ZAMBIA REVENUE AUTHORITY

DOMESTIC TAXES DIVISION

INCOME TAX (AMENDMENT) ACT No. 27 OF 2009

VALUE ADDED TAX (AMENDMENT) ACT No. 29 OF 2009

PRACTICE NOTE NO. 1/2010

CONTENTS PAGE

1. GENERAL 2

2. SUMMARY OF THE PRINCIPAL CHANGES 3

3. COMMENTARY ON THE INCOME TAX (AMENDMENT) ACT NO. 27 OF 2009 4

4. COMMENTARY ON THE VALUE ADDED TAX (AMENDMENT) ACT NO. 29 OF 2009 5

6. OTHER MATTERS ON INCOME TAX 9

7 OTHER MATTERS ON VALUE ADDED TAX 13

8. ZAMBIA REVENUE AUTHORITY - DOMESTIC TAXES DIVISION CONTACT ADDRESSES 17

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1.0 GENERAL
This PRACTICE NOTE describes the various changes introduced by the Income Tax (Amendment) Act No. 27 of 2009 and the Value
Added Tax (Amendment) Act No. 29 of 2009.

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 Act.

Inquiries may be made at the nearest Domestic Taxes Division Office of the Zambia Revenue Authority.

Chriticles Mwansa

COMMISSIONER-GENERAL

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2.0 SUMMARY OF CHANGES TO THE INCOME TAX ACT
ITA Section Subject Para Page
1 Title and commencement 3.1.1 5
81B Amends the definition of mining licence. 3.1.2 5

General Replacing all references in the principal Act to “charities”, “charitable 3.1.3 5
Amendment institution” and “charitable institutions” with “public benefit organisation”.
st
1 Sch Para 9 The amendment aligns the reference in the Income Tax Act to the Mines and 3.1.4 5
Minerals Development Act.
Charging
Schedule
5
Para 1(1)(b) Increases the tax credit for differently abled persons from K900,000 to 3.1.5
K1,920,000
Charging
Schedule
Para 2(1)(c) Increases the income band taxable at zero per centum for individuals from 3.1.6 6
K8,400,000 to K 9,600,000 per annum.
Charging
Schedule
Para 2(1)(d) Reduces the income band taxable at 25 per centum for individuals by
K1,200,000 per annum.
Charging
Schedule 3.1.7 6
Para 3(f) Introduces a rate of tax of 15 per centum on business income earned by
Public Benefit Organisations.

4.0 SUMMARY OF CHANGES TO THE VALUE ADDED TAX ACT

VAT Act Section
1 Title and commencement 4.1.1 7
2 (a) Introduces the definition of “calendar month” 4.1.2 7
(b) Introduces the definition of “commercial property”
8 Imposes VAT on taxable supplies made by an unregistered taxable supplier 4.1.3 7
18 Empowers the Commissioner General to authorise printers of tax invoices 4.1.4 7
and computer packages to be used for printing tax invoices.
29 a) Provides for assessment of tax on taxable supplies made by an 4.1.5 8
unregistered taxable supplier.
b) Provides for charging of interest on tax assessed in (a) above.

5.0 AMENDMENTS TO THE FIRST SCHEDULE OF THE VA LUE ADDED TAX ACT

Statutory
Instrument # (a) Removes the sale of commercial property from the exemption 4.2.1 9
79 of 2009 schedule.
(b) Specifies the Financial Services that are exempt from VAT 9
(c) Exempts paste or liquid polymers used in the manufacture of polypropylene bags 10

6.0 AMENDMENTS TO THE SECOND SCHEDULE OF THE VALUE ADDED TAX

ACT
Statutory Instrument # 81 a) Provides for the zero-rating of long lasting insecticide treated curtains. 4.2.2 10
of 2009 b) Specifies the zero-rated agricultural equipment and accessories
10
Statutory Instrument # 5 Provides for zero-rating of accommodation in a hotel, lodge and similar 4.2.3 11
st st
of 2010 establishments within Livingstone District from 1 January 2010 to 31
December 2010.

