The Zambian tax administration has been evolving since independence, prior to 1994, tax

concluded that one of the tax changes that poised to have a positive impact on both growth and
economic recovery, is a reduction in income taxes for low-income earners, SMEs and
consumption because through this practice, aggregate demand will be increased thus leading to
increased economic growth rates and reduction in inequality. administration was the
responsibility of the Customs and Excise department of the Ministry of Finance which changed
in 1994 after the establishment of the Zambia Revenue Authority (ZRA), a government tax
administration organization. This body was established by an Act of Parliament Chapter 321 of
the laws of Zambia and the tax authority administers all the taxes while the Ministry of Finance
formulates tax policy. This was done as part of various tax policy initiatives introduced to
restructure Zambia’s financial management (ZRA, 2021). 1 This academic work will discuss the
reason for the imposition of a tax policy of re-aligh (re-price) economic choices.

Tax payment is a civic duty and an imposed contribution by the government to contribute to her
principal source of revenue to provide public goods and services to its citizenry. It is a
compulsory unrequited payment to the Government. Taxes do not bear any relationship to the
benefits of government goods and services received. The main objective of taxation in many
countries including Zambia is to mobilize domestic revenue to finance government expenditure
on public services such as infrastructure development and other social services. This is made
possible through the tax policies set up by the Zambian government.2

High tax levels can discourage foreign investors from going to invest in a country, or encourage
domestic firms to relocate abroad. For this and other reasons, designing a tax regime that works
for everyone becomes an important facet of public governance. Hence, the need to carefully
consider tax incentives offered to ensure optimal benefits accrue to the nation. It is against this
background that Jesuits Conference of Africa and Madagascar found it imperative to discuss how
to improve domestic resource mobilization and explore ways to stem illicit financial flows from
African countries.3

Zambia’s economic growth has greatly been affected by tax evasion as many tax payers are
purported to be in the black market and the informal sector. Based on the conclusions by the
1
Mintz, J. (2003). Income Shifting and Tax Competition, Theory and Evidence from Provincial Taxation in Canada.
2
Nightingale, K. (2002). Taxation: Theory and Practice; Theory and Practice Updated for 2001-2002
3
Ibid

1
World Bank, Action Aid Zambia, the Zambian Government, through the Zambia Revenue
Authority needs to begin expanding assessments to include self-employed individuals. Pay As
You Earn (PAYE) tax, which is the cheapest and easiest tax to collect because it is collected at
source thus if applied correctly, this would result in increased tax revenue base to grow the
economy. In line with the findings of the studies above, the selected taxes positively affect GDP
per capita through the multiplier process.4

From time immemorial, Zambia has pursued a very generous tax regime which allows
companies to operate for up to ten years at minimal tax contributions on their profits. And
depending on how other agreements specify, e.g. some double taxation agreements (DTAs)
Zambia has signed with other countries, tax exemption remains at zero in perpetuity. For
instance, Irish companies operating in Zambia are not taxed at all because they derive additional
benefits from Ireland-Zambia DTA which provides for zero taxation under a source country
clause.5 This type of generosity does not only allow companies to extract Zambia’s wealth free,
but more importantly it robs Zambia of revenue needed to run government operations and create
opportunities for its people to generate wealth. Due to this mammoth loss, Zambia remains a
poor country despite being so rich in natural wealth both up and below ground.6

Tax incentives are financial portfolios used to attract businesses to invest in a particular country
(or location of that country) to boost economic growth. These may be tax breaks, subsidies (tax
deductions or credits), exemptions, etc. Tax incentives are designed to assist companies to be
profitable and create jobs, and ultimately bring economic benefits to the larger community.
Governments consider themselves to be key beneficiaries in that as companies create wealth
(profits and jobs), government will collect revenue through corporate income tax, individual
employees (payroll income tax), property tax and several other sources connected to business
operations. Zambia taps its revenue from various tax sources: income tax (pay roll tax; corporate
income tax); customs and excise tax; loyalty tax; mineral tax; and value added tax. Among these
tax sources, the easiest to collect has been payroll tax. Section 89 of the Mines and Minerals
Development Act is amended to introduce a provision stating that the Mineral Royalty Tax

4
Richardson, G. (2006). Determinants of Tax Evasion: A Cross-Country Investigation. Journal of International
Accounting Auditing & Taxation, 15, 150-169
5
Lymer, A. and Oats, L. (2010). Taxation: Policy and Practice. 17th ed., Fiscal Publication.
6
Mintz, J. (2003). Income Shifting and Tax Competition, Theory and Evidence from Provincial Taxation in Canada.

