UNIVERSITY OF LUSAKA

SCHOOL OF ECONOMICS, BUSINESS & MANAGEMENT

AFIN208: PRINCIPLES OF TAXATION

CHARLES NAKASAMU

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UNIVERSITY OF LUSAKA
BACHELOR OF ACCOUNTANCY PROGRAMME

AFIN208 – TAXATION

COURSE OBJECTIVES

The objectives of this course are to give students an understanding of the concepts of taxation and how
these are applied in the implementation and administration of tax.

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CONTENTS

1.0 Introduction to Taxation

 The Structure and functions of the Zambia Revenue Authority
 Definitions and Terms in Taxation – Income, Deductions, etc
 Who is a Taxable Person
 Badges of Trade
2.0 Types of Taxes
 Systems of Tax Administration – Source vs. Worldwide Income
 Direct Taxes
 Indirect Taxes
3.0 Deductions against Income
 Revenue vs. Capital Expenditure
 Wholly & Exclusively Principle
 Depreciation vs. Capital Allowances
 Qualifying and Non-Qualifying Expenditure
4.0 Treatment of Certain Costs
 Bad Debts, Donations, Subscriptions, etc.
 Balancing Allowances/Charges, Capital Recoveries
5.0 Income Tax
 Taxation of Individuals
 Taxation of Unincorporated Businesses
 Taxation of Limited Companies
 Taxation of Small & Medium Enterprises (SME’s)
6.0 Taxation of Individuals
 Taxable Income for Individuals
 Outline of Allowable/Disallowable Deductions;
 PAYE system
 Commencement and Cessation Rules
 Tax Refunds
7.0 Taxation of Unincorporated Businesses
 Taxation of Self-Employed Individuals (SEI’s)
 Taxation of Sole Traders
 Taxation of Partnerships
 Applicable Capital Allowances & Tax Rules
8.0 Taxation of Limited Companies
 Allowable and Disallowable Expenditure
 Employee benefits in Kind
 Computation of Tax Liability
 Capital Allowances
 Tax Reliefs & Losses

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  Commencement & Cessation Rules
9.0 Taxation of Small & Medium Enterprises
 Qualification Rules for SME’s
 Applicable Income Sources
 Presumptive Taxes & turnover Taxes
 Deduction Rules & Capital Allowances
 Tax Reliefs
10.0 Taxation of Farming Businesses
 Definitions
 Applicable Income Sources
 Capital Allowances for Farming
 Computation of Tax Liability for a Farming Business
11.0 Value Added Tax (VAT)
 Value Added Tax 1
o Basic Principles, Scope & Registration
o Accounting for VAT, VAT Invoices & Records
o Valuation of Supplies
o Administration & Penalties
 Value Added Tax 2
o Zero Rated Supplies
o Exempt Supplies
o Contrasts
o Special Schemes
12.0 Taxation of Investments
 Rental income
 Interest Income
 Dividends
 Grossing-up Income
 Medical Levy
13.0 Customs & Excise Duty
 Value for Duty Purposes
 Administration of Customs & Excise Duties
 Rules
14.0 Other Taxes
 Property Transfer Tax (PTT)
 Mineral Royalties
15.0 Tax Planning
 Outline of Issues in Tax Planning
 Tax Avoidance vs. Tax Evasion

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COURSE OUTCOMES

At the end of this course, candidates are expected to be able to compute taxable incomes and taxes due
as well as how to account for this tax.

Recommended Reading

 Business Taxation BPP Manual

 Income Tax in Zambia by MD Kamanga
 Taxation in Zambia by Mohamed Mulenga
 Zambian Tax Acts (Income Tax, VAT Act, Customs & Excise Act and Investment/ZDA Act)
 ZRA Leaflets & Guides on Income Tax, VAT, Customs & Excise
 ZRA Website

ASSESSMENT CRITERIA

 Tests & Assignments 40%

 Final Examination 60%

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Module 1

1.0 Introduction to Taxation

1.1 The Structure and Functions of the Zambia Revenue Authority

The Zambia Revenue Authority (ZRA) was established as a semi-autonomous body

through an Act of 1994 to take over the functions of the then Department of Income
Taxes and Department of Customs & Excise, under the Ministry of Finance.

It was envisioned that the ZRA would be more efficient and effective in its main function
of collecting revenue for the Central Government, than its predecessor departments.

The ZRA is governed through a Board of Directors, Management and Staff.

The Governing Board is composed of representatives from:

 Ministry of Finance, Permanent Secretary;

 Ministry of Legal Affairs, Permanent Secretary;
 Bank of Zambia, Governor;
 Zambia Institute of Chartered Accountants;
 Law Association of Zambia;
 Bankers Association of Zambia;
 Zambia Chambers of Commerce & Industry; and
 Two other appointees by the Minister of Finance.

This Board supervises Senior Management of the ZRA, who in turn manage the
Authority through its staff in the Technical and Support Divisions.

The Divisions are structured as follows:

Insert Organisation Chart

The operating divisions are responsible for revenue collection as follows:

Domestic Taxes Division- Income Taxes, Domestic Value Added Tax (VAT), Property
Transfer Tax (PTT) and Mineral Royalties (MR).

Customs & Excise Division-is mainly responsible for collection of Customs Duties on
Imports, Import VAT and Excise Duties. Other taxes collected are (imported) Motor
Vehicle Registration Fees, Cigarette Stamps, etc.

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 1.2 Definitions and Terms in Taxation

The Income Tax Act, 1966, as amended (ITA), does not specifically define the terms
“income” or “deductions”. It however provides definitions of some terms as follows:

"assessable income" means the amount of a person's income liable to tax which may be
included in an assessment and which remains after allowing the deductions, to which
that person is entitled under the provisions of this Act;

"assessment" means the determination of an amount of tax which a person shall be

liable to pay under the provisions of this Act;

"business" includes:-
(a) any profession, vocation or trade;
(b) any adventure or concern in the nature of trade whether singular
or otherwise;
(c) manufacturing; and
(d) farming;

"charge year" means the year for which tax is charged, that is, the period of twelve
months ending on the 31st March, and each succeeding such year;”

"company" means any company incorporated or registered under any law in force in the
Republic or elsewhere;

"dividend" means any amount distributed or credited as construed in sub-section (3) by

a company to its shareholders or any amount deemed to have been distributed
pursuant to the provisions of section ninety-five;

"emolument" means any salary, wage, overtime or leave pay, commission, fee, bonus,
gratuity, benefit, advantage (whether or not that advantage is capable of being turned
into money or money's worth), allowance, including inducement allowance, pension or
annuity paid, given, or granted in respect of any employment or office, wherever
engaged in or held;

"employee", in relation to an employer, means any individual who is paid, given or

granted any emolument by that employer;

"employer", in relation to an employee, means any person who or any partnership

which pays, gives or grants any emoluments to that employee;

"farming" means any husbandry, pastoral, poultry, fish rearing, or agricultural activity
but excludes the letting of any property for any such purpose;

“financial institution” means a person that holds a financial institution’s licence granted
under section ten of the Banking and Financial Services Act;

"individual" means a natural person;

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 "loss", in relation to gains or profits, means the loss computed in like manner as gains or
profits;

"manufacturing" means subjecting any physical matter to any process which materially
changes such matter in substance, character or appearance thereby making it an article
after such process, and includes the assembly of motor vehicles and such other process
as the Commissioner-General may determine to be of a similar nature;

"mineral" includes any valuable crystalline or earthy substance forming part of or found
within the earth's surface and produced or deposited there by natural agencies, but
does not include any clay (other than fire-clay), gravel, sand, stone (other than
limestone), or other like substance ordinarily won by the method of surface working
known as quarrying;

"mining operations" means:-

(a) any operation for the purpose of winning a mineral from the earth; and
(b) any operations for the purpose of winning a mineral from any substance or
constituent of the earth which are carried on in conjunction with the operations
referred to in paragraph (a) by the persons carrying on those operations; and

"mine" whether used as a noun or a verb, is construed accordingly;

“minister” means the Minister responsible for financial matters;

"non-traditional product" means anything, other than minerals and electricity, produced
or manufactured in the Republic but excludes services;

"person" includes any body of persons, corporate or otherwise, a corporation sole, a

local or like authority, a deceased's estate, a bankrupt's estate and a trust but does not
include a partnership;

“prospecting and exploration operations” means -

(a) any operations for the purpose of searching for mineral deposits; or
(b) any operations for the purpose of defining the extent and determining the value of a
mineral deposit;

"tax" means the income tax charged by this Act;

1.3 Who is a Taxable Person

A taxable person is any “person” who is in “receipt” of “assessable income” in a “charge

year”.
1.3.1 Classification of income

For the purposes of the Act, income includes, for any charge year -
(a) Gains or profits from any business for whatever period of time carried on;
(b) Emoluments;

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 (c) Annuities;
(d) Dividends;
(e) Interest, charges and discounts;
(f) Royalties, premiums or any like consideration for the use or occupation of any
property;
(g) Income from the letting of property; and
(h) The income as further classified in the First Schedule.