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

VALUE ADDED TAX ACT
Statutory Instrument # 80 Provides for non deductibility of input tax incurred by an unregistered taxable 4.2.4 11
of 2009 Regulation 7B supplier..
8.0 AMENDMENT TO COMMISSIONER GENERAL’S RULES
Gazette Notice # 33 Rule Provides the rules for authori sation of printers of tax invoices and computer 4.2.5 11
#4 packages to be used for printing tax invoices
10

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 3.0 COMMENTARY ON AMENDMENTS TO THE INCOME TAX ACT

3.1.1 SECTION 1: TITLE AND COMMENCEMENT

The amendments to the Income Tax Act shall come into effect on 1st April 2010.

3.1.2 SECTION 81B: Section 81B of the principal Act is amended in subsection (7) by the deletion of the definition of “mining
licence” and the substitution therefor of the following new definition: “mining licence means a small scale or large scale
gemstone licence, or a small scale or large scale mining licence”

This measure is intended to align the definition of “mining licence” with the definition that is provided for in the Mines and
Minerals Development Act.

3.1.3 GENERAL AMENDMENT: The principal Act is amended by the deletion of the words “charities”, “charitable institution” and
“charitable institutions” wherever they appear, and the substitution therefor of the words “public benefit organisation”.

The term “public benefit organisation” was introduced in 2009 by Income Tax (Amendment) Act No. 1 of 2009. This
Amendment substitutes any reference to the words “charities”, “charitable institution” and “charitable institutions” wherever
they appear, with the term “public benefit organisation”.

3.1.4 FIRST SCHEDULE

Paragraph 9 this amendment deletes the word “eighty two” and substitutes them with “one hundred and twenty two”

This measure aligns the reference to the appropriate section in the Mines and Minerals Development Act.

3.1.5 CHARGING SCHEDULE

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

Example:
Mr. X who is differently-abled earns K60,000,000 and Mrs. Y who is not differently-abled also earns K60,000,000.00 as
taxable income in the charge year 2010/2011. Their tax computations will be as below:

Mr. X Mrs. Y
Taxable Income K60,000,000 K60,000,000
First K9,600,000 @ 0% 0 0
Next K6,420,000 @ 25% K1,605,000 K1,605,000
Next K33,180,000 @ 30% K9,954,000 K9,954,000
Balance K10,800,000 @ 35% K3,780,000 K3,780,000
TOTAL TAX K15,339,000 K15,339,000
Less: Tax Credit K1,920,000 Nil
Tax Payable K13,419,000 K15,339,000

3.1.6 Paragraph 2(1) (c) and (d) Rates of Tax

The amendment increases the income band taxable at zero per centum for individuals from K8,400,000 to K9,600,000.
This means that an individual who earns K800,000 per month or K9,600,000 per annum shall not pay Income Tax. The income
of an individual is taxed as follows:

Income Bands Rates

First K9,600,000 @ 0%
Above K9,600,000 up to K16,020,000 @ 25%
Above K16,020,000 up to K49,200,000 @ 30%
Above K49,200,000 @ 35%

3.1.7 Paragraph 3 Rates of tax for companies

This amendment provides for a new clause (f) as follows:
(f) the rate of tax for income received by any public benefit organisation referred to in paragraph 6 of the Second Schedule shall
be fifteen per centum.

This amendment specifies the rate of tax that was not provided due to a drafting error.

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4. COMMENTARY ON AMENDMENTS TO THE VALUE ADDED TAX ACT

4.1.1SECTION 1 : TITLE AND COMMENCEMENT

All amendments to the Value Added Tax Act shall come into effect on 01st January 2010.

4.1.2 SECTION 2 : DEFINITIONS

Section 2 of the Principal Act is amended by the insertion in the appropriate place of the following definitions:
(a) “Calendar Month” means the first day to the last day of the month under the Gregorian calendar; and

(b) “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-family apartment.

4.1.3 SECTION 8: IMPOSITION AND SCOPE OF TAX

Section 8 of the Principal Act is amended in sub-section (1) by the deletion of paragraph (a) and the substitution therefor of the
following new paragraph:
(a) every taxable supply of goods or services, other than a zero-rated supply, made in Zambia in the course of or furtherance of a
business by a registered supplier or by a supplier eligible to register under Section twenty-eight; and

This measure imposes tax on standard rated supplies made by an unregistered taxable supplier (a supplier who being required
to register for VAT but has not done so).