2
(MRT) may be paid in advance as prescribed. Previously the MRT was payable 14 days after the
month in which the sale of the mineral occurred. Details regarding the dates of advance payment
and the calculation of the advance MRT have not been published yet.7

Zambia’s corporate tax regime enforces provisions of the Zambia Development Agency (ZDA)
Act,8 a principal law that gives investment incentives to corporate entities planning to invest or
expanding their businesses in Zambia. The primary purpose of tax incentives is to attract
investors, considered to be partners in the nation’s development agenda, for jobs and wealth
creation. Various investment incentives are offered in different sectors. This paper looks at
different tax incentives offered and how the same impacts domestic resource mobilization, vis-à-
vis government revenue collection. Are these tax incentives yielding the intended purposes or
have they become a sink hole.

Lastly, the reduction of certain taxes such as corporate taxes and the level of personal income
taxes would not help to restore the economy but would still help the economy grow. In contrast
to corporate and personal income taxes, some tax changes (ie increased rates) on consumption
are worse for economic growth. Thus, on the other hand, reducing taxes such as sales and
property taxes will not do much to accelerate economic growth and growth.

Additionally, increase in customs duty from 25% to 40% on the following agricultural products:
beef and beef processed products, pork and pork processed products, chicken and chicken
processed products and fish.9 Amendment to chapter 87 of the Customs and Excise Act for the
reduction of customs duty from 30% to 15% on electric motor vehicles of HS 8703.80.90. The
measure aims at encouraging the use of electric motor vehicles and reducing the use of fossil
fuel.10

Amendment of Section 5(2A), 5(2B) & 5(2C) of the Property Transfer Tax (PTT) Act 11 to
redefine the method for determining the realized value on the indirect transfer of shares. This is
in order to capture only the Zambia proportion of the value of the consideration or the nominal

7
No 11 of 2015
8
No. 11 of 2006
9
Jhingan, M. L. (2004b). Money, Banking, International Trade and Public Finance (7th ed.). Vrinda Publication (P)
Ltd. New Delhi.
10
Customs and Excise Act No 25 of 2022
11
No 16 of 2015

3
value. This exemption, however, does not apply to companies that have not been part of the
group of companies for at least three years preceding the intergroup restructure.

Amendment of Section 9 of the PTT Act to prescribe the exchange rate applicable to foreign
currency-denominated transactions which will be the appropriate Bank of Zambia mid-rate as at
the end of the day immediately preceding the day on which the provisional return is submitted.
Further, Amendments in Section 4 of the Property Transfer Tax Act to restrict the application of
Property Transfer Tax in the case of indirect transfers of shares, where the value of shares being
transferred, over a period of three years represents less than 10% of the value of shares in the
Zambian company.

In the case of Commonwealth Edison v. Montana,12 where Montana imposed a severance tax
on each ton of coal mined in the State, including coal mined on federal land. The tax is levied at
varying rates depending on the value, energy content, and method of extraction of the coal, and
may equal, at a maximum, 30% of the "contract sales price.” Appellants, certain Montana coal
producers and 11 of their out-of-state utility company customers, sought refunds, in a Montana
state court, of severance taxes paid under protest and declaratory and injunctive relief,contending
that the tax was invalid under the Commerce and Supremacy Clauses of the United States
Constitution.

In conclusion, one of the tax changes that poised to have a positive impact on both growth and
economic recovery, is a reduction in income taxes for low-income earners, SMEs and
consumption because through this practice, aggregate demand will be increased thus leading to
increased economic growth rates and reduction in inequality.

BIBLIOGRAPHY

BOOKS

Jhingan, M. L. (2004b). Money, Banking, International Trade and Public Finance (7th ed.).
Vrinda Publication (P) Ltd. New Delhi.

12
453 U. S. 614-629.

4
Lymer, A. and Oats, L. (2010). Taxation: Policy and Practice. 17th ed., Fiscal Publication.

Mintz, J. (2003). Income Shifting and Tax Competition, Theory and Evidence from Provincial
Taxation in Canada.

Nightingale, K. (2002). Taxation: Theory and Practice; Theory and Practice Updated for 2001-
2002

Richardson, G. (2006). Determinants of Tax Evasion: A Cross-Country Investigation. Journal of

International Accounting Auditing & Taxation, 15, 150-169

JOURNALS

Cheelo, Ceasar and Precious Kaela (2015). Zambia’s Experience with Double Taxation
Agreements. Centre for Trade Policy and Development, Lusaka

STATUTES

The Income Tax Act No. 15 2019

Customs And Excise Act No 25 Of 2022

Mines And Minerals Development Act No 11 Of 2015

Zambia Development Agency (ZDA) Act No. 11 Of 2006

CASES

Commonwealth Edison v. Montana, 453 U. S. 614-629