1.3.2 Further Classification of Income

Maintenance - Income includes amounts received by way of maintenance or allowance

under any judicial order or decree in connection with matrimonial proceedings, or,
under a written separation agreement.

Improvements - (1) Income includes, in the case of any person to whom, under any
agreement relating to or derived from the grant to any other person of the use or
occupation of land or buildings, there accrues the right to have improvements effected
on the land or to the buildings by any other person:-
(a) The amount stipulated in the agreement as the value of, or the amount to be spent
on, the improvements; or
(b) If no amount is stipulated, an amount representing the value of the improvements;
and in either case the amount is deemed for the purposes of this Act to have been
received by the first-mentioned person in equal monthly instalments from the date the
improvements were effected over the un-expired period of the agreement or over
twenty-five years, whichever period is the less.
(2) All the instalments deemed under sub-paragraph (1) to have been received by a
person that have not been included in his income before any of the following events are
treated as having been received by him immediately before the happening of any such
event:
(a) The cancellation of the agreement;
(b) The sale or other disposal of the land or buildings as improved; or
(c) His death or bankruptcy, or, in the case of a company, its liquidation.

Commencement and cessation of employment - Income includes any amount received

in connection with the taking up of employment or by reason of the cessation of any
agreement for employment including compensation for loss of office or employment.

Lump sum payments - Income includes lump sum payments.

Capital recoveries - Income of a person includes any amount by which recoveries from
capital expenditure exceed the original cost.

Share options - Income includes the gross sale proceeds or proceeds from sale of
options in respect of shares allotted, reserved or acquired by an individual in terms of an
approved share option scheme net of any amount paid for the acquisition or exercise of
such shares or options by the individual concerned, and shares or options sold shall be
deemed to be the shares or options longest held. Provided that the relief afforded shall
extend to such income to the extent not absorbed by compensation received for loss of

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 office or employment where the gross sale proceeds are receivable within one year of
termination of services.

1.3.3 Receipt of Income

Income is received by a person when, in money or money's worth, or in the form of any
advantage, whether or not that advantage is capable of being turned into money or
money's worth, it is paid, given or granted to him, or it accrues to him or in his favour,
or it is in any way due to him or held to his order or on his behalf, or it is in any way
disposed of according to his order or in his favour, and the word "recipient" is
construed accordingly.

1.3.4 Charge of tax

Subject to the provisions of the Act, tax shall be charged at the rates set out in the
Charging Schedule for each charge year on the income received in that charge year by-

(a) Every person from a source within or deemed to be within the Republic; and
(b) Any individual who is ordinarily resident in the Republic, or by every person, not
being an individual, who is resident in the Republic, by way of interest and dividends
from a source outside the Republic.

1.3.5 Exemptions from tax

There shall be exempt from tax the persons, funds, charities and income declared to be
exempt in the Second Schedule to the extent specified therein.

The Minister may, by statutory order, approve, for the purpose of exemption from tax,
any person, agency, organization or foundation, which may be so approved by him by
order in the Gazette pursuant to the Second Schedule, and may, by like order, exempt
from tax the income or emoluments of any person, agency, organization or foundation
which may be so exempted by him by order in the Gazette pursuant to the said
Schedule, and may, at any time , by like order, revoke any such order, and shall have the
power to make or revoke such orders retrospectively.

1.3.6 EXEMPT OFFICE HOLDERS & FOREIGN EXEMPTIONS

1. The emoluments of the President are exempt from tax.

2. The income of the Litunga of Western Province as Litunga and the income of
any Chief received as a Chief from the Government, are exempt from tax.
3. There shall be exempt from tax:
(a) the emoluments of any individual payable in respect of any office which he
holds in the Republic as an official of any foreign government, if such
individual is resident in the Republic solely for the purpose of carrying out the
duties of his said office;
(b) the emoluments of any domestic or private servant of any individual referred
to in sub-paragraph (a) payable in respect of domestic or private services
rendered or to be rendered by such servant to such individual, if such servant is

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 not a Zambian citizen and is resident in the Republic solely for the purpose of
rendering the said services;
(c) the emoluments payable to any individual who is not a Zambian citizen and
who is temporarily employed in the Republic in connection with any technical
assistance scheme provided by any foreign country, any international
organization or agency, any foreign foundation or any foreign organization, if
the exemption of such emoluments or such part of the emoluments as may be
specified is authorized under the terms of an agreement entered into by the
Government of such foreign country, international organization or agency,
foreign foundation or foreign organization with the Government of the
Republic;
(d) the emoluments of any individual in respect of service with any international
organization or any agency of a foreign government or any foreign foundation
or organization which organization agency or foundation is approved by the
Minister by order in the Gazette and such individual is not a Zambian citizen and
is resident in the Republic solely for the purpose of rendering the said service or
secondment to any Zambian organization, agency, or foundation.
4. There shall be exempt from tax such income of:
(a) any international organization;
(b) any agency of a foreign government;
(c) any foreign foundation or organization;
as is approved by the Minister by order in the Gazette.

1.3.7 EXEMPT ORGANIZATIONS

The income is exempt from tax of any:

(a) local authority;
(d) agricultural society, mining society or commercial society, whether corporate
or unincorporate, or any other society having similar objects, not operating for
the private pecuniary gain or profits of its members;
(e) club, society or association organized and operated only for social welfare,
civil improvements, pleasure, recreation or like purposes, if its income, whether
current or accumulated, may not in any way be received by any member or
shareholder;
(f) approved fund or medical aid society or approved share option scheme;
(h) employee's savings scheme or fund, if approved by the Commissioner-
General;
(j) political party registered as a statutory society under the Societies Act (Cap.
119);

The income of the following specific organizations shall also be exempt from
tax:
(a) the Commonwealth Development Corporation;
((b) the Economic Co-operation Administration and Mutual Security Agency, or
successor agencies of the Government of the United States of America;
(3) The income of a co-operative society registered under the Co-operative
Societies Act (Cap. 397) shall be exempt from tax if the gross income, before
deduction of any expenditure, of such co-operative society when divided by the

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 number of its members (that is to say, the number of individuals who are
members together with, where another co-operative society so registered is a
member, the number of individuals who are members of that other co-
operative society) on the last day of any accounting period of twelve months
does not exceed three million, six hundred thousand Kwacha or, if such
accounting period is more or less than twelve months, such figure as bears the
same relation to three million six hundred thousand Kwacha as the number of
months in such accounting period bears two to twelve.
(4) The income of a non-resident person derived from the carrying on of the
business of ship owner, charterer or air transport operator shall be exempt from
tax where the country in which such non-resident person is resident extends a
similar exemption to ship owners, charterers, and air transport operators who
are not resident in such country but who are resident in the Republic.
(5) The income of any organization, partnership or body corporate, or such part
of the income as is specified, shall be exempt from tax where the objects and
activities within the Republic of such organization, partnership or body
corporate are to assist in the development of the Republic and such exemption
of the income, or such part thereof as is specified, is approved by the Minister
by statutory order.

1.3.8 Charities

There shall be exempt from tax the income of any charitable institution or of
any body of persons or trust established for the promotion of religion or
education, or for the relief of poverty or other distress, if, in relation to the
people of the Republic, the income may not be expended for any other purpose.