4.1.4 SECTION 18: TAX DEDUCTION AND CREDIT

Section 18 of the Principal Act is amended by

(a) the deletion of sub-section (3) and the substitution therefor of the following new sub-section:
(3)A supplier shall not deduct, credit or claim input tax, unless the supplier at the time of lodging the return in which the
deduction, credit or claim is made, is in possession of
(a) A tax invoice issued from a serially numbered invoice book printed by a printer authorised for that purpose by the
Commissioner General;
(b) a tax invoice printed from a computer package authorised for the purpose of invoicing taxable supplies; or
(c) in the case of imported goods, import bills of entry or such documentary evidence of the payment of tax as the
Commissioner General may, by administrative rule, prescribe.;

(b) the insertion immediately after sub-section (3) of the following new sub-section:
(3A)A supplier who contravenes sub-regulation (3) commits an offence and shall be deemed to have taken steps for the
fraudulent recovery of tax in contravention of section forty-four.

The measure restricts the claiming of input tax by a taxable supplier by way of using a valid pre-printed tax invoice printed by
authorised printers or from an authorised computer package.

4.1.5 SECTION 29 FAILURE TO REGISTER

Section 29 of the principal Act is amended
(a) By the renumbering of the paragraph of that section as subsection (1); and
(b) by the insertion immediately after sub-section (1) of the following new sub-sections:

(2) Where a supplier who is eligible for registration under Section twenty-eight fails to register under that section, the
Commissioner General shall assess the tax due on the supplies made, in accordance with the provisions of this Act, from the
time the supplier was due for registration to the date of the assessment, and the interest payable thereon.

(3) Where a supplier referred to in sub-section (2) receives any consideration for the supply of the goods or services, the
consideration shall be deemed to be inclusive of tax for the purpose of determining the taxable value under section ten.

 Sub-section (2) provides for assessing of tax due on sales made by unregistered taxable supplier and the charging of
interest.

 Sub-section (3) provides for the taxable value of sales by unregistered taxable supplier.

This measure was introduced to curb the incidence of non-registration for VAT by eligible traders when they attain the registration
threshold.

4.2.1 STATUTORY INSTRUMENT NUMBER 79 OF 2009

The first schedule to the principal order is amended

a) in item 6, by the deletion of paragraph (a) and the substitution therefor of the following new paragraph:
(a) The sale or lease of an interest in land other than the sale, lease or rental of commercial property;

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 b) in item 7, by the deletion of paragraph (b) and the substitution therefor of the following new paragraph:
(b) the provision of the following financial services:
I. Commission on Certified Vouchers;
II. Managers or Bank cheques;
III. Up-country cheques;
IV. Returned cheques;
V. Buying and selling of foreign currency;
VI. Commission on on-line and TT transactions;
VII. Commission on local and foreign drafts and trasfers;
VIII. Bills negotiable;
IX. electronic transfers;
X. Special clearance;
XI. Traveller's cheques;
XII. Letter of credit;
XIII. Commission on guarantees negotiable;
XIV. Commission on invoices discounted;
XV. Own acceptances;
XVI. Cable charges;
XVII. Interest on lending to banks;
XVIII. Interest on lending to customers;
XIX. Administrative Charge (imposed on a customer who exceeds overdraft limit);
XX. Stop payments;
XXI. Standing Orders;
XXII. Savings account;
XXIII. Transaction services/maintenance Activity or ledger fees;
XXIV. Account maintenance;
XXV. Closure of accounts;
XXVI. Cheque books;
XXVII. Internet banking;
XXVIII. Commission on lost connect cards;
XXIX. Commission on status enquiry;
XXX. Excess withdrawal fees;
XXXI. BOZ Treasury Bills Handling charges;
XXXII. Commission on Postage;
XXXIII. Commitment fees; and
XXXIV. Arrangement fees (In provision of credit)

This measure specifies the types of financial services that are exempt.
(c) in item 17 by the deletion of sub paragraph (vi) of paragraph (e) and substitution therefor of the following new sub-
paragraph:
(vi) polymer granules and paste or liquid polymers used in the manufacture of polypropylene bags.

