The Zambian Minister of Finance in his 2020 Budget Speech of Friday, 27 September 2019, announced that the government is abandoning its plans to replace value added tax (“VAT”) with sales tax.
A Sales Tax Bill, providing for sales tax at the rate of 9% on the supply of goods and services in Zambia and 16% on the importation of goods and services was published in April 2019, but its implementation was repeatedly postponed.
In response to various concerns raised by stakeholders, including the cascading effect, negative impact on GDP growth and job losses through the elimination of intermediaries in the supply chain, it was decided to retain the VAT system, but address compliance and administrative challenges.
The Minister announced various administrative measures to strengthen the enforcement and efficiency of VAT, including upgrading the Taxonline system for domestic taxes and interfacing it with the customs system to ensure that all refund claims for import VAT are validated; making the use of Electronic Fiscal Devices (EFD) mandatory for VAT and other tax types and making it mandatory to capture and electronically transmit to the Zambia Revenue Authority (“ZRA”) the Taxpayer Identification Number and name of both the buyer and seller of goods and services in all Business-to-Business and Business-to-Government transactions; enhancing Data Analytics and bulk data matching with third party institutions such as the Patents and Company Registration Agency; and ensuring the timely audits of VAT claims, including procuring the services of external forensic auditors where necessary.
Proposed amendments to the VAT Act include the zero-rating of capital equipment and machinery for the mining sector as well as copper cathodes sold locally, but ancillary services directly linked to the transit of goods through Zambia are to be subject to VAT at the standard rate. VAT inputs on consumables such as stationery, lubricants and spare parts are to be disallowed and input VAT claims by mining companies on diesel and electricity are to be limited to 70% and 80% respectively.
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