If the income referred to above is the profit of a business carried on by a

charitable institution, body or persons or trust receiving it, then that income is
not exempt from tax and shall be taxed at the rate specified in the charging
schedule.

Interest on Treasury bills etc received by charitable institutions is subject to

withholding tax. Any interest on treasury bills, government bonds, corporate
bonds or any financial instrument or securities received by any charitable
institution, body, person or trust shall be subject to withholding tax. “securities”
has the meaning assigned to it by section two of the Securities Act.

1.3.9 Other Exemptions

There is exempt from tax income received:

(a) by way of lump sum payments withdrawn from an approved fund at
retirement age or death or on the beneficiary becoming permanently incapable
of engaging in an occupation or such sums withdrawn from an approved fund,
which the Commissioner-General determines cannot be enjoyed by the member
until he attains retirement age;

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 (b) as a war disability pension, or as a war widow's pension or as an old age
pension, paid out of public funds, or as a benefit paid under any written law in
respect of injury or disease suffered in employment;
(c) in conjunction with the award of military, police, and fire brigade decorations
for distinguished or good conduct or long service;
(d) by an individual or his dependants or heirs being on account of his injury or
sickness from any approved fund or registered trade union or medical aid
society or under any policy of insurance;
(e) as a local overseas allowance by any member of the Defence Force of the
Republic while on service officially declared to be active service;
(f) as an allowance paid for service outside the Republic by the Government or a
statutory corporation in respect of an excess of living expenses due to such
service;
(g) in respect of a scholarship or bursary, for the purposes of education and
maintenance during such education;
(h) by way of alimony, maintenance or allowance under any judicial order or
decree in connection with matrimonial proceeds, or under any separation
agreement, to the extent of the amount of alimony, maintenance or allowance
that has not been allowed as a deduction to another individual under this Act;
(j) by any individual, the amount of which is prescribed by the Ministerial and
Parliamentary Office (Emoluments) Act, (Cap 262), and which pursuant to the
provisions of the Act, is exempt from tax;
(k) by way of grant as compensation for loss of office or disturbance by an
officer admitted to the permanent and pensionable establishment of the
Government;
(l) by way of any passage value payable to a public officer or payable in respect
of his wife or children subject to the provisions of paragraph 8(3);
(p) by a person designated as an enterprise under the Investment Act, 1986, or
its successor, as the case may be, who has been granted the incentives provided
under that Act, to such extent and for such period as the Minister may
prescribe;
(q) by way of pension received by an individual from an approved fund;
(r) by way of a dividend declared from farming income for the first five years
the distributing company commences farming;
(s) by an individual by way of sitting allowance for attending a council meeting.
(t) ex-gratia payments made to a spouse, child or dependant on the death of an
employee.
(u) by a person designated as an enterprise under the Small Enterprises
Development Act, 1996 who has been granted the incentives provided under
that Act;
(v) by way of a lump sum payment paid to an employee on loss of office or
employment on medical grounds;
(w) by way of allotment or acquisition of shares in terms of an approved share
option scheme;
(x)`as emoluments by a former President of the Republic.

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 1.3.10 Passages

Definitions-
"child" means a child of an individual who at the commencement of the charge
year in which a passage is made is under nineteen years of age and is, at the
time the passage is made, unmarried and wholly dependant on such individual;
"commencement passage" means the first passage under the terms of written
contract granting such passage to the Republic from the home country of an
individual;
"home country" means the country in which an individual is resident for the
purposes of income tax or the equivalent tax, immediately before coming to the
Republic, or the country of which the individual is a citizen;
"leave passage" means a return passage taken for leave purposes between the
Republic and the home country of an individual or, in the case of a child of the
individual;
"passage" means a journey by air by the cheapest available fare as an economy
class passenger on a scheduled airline the cost of which is granted to an
individual under the terms of a written contract for his employment in the
Republic;
"terminal leave" means leave due to an individual under the terms of a written
contract for his employment in the Republic, taken after the last day of service
of the individual in the Republic under such contract;
"terminal passage" means the last passage under the terms of the written
contract granting the passage from the Republic to the home country of an
individual.

This paragraph does not apply to the value of a passage made :

(a) by an individual or by the spouse or child of such individual where the
individual is an effective shareholder or a director, other than the whole-time
service director, of the company granting the passage;
(c) by the spouse or child of an individual who alone or in partnership as
employer grants the passage;
(d) by an employee of a company granting a passage or the spouse or child of
such employee, where the employee or his spouse is carrying on a business
alone or in partnership and the services of the employee are provided to such
business by such company; or
(e) by the wife or child of an individual where the passage is granted under the
terms of a written contract for the employment of the wife in the Republic if at
the time such passage is made the wife is living with the individual and the
subparagraph does not apply.

The right of an individual to exemption from tax in respect of the value of a

passage under this paragraph shall be available under the terms of only one
written contract for employment in any one period of employment in the
Republic.

Subject to the other provisions of this paragraph, the value of a commencement

and terminal passage made by an individual shall be exempt from tax. Subject to

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 the other provisions of this paragraph the value of a commencement and
terminal passage made by the wife or child of an individual shall be exempt
from tax. Provided that:
(i) the written contract which grants the cost of the passage specifies that the
individual is to be employed in the Republic for a period of not less than one
year, excluding terminal leave;
(ii) the individual is so employed under the contract for the specified period or
for a lesser period, where the Commissioner-General determines that the
individual was prevented from being so employed for the specified period due
to circumstances beyond the control of such individual;
(iii) for each contract the value of not more than one commencement and one
terminal passage in respect of a wife shall be exempt from tax.

Subject to the provisions of this paragraph, the value of a leave passage made
by an individual, his wife or his child, shall be exempt from tax. Provided that:
(i) the written contract which grants the cost of the passage specifies that the
individual is to be employed in the Republic for a period of not less than three
years, excluding terminal leave;
(ii) the individual is so employed under the contract for the specified period;
(iii) the passage is made during the period of which the individual is so
employed under the contract;
(iv) subject to proviso (v), for each contract the value of not more than one such
leave passage shall be exempt from tax;
(v) for each contract the value of one further such leave passage shall be
exempt from tax for each period of not less than two years, excluding terminal
leave, for which the individual is so employed, in addition to the first three
years; and
(vi) where the Commissioner-General determines that the individual was
prevented from being so employed under the contract for the specified period
due to circumstances beyond the control of the individual the value of the
passage shall be exempt from tax.
(8) Where a passage is made the value of which would be exempt from tax
under this paragraph if it were made by air or from, or to, a place provided by
this paragraph but is not so made, the value of such passage shall, subject to a
limit of the value of a passage which would be exempt from tax if made by air
and from, or to, a place so provided, be exempt from tax.
(9) Where an individual is permanently incapable of engaging in an occupation
and his wife is employed in the Republic then the wife shall, for the purposes of
this paragraph, be deemed to be the individual and the individual the wife.

1.3.11 Interest

The following interest is exempt from tax:

(a) Interest on any public loan raised by the Government or a statutory
corporation, where the terms of the loan provide that the interest thereon shall
be exempt from tax;
(b) Interest on any bond issued under or in respect of a loan of the kind
described in clause (a).

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 The first seven hundred fifty thousand Kwacha of interest earned by an
individual during the charge year on all sums deposited or invested in a building
society registered under any law relating to the registration of building societies
for the time being in force in the Republic, or deposited in a savings or deposit
account with a financial institution registered under the Banking and Financial
Services Act, (Cap 387) shall be exempt.

The first seven hundred fifty thousand Kwacha of discount income earned by an
individual in a charge year on all sums invested in Treasury Bills or any other
similar financial instruments sold at a discount from face value, shall be exempt.

1.3.12 Annuities

An annuity shall be exempt from tax where such annuity is bought by an

annuitant out of a lump sum payment withdrawn from an approved fund at
retirement age, or death, or the beneficiary being permanently incapable of
engaging in an occupation and which is exempt from tax under.

An annuity, other than an annuity payable out of an approved fund, shall be

exempt from tax to the extent that it represents a return of the purchase price.

The Schedule shall not apply to income comprising fees paid or payable in
respect of the management of a pension fund of any class or description,
including any approved fund and such fees are not exempt from tax by virtue of
this Schedule.