4.2.2 STATUTORY INSTRUMENT NUMBER 81 OF 2009

The Second Schedule to the principal Order is amended

(a) in item 5 -
(i) by the deletion of the word “and” at the end of paragraph (a);
(ii) by the deletion of the full stop at the end of paragraph (b) and the substitution therefor of a semi-colon and the word
“and” and
(iii) by the insertion immediately after paragraph (b) of the following new paragraph:
(c) long lasting insecticide treated curtains;

This measure is intended to augment the fight against malaria by making insecticide treated curtains cheaper..
(b) by the deletion of item 9 and the substitution therefor of the following item:
(9) AGRICULTURAL EQUIPMENT AND ACCESSORIES

(a) Windmills;
(b) Maize dehullers;
(c) Two wheel tractor including ploughs, harrows, disc harrows, planters, seeders, rippers or sub-soilers, and
cultivators of such tractors;
(d) Tractors up to 90HP including ploughs, harrows, disc harrows, planters, seeders, rippers or sub-soilers, and
cultivators, of such tractors;
(e) pump sets; and
(f) knapsack sprayers (agricultural sprayers).

This amendment specifies the agricultural equipment and accessories which are zero-rated.

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4.2.3 STATUTORY INSTRUMENT NUMBER 5 OF 2010
The Second Schedule to the principal Order is amended by the deletion of item (4) and the substitution therefor of the
following:
(4) Hotel Accommodation
Accommodation in a hotel, lodge, or similar establishment within Livingstone District between 1st January 2010 and 31st
December, 2010.

This measure extends the zero-rating of accommodation provided by hotels, lodges, or similar establishments in Livingstone
District to 31st December 2010. The incentive had expired on 31st December 2009.

4.2.4 STATUTORY INSTRUMENT NUMBER 80 OF 2009

The principal regulations are amended by the insertion immediately after regulation (7A) of the following new regulation:
(7B) Corresponding input Tax incurred by a supplier, who is eligible for registration under Section twenty eight, but fails to
register in accordance with that section and subsequently assessed under sub-section (2) of section twenty-nine shall
be excluded from any claim, deduction or credit under section eighteen of the Act.

The measure makes input tax incurred by unregistered taxable supplier who is assessed under sub-section 2 of section 29 not
eligible to claim input tax relating to sales where they are assessed.

4.3 GAZETTE NOTICE No. 33 of 2010

4.3.3 The principal rules are amended by the deletion of Rule 4 as amended by Gazette Notice No. 66 of 2004 and substitution
therefor of the following:

4(1) A registered supplier shall issue a tax invoice, credit note, and debit note to a customer in respect of any taxable supply of
goods or services to the customer using tax invoices printed by an individual, partnership, or limited company authorised
for the purpose by the Commissioner General subject to the following conditions:
(a) The individual, partnership, or limited liability company intending to be authorised for the purpose of printing tax
invoices, credit notes, and debit notes shall apply to the Commissioner General by 31st March 2009 using an official
application form obtainable from the nearest Domestic Taxes offices;
(b) Subsequent applications by individuals, partnerships or limited liability companies intending to be authorised for the
purpose of printing tax invoices, credit notes, and debit notes shall be made by 31st March, 30th June, 30th September
and 31st December every successive year;
(c) Authorised Officers from the Zambia Revenue Authority shall inspect the suitability of the equipment for the purpose of
printing tax invoices, credit notes, and debit notes, and recommend for approval;
(d) The Commissioner General shall issue a certificate of approval for the purpose of printing tax invoice, credit note, and
debit note;
(e) Individuals, partnerships or limited liability companies approved to print tax invoices, credit notes, and debit notes shall
be gazetted in Appendix 1 and published in one newspaper widely distributed in Zambia and also posted on the ZRA
website http:www.zra.org.zm which will be taken as sufficient notice to the public.
(f) Individuals, partnerships or limited liability companies authorised to print tax invoices, credit notes, and debit notes shall
print tax invoices, credit notes, and debit notes prescribed under Rule 3 and
I. Each tax invoice, credit note, and debit note shall bear the name, logo and address of the printer at the bottom
II. The printer shall bind the tax invoices, credit notes, and debit notes serially in form of a book or booklet
III. The printer shall not duplicate the serial number(s) of tax invoices, credit notes, and debit notes for a particular
taxable supplier
IV. An authorised printer shall lodge a return with the Commissioner General on quarterly basis of all tax invoices,
credit notes, and debit notes printed on a form prescribed.
V. An authorised printer shall provider a photocopy of the certificate to their clients and the client shall display the
copy of the printer's certificate at prominent place of the business for his customers to see.

