDP), achieve GDP growth of above seven per cent, attain end-year inflation of not more than seven per cent, limit overall fiscal deficit to 4.3 per cent of GDP and limit domestic and external borrowing to 1.3 per cent and three per cent of the GDP respectively, commit at least 50 per cent of the budget to social sectors and infrastructure development and maintain gross international reserves of at least four months of import cover.

The government expects to raise resources of K27.698 trillion or 26.5 per cent of GDP to support the 2012 budget.

Domestic revenues will constitute 19.1 per cent of GDP while grant receipts from donors will be 1.8 per cent.

The balance of 5.6 per cent of GDP will be total borrowing out of which 1.3 per cent of GDP will come from domestic borrowing and the balance of 4.3 per cent of GDP will be external financing.

According to Chikwanda, workers earning K2, 000, 000 and below per month would be exempted PAYE, while workers in the K2, 000, 000 - K2, 800, 000 per month bracket would pay 25 per cent PAYE.

Workers earning between K2, 800, 000 - K5, 700, 000 per month would be taxed at 30 per cent while those above K5, 700, 000 per month would be taxed at 35 per cent.

"The PAYE restructuring increases disposable incomes of the workforce by about K1 trillion which can only be salutary for the economy," Chikwanda said.

However, the 16 per cent Value Added Tax has stood.

Chikwanda also announced that government had proposed to abolish the 40 per cent upper corporate tax rates for banks to the standard rate of 35 per cent.

Within 30 days of being in office, the PF government lowered the statutory reserve ratios for both local and foreign currency deposits to five per cent from eight per cent previously, while the core liquid assets ratio has gone down to six per cent from nine per cent.

The move is aimed at improving liquidity of commercial banks as a desirable objective to facilitate low cost borrowing by enterprises.

The reduction of corporate tax which commercial banks have continued to complain against is expected to incentivise lenders to lend more.

"This measure will result in revenue loss of K65 billion and I expect the banks to pass on the benefits of this measure to the borrowers by lowering lending rates further," he said.

He also said to achieve pro-poor growth in the agriculture sector, the government had proposed to lower corporate income tax applicable to the agricultural sector from 15 to 10 per cent to spur investments and raise productivity.

A decision, Chikwanda said, would make available K10.6 billion for re-investment into the farming sector.

"Mr Speaker, in order to compensate the revenue loss arising from the above measures, I propose to increase the mineral royalty rate to 6 per cent from 3 per cent and 5 per cent for base and precious metals, respectively," Chikwanda said. "I also propose to separate income from mining activities for income tax purposes."

He said the Treasury is expected to raise K981 billion from the two measures.

Chikwanda did not make drastic changes to the existing mining fiscal regime or succumb to populous calls for the government to introduce the 25 per cent windfall tax on the mining sector.

Chikwanda also proposed to reverse the VAT deferment scheme on copper and cobalt which was introduced in 2009 to promote utilisation of the country's excessive smelting facilities following the decline in copper output.

"However, with the increase in local production of copper and cobalt ores, it is no longer justifiable to retain these products on the scheme," he said. "I, therefore, propose to remove copper and cobalt ores and concentrates from import the VAT deferment scheme. This measure will generate an extra K6.9 billion."

Chikwanda also abolished the "discriminatory" 15 per cent export duty on export of copper and cobalt concentrates introduced in 2006 to encourage local value addition to create employment.

"This policy is discriminatory as it does not apply to other minerals thereby creating an uneven playing field," he said. "In the spirit of making this tax less burdensome and its application non-discriminatory, I propose to reduce export duty to 10 per cent but also extend it to all unprocessed or semi-processed mineral ores. This revenue gain as a result of this measure is K70 billion."

And Chikwanda revealed that there was pressure on the PF government to deliver on its campaign populous promises of the "less taxes, more jobs and more money in your pocket."

Riding on the desperation of the over 1.2 million new voters who comprised mainly "job-starved" youths, Chikwanda was under pressure to unveil a pro-poor budget, and spread more widely the benefits of annual economic growth that had averaged six per cent over the last five years.

"Now that we are in government, we have not, and will never distance ourselves from our people. His Excellency the President and his entire cabinet have committed themselves to work tirelessly so that the government respond in practical ways, to ensure that the economy is put on a path of rapid growth and that its benefits are widely shared by every Zambian.

We are not a government that basks in the empty glory of statistical euphoria but one that seeks a transformational shift in society to make it more just and equitable," said Chikwanda. "Mr Speaker, to the unemployed youth who feels this nation has little for his energies, it means more opportunities for appropriate skills training and thus greater prospects for income-earning activities through which he can positively contribute to the development of his nation."

Labels: PAYE, PF, TAXATION

posted by MrK @ 6:15 PM