1.4 Badges of Trade

The term “business” is specifically “defined” in the ITA by way of a list of activities that it
“includes”, and the list of these activities in the definition is not exhaustive, i.e.
profession, vocation, trade, adventure in the nature of trade. This is mainly because
there has previously been some controversy as to what constitutes running of a
business, or a “trade”. Some of these contentious cases have ended up in the courts of
law.

These decided cases have come up with some common indicators or characteristics of
business ventures, what has come to be known as the “badges of trade”. These are:

1.4.1 Subject Matter of Realisation

Assets normally held as trading stock will normally be treated as such. This
principle was established in the case of Routledge Vs CIR (1929) involving the
purchase of a huge quantity of toilet rolls, and that of Martin Vs Lowry (1927)
involving aircraft yards and yards of aircraft linen. Both cases were held to be
trading operations.

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 1.4.2 Length of Period of Ownership
A sale of an asset after being held for a long period of time would not normally
be taken to be a trading transaction, whereas the converse would be true of an
asset disposed off shortly after its acquisition. The principle was established in
the case of Wisdom Vs Chamberlain (1969) involving the purchase of silver
bullion as a hedge against a loan. The disposal of the silver bullion after a year at
a profit was held to be trading.

1.4.3 Frequency of Similar Transactions

A series of similar transactions would almost likely be treated as trading than a
single transaction. In the case of Pickford Vs Quirke (1927), a chain of four
similar transactions resulting into a profit were held to be trading.

1.4.4 Supplementary Work

An asset acquired in a poor state and then modified prior to its disposal at a
profit was held to be a trading transaction in the case of Cape Brandy Syndicate
Vs CIR (1921) involving blending of 10,000 gallons of South African Brandy.

1.4.5 Circumstances giving rise to the Realisation

In the case of Page Vs Pogson (1954), the decision of the Commissioners to
treat as trading, transactions involving sales of houses held as living
accommodation by a taxpayer, but sold under compelling circumstances, could
not be reversed following an appeal.

1.4.6 Motive or Intention

An intention to trade, even without a profit motive, would most likely be
treated as trading. This principle was brought to the fore in the case of CIR Vs
Reinhold (1953) and Grove Vs YMCA (1903) involving the purchase and sale of
four houses and the running of a canteen, respectively.

1.4.7 Taxpayer’s Other Circumstances

Other circumstantial factors would indicate the carrying on of a trade.

1.4.8 Mode of Acquisition of Asset

An acquisition by way of inheritance or gift would not normally construe
trading.

1.4.9 Method of Finance

The acquisition of an asset using funds borrowed at premium interest rates
would also lead to the presumption of the carrying on of a trade, though other
factors should be brought in, like the type of asset acquired.

Page 17 of 92
Module 2

2.0 Types of Taxes

2.1 Systems of Tax Administration – Source vs. Worldwide Income

The Republic of Zambia operates the residence or source-based system of taxation,

which seeks to tax persons based on their residence status, or according to the source of
their income, as opposed to the worldwide income basis, which taxes citizens on their
worldwide income, irrespective of where it is earned from.

Accordingly, all income with a Zambian source will be taxed locally, with due regard to
the network of Tax Treaties, however. Therefore, all income arising in the Republic will
be subjected to the “deeming” provisions of the ITA under Section 18, in order to
determine its taxability.

2.1.1 Income Deemed within the Republic

Income is deemed to be from a source within the Republic if that income -

(a) arises under any agreement made in the Republic for the sale of goods, irrespective
of whether those goods have been or are to be delivered in the Republic;
(b) is remuneration from employment exercised or office held in the Republic or if it is
received by virtue of any service rendered or work or labour done by a person or
partnership in the carrying on in the Republic of any business, irrespective of whether
payment is made outside the Republic, or by a person resident outside the Republic;
(c) is remuneration for services rendered outside the Republic to the Government or any
statutory corporation if that person rendering the services is resident outside the
Republic solely for the purpose;
(d) is a pension granted by a person wherever resident, irrespective of where the funds
from which it is paid are situate, or where payment is made, except where the
employment or office for which the pension is granted was wholly outside the Republic,
and the emoluments were never charged to tax in the Republic;
(e) arises from interest incurred in the production of income or in the carrying on of a
business in the Republic or paid direct or indirectly out of funds derived from within the
Republic;
(f) arises from a royalty incurred in the production of income or in the carrying on of a
business in the Republic or paid directly or indirectly out of funds derived from within
the Republic;
(g) arises from the carriage, by a person who is not resident in the Republic, of
passengers, mails, livestock or goods embarked, shipped or loaded in the Republic other
than passengers embarking in transit through the Republic or mails, livestock or goods
shipped or loaded on transhipment through the Republic; or
(h) arises from a management or consultant fee incurred in the production of income or
in carrying on of a business in the Republic and is received by a person or persons in
partnership for a service other than such part thereof as is rendered by the person or
persons in partnership in the carrying on of a business in the Republic.
(2) Where a business is carried on partly within and partly outside the Republic by a
person to whom this subsection applies or where such a person receives a share of the

Page 18 of 92
 profits of a business carried on in partnership partly within and partly outside the
Republic, the whole of the person's share of the profits of the business or partnership is
deemed to have been received from a source within the Republic.
(3) Subsection (3) shall apply to -
(a) any individual who is ordinarily resident in the Republic; and
(b) to any person, not being an individual, who is resident in the Republic.

2.1.2 Double taxation agreements

Under the provisions of his powers found in Section 74 of the ITA, the President may
enter into an agreement, which may have retrospective effect, with the Government of
any other country or territory with a view to the prevention, mitigation or
discontinuance of the levying, under the laws of the Republic and of such other country
or territory, of taxes in respect of the same income, or to the rendering of reciprocal
assistance in the administration of and the collection of taxes under the income tax laws
of the Republic and of such other country or territory.

The Minister shall lay a copy of such an agreement referred to above before the Cabinet
for ratification. As soon as may be after the conclusion and ratification of any such
agreement, the terms thereof shall be notified by the President by statutory instrument,
whereupon, until such statutory instrument is revoked by the President, the agreement
shall have effect as if enacted in the ITA but only if, and for so long as, the agreement
has the effect of law in the other country or territory.

The President may at any time revoke any such statutory instrument by a further
statutory instrument and the agreement shall cease to have effect upon the date fixed
in such latter statutory instrument, but the revocation of any statutory instrument shall
not affect the validity of anything previously done there under.

The duty imposed by any law to preserve secrecy with regard to income tax shall not
prevent the disclosure to any authorised officer of the country or territory mentioned in
any statutory instrument issued in terms of subsection (3) of the facts, knowledge of
which is necessary to enable it to be determined whether immunity, exemption or relief
ought to be given or which it is necessary to disclose in order to render or receive
assistance in accordance with the arrangements noticed in such statutory instrument.

2.1.3 Double taxation relief

Section 75 provides relief whereby any tax (foreign tax) payable to another country in
respect of any income (foreign income) is to be allowed as a credit against Zambian tax
in respect of that foreign income.

The Zambian tax for any charge year in respect of foreign income is reduced by the
amount allowed as a credit in respect of that foreign income under any agreement
under this Part, but that reduction shall not exceed the amount of that foreign income
included in the income liable to tax under the ITA, multiplied by the Zambian tax before
the reduction, divided by the sum of the income assessable under this Act and the
income which the Commissioner-General is prohibited from including in an assessment .

Page 19 of 92
 In this case, "Zambian tax" means income tax chargeable under the ITA.

2.1.4 Unilateral double taxation relief

Under Section 76, a person is liable to pay Zambian tax for any charge year in respect of
income received from a source within a country which has not entered into an
agreement under this Part (foreign income) and he has paid tax on that income in the
country from which it was received (foreign tax), then the Zambian tax for that charge
year in respect of the foreign income is reduced by the amount of foreign tax, but that
reduction shall not exceed the amount of that foreign income included in the income
liable to tax under this Act, multiplied by the Zambian tax before the reduction, divided
by the sum of the income assessable under this Act and the income which the
Commissioner-General is prohibited from including in an assessment. In this case too,
"Zambian tax" means income tax chargeable under the ITA.