Any individual, partnership or limited liability company which prints tax invoices in contravention of this provision shall,
unless he satisfies the Commissioner General to the contrary, be deemed to have taken steps for the fraudulent recovery of
tax in contravention of section forty-four; and

Any taxable supplier who claims input tax using a pre-printed tax invoice, credit note, and debit note issued by an individual,
partnership, or limited liability company not approved by the Commissioner General shall be deemed to have taken steps for
the fraudulent recovery of tax in contravention of section forty-four.

(2) (a) A supplier wishing to issue computer generated tax invoices shall apply to the Commissioner General for inspection
of the computer package intended for use:
I. The package should have the capacity to generate tax invoices, credit notes, and debit notes bearing all features as
stipulated under Rule 3;
II. The package should not duplicate the invoice numbers;
III. The package should clearly distinguish the original tax invoice, credit note, and debit note and copies produced;
IV. The package should not accept manual interventions;
V. The package should store data for all transactions;

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 VI. The package should have audit trail showing original details and any amendments made;
VII. The package should have a provision for back-up in case of a power/system failure;
VIII. The package should have user authentication through provision of user level passwords; and
IX. The package should be licensed to the supplier

(b) Officers of the Authority will visit applicant to ascertain whether the package meets the specifications required and
recommend for approval;

(c) The Commissioner General shall issue a certificate of approval for the supplier to use a particular package for the
purpose of printing tax invoices, credit notes, and debit notes;

(d) A supplier approved to issue tax invoice using an approved computer package is required to display the certificate of
approval at a prominent place of business.

(e) Approved packages for printing tax invoices, credit notes, and debit notes shall be gazetted in Appendix 2 and
published in one daily newspaper widely distributed in Zambia and also posted on the ZRA website
http:www.zra.org.zm which will be taken as sufficient notice to the public.

3. Every person claiming input tax should ensure that the invoice used to claim input tax is printed either by a printer
authorised for the purpose of printing tax invoices by checking the copy of certificate available at the supplier's
premises.

Any taxable supplier who prints tax invoices in contravention of this provision shall, unless he satisfies the Commissioner
General to the contrary, be deemed to have taken steps for the fraudulent recovery of tax in contravention of section forty-
four; and

Any taxable supplier who claims input tax using a tax invoice, credit note, and debit note issued from a computer package not
approved by the Commissioner General shall be deemed to have taken steps for the fraudulent recovery of tax in
contravention of section forty-four.

Provides the rules for authorisation of printers of tax invoices and computer packages to be used for printing tax invoices

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5. OTHER MATTERS INCOME TAX

5.1.1 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)].

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.

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

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

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

N.B. A personal - to - holder vehicle means a vehicle provided for an employee's 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.
5.1.2 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
chargeable emoluments from which PAYE tax is to be deducted:
(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 (ITA Para. 7 (t), 2nd Schedule).

(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 (S.I No. 104 of 1996).

(iii) Funeral Expenses:

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

(iv) Sitting Allowances for Councillors:

Payments by Local Authorities to Councillors as Sitting Allowances are exempt (ITA 2nd Schedule Para. 7(s)).

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

Expenses incurred in entertainment, hospitality and gifts are not allowable, subject to the following exceptions:
! 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.
! 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, this is allowable.
! Where an employer provides entertainment or hospitality for employees, e.g. meals, accommodation and other such like on
business trips or a Christmas party for employees, this is allowable.