2.2 Direct Taxes

As the name might suggest, direct taxes are taxes accruing on the income “directly”.
These taxes are chargeable on “receipt” of the said income by a “person”, these terms
having already been defined. These income taxes are:

 Company Income Tax – payable by Corporates on their taxable profits;

 Self-Employed Individuals (SEI) Tax – payable by sole-traders and partners on their
share of profits;
 Pay As You Earn (PAYE) – is an advance tax payable by individuals in employment;
 Withholding Tax – is an advance tax payable on receipt of income in the form of
interest, Dividends, Royalties, Rents, Management & Consultants Fees, etc.

2.3 Indirect Taxes

Under the Zambian tax regime, indirect taxes are in the form of Value Added Tax (VAT),
which are discussed in more detail in a later module. Previously, Zambia operated Sales
Tax instead.

Page 20 of 92
Module 3

3.0 Deductions against Income

3.1 Revenue vs. Capital Expenditure

The ordinary rules of accounting on this subject are fairly well established through
Generally Accepted Accounting Principles (GAAP). However, from time to time, the
courts have had to decide whether a deduction is allowable on the “ordinary rules of
accounting”, and in doing so, have formulated certain principles which can be taken as
indicative of these rules.

The most important principles emerging from case law in this connection is the
distinction courts have been concerned to draw between revenue expenditure and
capital expenditure. Revenue expenditure, or income expenditure as it is sometimes
called, is a proper deduction on normal commercial principles. It may however be
disallowed by reason of some specific provisions of the ITA.

Capital expenditure, on the other hand, is not a proper deduction in computing profits
or gains. It should be noted here that, although capital expenditure is specifically
prohibited twice in the Act (Section 29(1)(a) and Section 44(c)), the courts have usually
come to the conclusion that it is disallowed on more general ground that it is not a
proper deduction on normal commercial principles.

3.2 Wholly & Exclusively Principle

The ITA under Section 29 generally provides as follows with regards to deductions of
expenses:

“ Subject to the provisions of this Part -

(a) in ascertaining business gains or profits in any charge year, there shall be
deducted the losses and expenditures, other than of a capital nature, incurred in
that year wholly and exclusively for the purposes of the business; and
(b) in ascertaining income from a source other than business, only such
expenditure, other than expenditure of a capital nature, is allowed as a
deduction for any charge year as was incurred wholly and exclusively in the
production of the income from that source.
Provided that on the amount payable by way of interest upon money borrowed
by any person where the Commissioner-General is satisfied that the loan or
advance was obtained for capital employed wholly and exclusively for business
purposes or in the production of income, a deduction shall be allowed.
(2) Only one deduction is allowed under this Act in respect of the same matter in
any charge year.”

The words “wholly and exclusively” have been subjected to comments in the courts. It
has been made clear in various court judgements that , even though some expenditure

Page 21 of 92
 is not wholly and exclusively expended for the purpose of the business, the part or
proportion of it that was so expended can be allowed. For example, expenditure on the
upkeep of a car used partly for business and partly private purposes, the part which can
be attributed to business can be allowed.

The UK tax case of Bentleys, Stokes & Lowless Vs Beeson 33TC491 involved the
expenses of a solicitor in entertaining his clients to lunch. Though the court decision
allowed the expense, it has been overtaken by the entertaining expenses legislation
under current tax practice.

However, the case remains of importance because of the following frequently quoted
passages:

“Wholly and exclusively laid out or expended for the purposes of the profession”
– appear straightforward enough. It is conceded that the first adverb – “Wholly”
– is in reference to the quantum of the money expended and has no relevance to
the present case. The sole question is whether the expenditure in question was
“exclusively” laid out for business purposes, that is what was the motive or
object in the mind of the two individuals responsible for the activities in
question?”

After discussing the special nature of entertaining, he goes on:

“it is, as we have said, a question of fact and it is quite clear that the purpose
must be the sole purpose. The paragraph says so in clear terms. If the activity
be undertaken with the object both of promoting business and also with some
other purposes … then the paragraph is not satisfied though in the mind of the
actor the business motive may be predominant. For the statute so prescribes,
per contra, if in truth the sole object is business promotion, the expenditure is
not disqualified because the nature of the activity necessarily involves some
other result, or the attainment or the furtherance of some other objective, since
the latter result or objective is necessarily inherent in the Act”.

Guidance on the interpretation of these words may also be found in the following UK
tax cases:

Copeman V William Flood and Sons 24TC53

Bowden V Russell and Russell 42TC301

Murgatroyd V Evans Jackson 43TC581

3.3 Depreciation vs. Capital Allowances

Page 22 of 92
 Tax relief for capital expenditure is however available through capital allowances, but
not through Depreciation which is deductible under GAAP.

3.3.1 Capital Allowances

Capital allowances are deducted in ascertaining the gains or profits of a business and
the emoluments of any employment or office for each charge year under Section 33 of
the ITA for -
(a) Buildings, implements, machinery and plant, and premiums, according to the
provisions of the 5th Schedule;
(b) Capital expenditure in relation to mining operations, according to the provisions of
the 5th Schedule;
(c) Farm improvements and works, according to the provisions of the 6th Schedule.

3.3.2 Investment allowances

Where a person incurs capital expenditure on the construction of, addition to, or
alteration of any industrial building, as defined in paragraph (1) of the Fifth Schedule, to
be used by him for the purposes of his business as a manufacturer, an investment
allowance of ten centum of such expenditure shall be deducted in ascertaining the gains
or profits of that business for the year in which the said building, addition or alteration is
first used for the said purposes.

3.3.3 Buildings

3.3.3.1 Definition of an industrial building

An industrial building means a building or structure in use for the purposes of

any electricity, gas, water, inland navigation, transport, hydraulic power, bridge
or tunnel undertaking, or any like undertaking of public utility, or is in use for
the purpose of any trade which –
(a) is carried on in a mill, factory or like premises;
(b) consists of the manufacture of goods or materials, or their subjection to any
process;
(c) consists of the storage of goods or materials to be used in the manufacture
or processing of other goods;
(d) consists of the storage of goods on import or for export; or
(e) consists in working of a mine or well for the extraction of natural deposits.
(2) For the purposes of this Part, the expression “industrial building” does not,
save as provided in subparagraphs (3) and (4), include any building or structure
in use as, or as part of, or ancillary to the purposes of, a dwelling-house, retail
shop, showroom, hotel or office or in use for the purposes of any retail, repair
or servicing trade or a trade of a like nature.
(3) Any building which on first construction after the commencement of this Act
is an hotel, or which is an extension made after the commencement of this Act
to a building first constructed as an hotel and which is certified by that body of
the Government for the time being responsible for the hotel industry as

Page 23 of 92
 conforming to such standards as it may from time to time prescribe, is an
industrial building for the purposes of this Part.
(4) Any building constructed or acquired by a person to provide housing for the
purposes of that person’s business is an industrial building for the purposes of
this Part:
Provided that -
(i) the cost for each unit does not exceed K2,000,000 (in this paragraph
referred to as low cost housing);
(ii) this sub-paragraph shall have effect in relation to expenditure incurred on
or after 1st April, 1997;
(5) Any building in use for the welfare of employees engaged in the
undertakings and trades referred to in subparagraph (1) is an industrial building
for the purposes of this Part.
(6) This paragraph applies to a part of an undertaking or trade as it applies to an
undertaking or trade.
(7) Where a part of a building is an industrial building, and a part is not, and the
capital expenditure incurred on the latter part is not more than ten per centum
of such expenditure incurred on the whole building, the whole building is an
industrial building for the purposes of this Part.

3.3.3.2 Definition of commercial building

In this Part a commercial building means a building or structure, or part thereof,

which is not an industrial building as defined in paragraph 1, or farm
improvement or farm works as defined in the Sixth Schedule, and which is in use
for the purposes of any business; there is a condition that the construction of
such building or structure was completed for first use on or after 1st April, 1969.

3.3.4 Initial allowance for industrial building

(1)In ascertaining the business profits of a person who, for the purposes of his business,
has incurred capital expenditure on the construction of a building intended to be used
as an industrial building, or on an addition to or an alteration of an industrial building, a
deduction (called an initial allowance) of the percentage of the expenditure incurred, as
set out in Part V, is allowed in the charge year in which the said building, addition to or
alteration is brought into use as an industrial building.
(2) Capital expenditure amounting to the cost of acquisition is incurred by a person for
the purposes of subparagraph (1) where he -
(a) acquires the building from another person who constructed it in the course of his
trade; and
(b) is the first user of that building.

3.3.5 Wear and tear allowance for buildings

(1) In ascertaining for any charge year the business profits of any person who in that
year uses for the purposes of his business an industrial or commercial building which he
has acquired, constructed, added to or altered, a deduction shall be allowed (called a

Page 24 of 92
 wear and tear allowance) for each charge year of such use according to the case and at
the percentage, as set out in Part V, of the original cost to such person.
There is a condition that in no case shall the total of all deductions allowed to such
person exceed the cost of such acquisition, construction, addition or alteration, as the
case may be.
(2) Where a building is used by a person as an industrial building for part of a charge
year and as a commercial building for another part of the same charge year, that
building shall be regarded as used by that person solely as an industrial building for that
charge year.
(3) No allowance shall be deductible in ascertaining the business profits of any person
for any charge year in respect of any building if at any time during the said charge year
that building is used as his usual dwelling place by -
(a) any individual who uses such building for the purposes of the business, or by any
individual partner in such business;
(b) any individual who, by reason of his shareholdings, or of his control of shareholdings,
in any company or by reason of any partnership interest, is in a position to exercise
control, directly or indirectly, over the person or persons using the building for the
purposes of the business;
(c) a director of a company using the building for the purposes of its business, who is not
a whole time service director thereof.

3.3.6 Balancing allowance for buildings

(1) Where any building, in respect of which an initial or wear and tear allowance has
been or could have been deducted in ascertaining the profits of a person carrying on a
business, ceases to belong to that person or permanently ceases to be used by him for
the purposes of any business whatsoever, a deduction (called a balancing allowance)
shall be allowed in ascertaining the profits of the business for the purposes of which the
said building was last used for the charge year of such cessation.
(2) The balancing allowance deductible under subparagraph (1) in respect of a building
shall be equal to the amount by which any recovery of capital expenditure on that
building together with any initial wear and tear allowance deducted under this Part in
respect of that building falls short of the original cost of that building to that person .
Provided that where wear and tear allowance has been deducted for part only of the
entire period of ownership or possession of the building by the person who has been
allowed the deduction of the said wear and tear allowance, the allowance deductible
shall be determined by multiplying the balancing allowance as above calculated by the
number of years in respect of which wear and tear allowance has been deducted and
dividing the result by the number of years of the said ownership or possession.
(3) In calculating the balancing allowance in respect of any building upon any cessation
referred to in sub-paragraph (1), the recovery from capital expenditure on the building
shall be the amount which, according to the Commissioner-General's determination, it
would have realized in the open market at the time of the cessation.

3.3.7 Divided use

If any building is used by a person both for the purpose of his business and for other
purposes, the amount of any allowance provided by this Part shall be reduced according
to the Commissioner-General's determination.

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 3.4 IMPLEMENTS, MACHINERY AND PLANT

3.4.1 Business to include employment in this Part

Notwithstanding the definition of "business" above, for the purposes of this Part
"business" includes employment and the letting of property.

3.4.2 Frequently replaceable articles not within this Part

This Part does not apply to implements requiring frequent replacement, like loose tools.

3.4.3 Wear and tear allowance for implements machinery and plant

(1) Where a person has used any implements, machinery or plant belonging to him for
the purposes of his business, a deduction (called a wear and tear allowance) shall be
allowed in ascertaining the profits of the business for each charge year.
(2) Where a person holds any implements, machinery or plant under a hire-purchase
agreement as defined in the Hire-Purchase Act, then the implement, machinery on plant
shall be deemed to belong to that person for the purposes of this paragraph.
(3) The wear and tear allowance for any charge year shall be at the percentage and in
the cases set out in Part V; Provided that in a charge year in which the business ceases
the allowance shall be the amount of the residue of the original cost referred to in sub-
paragraph (4).
(4) The wear and tear allowance for any charge year shall be calculated on a straight-line
basis of the original cost of the implements, machinery and plant; Provided that in the
case of any implements, machinery or plant which were acquired by a person other than
for the purpose of a business, the original cost shall be the current market value of such
implements, machinery or plant as determined by the Commissioner-General in the
charge year that they are first used for the purpose of a business.
(5) Notwithstanding any other provisions of this Act to the contrary, the wear and tear
allowance on any implements, machinery or plant which is proved to the satisfaction of
the Commissioner-General to be exclusively and directly used in farming,
manufacturing, tourism or leasing for any charge year, shall be calculated on a straight-
line basis at the rate of fifty per centum of the cost.
(6) Notwithstanding any other provisions of this Act, the wear and tear allowance on
the cost of any new plant or machinery acquired and used by any soft drinks
manufacturer in respect of such business carried on by him in a rural area, shall, in any
charge year, be calculated on a straight-line basis at the rate of twenty per centum of
the cost of such plant and machinery.

3.4.4 Capital recoveries from implements, machinery and plant

For the purpose of the above paragraph -

(a) a recovery from capital expenditure on implements, machinery or plant shall be
deemed to have taken place when the implements, machinery or plant -
(i) permanently cease to be used for purposes of a business; or
(ii) cease to belong to the person carrying on a business;

Page 26 of 92
 (b) the amount of recovery from capital expenditure shall be the amount which,
according to the Commissioner-General's determination, the implements, machinery or
plant would have realized in the open market at the time the event giving rise to the
recovery occurred.

3.4.5 Divided use

If any implement, machinery or plant is used by a person both for the purposes of his
business and for other purposes, the amount of any allowance provided for shall be
reduced to the Commissioner-General's determination.

3.4.6 Valuation in exceptional circumstances

(1) In the calculation of any allowance under this Part, the original cost to any person of
any implement, machinery or plant that has been -
(a) used outside the Republic by him, and brought by him to the Republic for the
purposes of his business;
(b) used by him for a purpose other than the purposes of his business, and is then used
for the purposes of his business; or
(c) acquired by him for no valuable consideration;
is according to the Commissioner-General’s determination.
(2) For the purposes of this part, the original cost to any person of a road vehicle used
for the purposes of his business and the vehicle was acquired by the person after the
commencement of this Act, whether the vehicle is a commercial vehicle or otherwise
shall be used in the calculation of the allowance.
(3) In this paragraph, "commercial vehicle" means a road vehicle of a type not
commonly used as a private vehicle and unsuitable to be used as such but includes all
types of road vehicles used solely for hire or carriage of the public for reward.

3.5 PREMIUM ALLOWANCE

3.5.1 Deduction of premium allowance

(1) A deduction is allowed (called a premium allowance) in ascertaining the profits of a

person's business equal to the amount of any premium or like consideration paid by him
for the right of use of machinery or plant, or for the use of any patent, design,
trademark or copyright, or for the use of other property which the Commissioner-
General determines is of a like nature, where such right is used by that person for the
purposes of his business.
(2) The amount of any deduction allowed for any charge year under sub-paragraph (1)
shall not exceed the amount of the premium or like consideration dividend by the
number of years for which the right of the use is granted.
(3)Where a person acquires any interest in the ownership of property for payment of a
premium or like consideration for the right of use of which he has been allowed a
deduction under sub-paragraph (1), he ceases to be allowed that deduction as from the
date of such acquisition.

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 RATES OF INITIAL AND WEAR AND TEAR ALLOWANCES

Initial allowance for industrial buildings … … … … … … … ten per centum

Wear & tear allowance for industrial building (low cost housing)
… … … … … … … ten per centum
Other industrial buildings .. … … … … … ... five per centum
Commercial buildings …… … … … … … two per centum
Wear and tear for implements machinery
& plant including commercial vehicles … … … Twenty five per centum
Wear and tear for vehicles other than
commercial vehicles … … … … ..Twenty per centum

Qualifying and Non-Qualifying Expenditure

Page 28 of 92
Module 4

4.0 TREATMENT OF CERTAIN COSTS

4.1 Preliminary business expenses

A deduction is allowable in ascertaining the gains or profits of a business for the charge year in
which that business commences, in respect of any expenditure that -
(a) was incurred within eighteen months before the commencement of the business; and
(b) would have been allowed as a deduction in ascertaining the gains or profits of the
business after its commencement.