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 ! Where a person gives gifts which bear an advertisement for the donor, e.g. calendars, pens, ashtrays, spirits, food, and other
such like, the cost of the gift to any one person does not exceed K100, 000, this is allowable. Costs in excess of K100, 000 to
the same person would be disallowable.
! Employees receiving entertainment allowances would be chargeable and the amount would be disallowable to the employer.
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.

5.1.4 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.

5.1.5 PAYMENTS ON CESSATION OF EMPLOYMENT

Payments on cessation of employment fall into the following categories;
! Payments made on dismissal or resignation;
! Payments made to an employee at the end of a contract;
! Payments made to an employee on being made redundant;
! Payments made to an employee on retirement; and
! 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:
! Emolument (i.e. salary, wage, overtime, leave pay, commission, bonus, fee and such like,
! Cash in lieu of leave (leave days due but not taken),
! Salary in lieu of notice,
! Severance pay.
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 K25 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:
! Final Salary;
! Gratuity;
! Leave pay;
! 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:

Qualifying Gratuity Bands Rates
First K9,600,000 @ 0%
Above K9,600,000 @ 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:

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  The first K25 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 under a defined contribution scheme 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:
! Salary;
! Leave pay;
! Repatriation pay;
! Pension from an approved pension fund (Fourth Schedule);
! Accrued service bonuses;
! Severance pay.
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 K25 million is exempt from tax and the balance is taxed at 10%;
- Pension from an approved fund is exempt from tax (2nd Schedule).

(e) TERMINATION OF EMPLOYMENT DUE TO DEATH

The following payments may be made upon the death of an employee:
! Salary;
! Leave pay;
! Gratuity;
! Ex-Gratia payment;
! Accrued service bonuses.
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 6.5(b).
 Ex-Gratia payments are exempt from tax.
 Where an employee dies when he is eligible for retirement, the tax treatment of payments made is the same as early
or normal retirement in 6.5(d) above.

5.1.6 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.

5.1.7 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.

5.1.8 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.

5.1.9 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 Cap 323.

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5.1.10 INCOME TAX RATES
(a) Personal Income Tax Rates:
Personal Income tax rates, with effect from 1st April 2010, are as follows:
Income Bands Rates

First K9,600,000 @ 0%
Above K9,600,000 up to K16,020,000 @ 25%
Above K16,020,000 up to K49,200,000 @ 30%
Above K49,200,000 @ 35%

(b) Other Tax Rates

Category Rate (%)
Any Person carrying on mining operations (variable profit tax) Y=30% + [15%-(ab/c)]
Manufacturing & other companies 35
Charitable organisations (on income from business) 15
Farming 15
Non traditional exports 15
Chemical manufacture of fertilizer 15
Trusts, deceased or bankrupt estates 35
Tax chargeable reduced by
Rural enterprises 1/7 for 5 years
st
Business enterprise operating in a priority sector declared under O% for the 1 5 years
the Zambia Development Agency Act, 2006
Rate reduced by 50% from
6-8 years
Rate reduced by 25% from
9-10 years
Banks: First K250, 000,000 35
Above K250, 000,000 40

(c) Withholding Tax Rates

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 Organisations only) 15
Interest for individuals (earned from bank or building societies savings and deposit 15
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 withholding tax.

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OTHER MATTERS VALUE ADDED TAX

6.1.1 Documents required for zero-rating of exports of goods

An exporter of goods is required to be in possession of following documents for the goods to qualify for zero-rating:
 Copies of export documents for the goods (bills of export), bearing a certificate of shipment provided by Zambia
Revenue Authority;
 Copies of import documents for the goods, bearing a certificate of importation into the country of destination provided by
the Customs Authority of that country
 Commercial invoice issued by the vendor of the goods;
 Proof of payment by the customer for the goods; and
 Any other documentary evidence as the authorised officer may reasonably require.