4.2 Amount paid after cessation of business

Where any amount is paid by any person after the cessation of his business which, if it
had been paid prior to the cessation, would have been deductible in computing his gains or
profits from the business, then, to the extent to which that amount has not already been
deducted in computing the gains or profits, it shall be deducted from his income for the charge
year in which it is paid or, if he has no income in that charge year, from his income for the
charge year in which the business ceased, and such deductions shall be made before deductions
under Sections Thirty, Thirty-One, and Thirty-Two.

4.3 Approved fund deductions

(1)(a) A deduction shall be allowed in ascertaining the income from emoluments of an employee
for a charge year of any amount paid by him during that charge year by way of contribution to
any approved fund including National Pension Scheme Authority, if the fund to which the
contribution is made continues to be an approved fund for that charge year.

Provided that no deduction shall be allowed under this paragraph in respect of any contribution
other than a contribution which is-
(i) not a contribution in arrear (hereinafter referred to as a current contribution); or
(ii)a special lump sum contribution allowed to be deducted under and in accordance with
paragraph (b) below.
(b) A contribution paid by an employee in respect of:
(i) services rendered by him whilst resident in the Republic to his employer prior to the date of
the employee becoming a member of the approved fund to which the said contribution is paid;
or
(ii) a period when the employee was resident and employed in the Republic prior to the date of
the employee becoming a member of a fund within paragraph (c) of the definition of approved
fund or a fund approved under paragraph 5 of the Fourth Schedule to which the said
contribution is paid; in order that the employee may qualify for benefits under the approved
fund to which the contribution is paid in respect of such prior services or period as aforesaid
shall be a special lump sum contribution and shall, for the purposes of paragraph (a), be treated
as a current contribution for such charge year or as current contributions for such charge years
and in such amounts as the Commissioner-General, in his discretion, may direct.
(c) The deduction to be allowed to an employee for a charge year in respect of his current
contributions to approved pension funds shall not exceed -

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 (i) fifteen per centum of his income from emoluments liable to tax which have been received for
that charge year from any employer who established, adhered to or continued the said
approved pension fund, the fifteen per centum to be calculated before any deduction; or
(ii) one hundred and eighty thousand kwacha, whichever is the less.
(d) The total deductions to be allowed to an employee for a charge year in respect of current
contributions shall not exceed fifteen per centum of the income from emoluments of the
employee liable to tax before allowing any deduction under this subsection for that charge year
or one hundred and eighty thousand kwacha, whichever is the less.
(2) The total of the deduction to be allowed for a charge year under paragraph (c) and (d)
shall not exceed fifteen per centum of the income from emoluments of the employee
liable to tax before allowing any deduction under this subsection for that charge year or
one hundred and eighty thousand kwacha whichever is the less, and in any case shall not
exceed the assessable income of the employee for the charge year before allowing the
deductions under this subsection, subsection (3) and Sections Thirty, Thirty-Two, Thirty-Six
, Forty and Forty-One.
(2) (a) A deduction shall, subject to the provisions of this subsection, be allowed in ascertaining
the gains or profits of an employer for a charge year of any amount paid during that charge year
by him by way of contribution to an approved fund established for the benefit of his employees
if the fund to which the contribution is made continues to be an approved fund for that charge
year.
Provided that no deduction shall be allowed under this paragraph in respect of any contribution
other than a contribution which is -
(i) not a contribution in arrear (hereinafter in this subsection referred to as a current
contribution); or
(ii) a special lump sum contribution which is allowed to be deducted under and in accordance
with paragraph (b).
(b) A contribution paid by an employer -
(i) in respect of services rendered to him by an employee prior to the date of the employee
becoming a member of the approved fund to which the said contribution is paid in order that
the employee may qualify for benefits under that approved fund in respect of such prior
services; or
(ii) for any other reason approved by the Commissioner-General;
shall be a special lump sum contribution and shall be treated as a current contribution for such
charge year or as current contributions for such charge years and in such amounts as the
Commissioner-General, in his discretion, may direct.
(c) The deduction to be allowed for a charge year in respect of current contributions to an
approved fund other than a fund approved under subsection (1) of section 11 of the former Act
shall not exceed twenty per centum of the emoluments liable to tax received from the employer
in that charge year by each employee in respect of whom the contributions are paid.
(3)(a) A deduction shall, subject to the provisions of this subsection and subsection (4), be
allowed from the income of an individual for a charge year of any amount paid by him during
that charge year by way of a premium payable under an approved annuity contract if the
pension fund to which the contributions is paid or the annuity contract under which the
premium is paid continues to be an approved fund for that charge year and such deductions
shall be deducted from the income of an individual before deductions under Sections Thirty,
Thirty-Two, Thirty-Six, Forty and Forty-One.
(b) The deductions to be allowed for a charge year under this subsection shall not exceed one
hundred and eighty thousand kwacha or the assessable income of the individual for the charge

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 year before allowing the deduction under this subsection and deductions under Sections Thirty,
Thirty-Two, Thirty-Six, Forty and Forty-One, which ever is less, except that in the case of an
individual who is not resident in the Republic, the deduction shall not exceed an amount equal
to the contribution or premium paid as aforesaid multiplied by the fraction of his assessable
income as above over his world income.
(3A) For the purposes of subsection (3) “world income” in relation to any person means the total
amount of that person’s income from all sources, excluding the income which is chargeable to
tax but which the Commissioner -General is precluded from including in an assessment, the
amount of income from each source being substantiated to the satisfaction of the
Commissioner-General;
(4)The total of all deductions to be allowed to an individual under subsection (1) and (3) for a
charge year shall not exceed one-hundred and eighty thousand kwacha or the assessable
income of that individual for that charge year before allowing the deductions under Sections
Thirty, Thirty-Two, Thirty-Six, Forty and Forty-One, whichever is the less.

4.4 Deduction for share option scheme

A deduction shall be allowed in ascertaining the gains or profits of an employer for a charge
year of any amount incurred by the employer in the establishment or in the administration of an
approved share option scheme for that charge year.

4.5 Technical education

A deduction shall be allowed in ascertaining the gains or profits of a business for any payment
made for the purposes of technical education relating to that business or for the purposes of
obtaining further experience, training or qualifications relating to that business:
Provided that no deduction shall be allowed in respect of any payment made –
(a) on behalf of an individual who is related by blood or marriage to the person making the
payment, or to a person who is able to control directly or indirectly the person making the
payment;
(b) in pursuance of an agreement or undertaking to the effect that the person making the
payment will receive any reciprocal benefit for such payment where made on behalf of an
individual who is related by blood or marriage to any other party to that agreement or
undertaking.

4.6 Subscriptions

A deduction is allowed in ascertaining the gains or profits of a business or the emoluments of

any employment or office for any subscription paid by a person in respect of his membership of
a trade, technical or professional association which is related to his business, employment or
office.

4.7 Charities

(1) Subject to the provisions of this section, any amount paid by a person during a charge year to
an ecclesiastical, charitable, research or educational institution of a public character or to a

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 national amateur sporting association or to any fund of a public character wholly and exclusively
established for the use of the Republic or for ecclesiastical, charitable, research, educational or
amateur sporting purposes, shall be deducted from the income of that person for that charge
year if -
(a) the payments are in money or money’s worth;
(b) the payments are made for no consideration whatsoever;
(c) the Minister approves the institution, association, or fund to which payment is made or to be
made and the Minister may in like manner withdraw such approval and such withdrawal may be
made retrospectively.
(2)The deduction to be allowed in the charge year under this section shall be allowed before
deductions under Sections Thirty, Thirty One, Thirty Two, Thirty-Six and Forty, and in no case
shall exceed fifteen per centum of the assessable income of the person for the charge year.