6.1.2 Documents required for zero-rating of freight services for export of goods
Unless the Commissioner General shall otherwise allow, a taxable supplier claiming that freight transport services are zero-
rated on grounds that the services are directly linked to the exportation of goods from Zambia shall produce to an authorised
officer following documentary evidence:
(a) Copies of export documents for goods bearing a certificate of shipment provided by the Authority; and
(b) Consignment notes

As mandatory requirements, and shall in addition provide any two of the following:
(a) Tax invoices indicating the starting point and destination of the trip undertaken
(b) Transport waybills;
(c) Proof of payment by the customer for the services rendered; and
(d) Contracts or arrangements in respect of the transportation of goods.

6.1.3 Reverse VAT on services provided by foreign suppliers

A recipient of services in Zambia rendered by a foreign supplier who has not appointed a tax agent in Zambia is required to
charge and collect VAT over and above the value of services received which he has to account to ZRA as though it was VAT on
his sales. Any input tax corresponding to the reverse VAT is not claimable by the recipient of the service. The reverse VAT
should be accounted to ZRA through a return along with any other output tax payable by such a supplier. The reverse VAT is
due and payable on the earlier of:
a. The time when the invoice is received from the supplier;
b. The time when payment is made; or
c. The time when the services are actually rendered or performed.

Where the foreign provider of services appoints a tax agent in Zambia, the tax agent will issue the recipient of the services with
a tax invoice which he can use to claim back the VAT on the services. The tax agent will declare the output tax as though he was
the service provider.

The local agent will charge VAT on the agency fees payable by the foreign service provider.

6.1.4 Taxable value of commercial property

Sale of Commercial Property became standard rated with effect from 1st January 2010. The taxable value is the full
consideration inclusive of property transfer tax.

Example

Mr. A who is VAT registered sells his shop for K100,000,000. His computation for VAT will be as below:

Value of the commercial property K100,000,000

VAT (K100,000,000*.16%) K16,000,000

TOTAL K116,000,000

The buyer will pay K116,000,000 which the vendor will account for as below:

Gross sale proceeds of commercial property K100,000,000

VAT payable K16,000,000

Property transfer tax (3% of K100,000,000) K3,000,000

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7.0 DOMESTIC TAXES CONTACT ADDRESSES:
If you have any problems concerning your taxes, please contact the Client Services Centres or your nearest Domestic Tax Office
at the following addresses:

1 Client Services Centre 2 Client Services Centre 3 Client Services Centre

New Revenue Hall Nchanga House Large Taxpayer Office
th
Private Bag W136 P. O. Box 20454 6 Floor, Revenue House
Lusaka Kitwe P.O. Box 35710
Tel:021 1 226227/236227 Tel: 021 2 229301 Lusaka
Fax: 021 1 222717 Fax: 021 2229301 Tel: 021 1 221496
Fax: 021 1

4 Assistant Director 5 Assistant Director 6 Provincial Manager

Medium Tax Office – North Small Taxpayer Office Mansa Tax Office
P .O .Box 20855 P.O. Box 70181 P.O. Box 710112
Kitwe Ndola Mansa
Tel: 021 2 230362 Tel: 021 2 614694 Tel: 021 2 821147
Fax: 021 2 229942 Fax: 021 2 614096 Fax: 021 2 821147

7 Provincial Manager 8 Provincial Manager 9 Provincial Manager

Solwezi Tax Office Kabwe Tax Office Livingstone Tax Office
P.O. Box 110368 P.O. Box 80909 P.O. Box 60597
Solwezi Kabwe Livingstone
Tel: 021 8 821682 Tel: 021 5 223642 Te l: 021 3 320772
Fax: 021 2 821682 Fax: 021 5 223642 Fax: 021 3 320772

10 Provincial Manager 11 Provincial Manager 12 Provincial Manager

Chipata Tax Office Mongu Tax Office Kasama Tax Office
P.O. Box 510632 P.O. Box 910110 P.O. Box 410728
Chipata Mongu Kasama
Tel: 021 6 221155 Tel: 021 7 221662 Tel: 021 4 221810
Fax: 021 6 221155 Fax: 021 7 221662 Fax: 021 4 221810

Website: http://www.zra.org.zm

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