4.8 Deduction for research

(1) A deduction is allowed in ascertaining the gains or profits of a business of any expenditure,
not being expenditure of a capital nature, incurred by the business during a charge year on
experiments or research relating to the business.
(2) A deduction is allowed in ascertaining the gains or profits of a business for any contribution
to a scientific or educational society or institution or other like body of a public character
approved by the Commissioner-General where a condition of the contribution is that it must be
utilised by the society, institution or body, as the case may be, solely for the purposes of
industrial research or scientific experimental work connected with the business.

4.9 Deduction for bad and doubtful debts

(1) A deduction shall be allowed in ascertaining the income from any source for debts to the
extent that the debts have been included in the income from that source and to the extent that
they are proved to the satisfaction of the Commissioner-General to be bad or likely to become
bad and, where there is no income from that source for the charge year for which such
deduction is due that deduction shall be deemed to be a loss under Section Thirty.
(2) Where a deduction has been allowed under subsection (I) in respect of any debt, and in the
subsequent charge year part of all of the debt is recovered, or the amount of the recovery or,
where less, the total deductions allowed in one or more charge years in respect of that debt,
shall be assessable in the charge year in which the recovery is received:
Provided that where recoveries are effected in more than one charge year, the total amount
assessable in each charge year after the first such charge year shall not exceed the amount of
the recovery in that later year or, where less, the total of the deductions previously allowed less
any recoveries assessable in previous charge years.
(3) Where a claim for a deduction is made under subsection (1) by a bank, bank subsidiary or
financial institution, subsection (1) shall apply subject to the following:
(a) the words “to the extent that the debts have been included in the income from that source”
in that subsection shall not apply; and
(b) the maximum deduction for any debt falling within the classifications set out by or under the
Banking and Financial Services Act shall not exceed the minimum level of provisioning for such a
debt required by the Bank of Zambia by or under the Banking and Financial Services Act.

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 4.10 Deduction for mineral royalty

(I) A deduction shall be allowed in ascertaining gains or profits of a business of any mineral
royalty payable and paid for a charge year in pursuance of the provisions of Section Sixty-Six of
the Mines and Minerals Act.
(2) This section shall not apply to any mineral royalty payable and paid for any charge year prior
to the charge year ending 31st March 2000.

4.11 Deduction for employing a person with disability

(1) A deduction shall be allowed in ascertaining the gains or profits of a business in respect of
each person with disability who has been employed full time by such business for the whole or
substantial part of the charge year for which the deduction is claimed.
(2) The amount of the deduction referred to in subsection (1) shall be five hundred thousand
kwacha.

4.12 Case of no deduction

No deduction is made in respect of any of the following matters:

(a) the cost incurred by an individual in the maintenance of himself, his family or establishment,
or which is a domestic or personal expense;
(b) any loss or expense which is recoverable under any insurance contract or indemnity;
(c) capital expenditure or loss of capital, other than loss of stock in trade, unless specifically
permitted under this Act;
(d) any payment to a pension or superannuation fund or scheme or premium payable under any
annuity contract, except such payments as are allowed under Section Thirty Seven;
(e) any tax or penalty chargeable under this Act;
(g) any amount which would be deductible in ascertaining the income from a source or from
income which the Commissioner-General is prohibited from including in any assessment under
the provisos to subsection (1) of Section Sixty Three;
(h) any expenditure incurred or capital asset employed, whether directly or indirectly, in the
provision of entertainment, hospitality or gifts of any kind:
Provided that this paragraph shall not apply to -
(i) any expenditure incurred or capital asset employed in the provision of anything which it is the
purpose of a person's business to provide and which is provided in the ordinary course of that
business for payment or for the purpose of advertising to the public generally without payment;
(iii) any expenditure incurred in the provision of a gift to any person consisting of an article
incorporating a conspicuous advertisement for the donor the cost of which to the donor, taken
together with the cost to him of any other such articles given by him to that person in the same
charge year, does not exceed Twenty-Five Thousand Kwacha ;
(i) any amount incurred by the employer in the establishment or administration of a share
option scheme, except such amounts as are allowed under Section Thirty Seven
A.
(l) the cost of any benefit or advantage not capable of being turned into money or money's
worth that is provided to employees, subject to such directions as shall be issued by the
Commissioner-General;
(m) any copper price participation payment or any cobalt price participation payment;

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 Provided that a deduction shall be allowed to Konkola Copper Mines Plc and Mopani Mines Plc
in respect of any payments made pursuant to cobalt price participation and copper price
participation agreements between Konkola Copper Mines Plc or Mopani Plc and Zambia
Consolidated Copper Mines Limited
(n) incidental costs of obtaining finance such as commitment and guarantee fees, commissions
and any other incidental costs of a similar nature; and
(o) any levy payable under the Medical Levy Act.

4.13 Balancing Allowances/Charges, Capital Recoveries

4.13.1 Capital recoveries
(1) Income of a person includes any amount paid by which recoveries from capital
expenditure exceed:
(a) in the case of a building, such residue of the expenditure ranking for capital allowances
incurred in respect of the building on which capital recovery has been made as remains after
the deduction of any initial, wear and tear or other capital allowance or similar deduction
whether allowed under this Act or under any provisions of the previous law for any charge
year in respect of the building; but in no case shall the amount to be included in the income
exceed the total of the deductions so allowed to him in respect of the building;
(b) in the case of implements, machinery or plant, such residue of the expenditure ranking
for capital allowances incurred in respect of implements, machinery or plant on which
capital recovery has been made as remains after the deduction of wear and tear or other
capital allowance or similar deduction whether allowed under this Act or under any
provisions of the previous Law for any charge year; but in no case shall the amount to be
included in the income exceed the total of the deductions so allowed to that person in
respect of those implements, machinery or plant;
(c) in relation to a mine in respect of assets on which an allowance has not been claimed,
the balance of unredeemed capital expenditure; provided that this paragraph shall not apply
to recoveries from expenditure incurred on farm improvements and farm works.
(2) For the purposes of items (a) and (b) above:
(a) a recovery from capital expenditure shall be deemed to have taken place when:
(i) a building ceases to belong to such person without being sold, or permanently ceases to
be used by such person for the purposes of any business;
(ii) any implement, machinery or plant ceases to belong to such person without being sold,
or permanently ceases to be used by such person for the purposes of his business.
(b) the amount of the recovery from capital expenditure shall be the amount which,
according to the Commissioner-General’s determination, the asset would have realized in
the open market at the time the event giving rise to the recovery occurred.
(3) For the purposes of this paragraph the expression "capital allowances" shall not include
any investment allowance deducted.

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Module 5

5.0 INCOME TAX

 Taxation of Individuals
 Taxation of Unincorporated Businesses
 Taxation of Limited Companies
 Taxation of Small & Medium Enterprises (SME’s)

5.1 Taxation of Individuals

5.1.1 Taxable Income for Individuals

Individuals will earn their income either as Employed or Self-Employed Individuals (SEI),
contract of service or contract for services. A number of tests can be conducted in order
to determine the status of a particular individual, among them the Control Test, Mutual
Obligation Test, Integration Test and the Economic Reality Test. Individuals in
employment will pay their taxes through the Pay As You Earn (PAYE) system discussed
below, while the SEI will pay theirs through submission of Provisional and Annual
Income Tax Returns (ITR).

5.1.2 Outline of Allowable/Disallowable Deductions;

Generally, allowable deductions will have to satisfy the ‘wholly & exclusively’ principle.
Otherwise, the expense will have to be disallowed in the tax computation. Deductions
are available for expenses meeting the ‘wholly & exclusively’ test, as well as other
statutory deductions.

5.1.3 PAYE system

PAYE is not a separate tax type as such, it is merely a system of collecting income tax
from individuals in employment based on their emoluments. Deductions are available
for expenses meeting the ‘wholly & exclusively’ test, as well as other statutory
deductions.

The term “emoluments” as defined in the ITA means ”any salary, wage, overtime or
leave pay commission, fee, bonus, gratuity, benefit, advantage (whether or not that
advantage is capable of being turned into money or money’s worth); allowance,
including inducement allowance, pension or annuity, paid, given, or granted in respect of
any employment or office, wherever engaged in or held”.

By this definition, therefore, tax is charged on emoluments received in respect of office

or employment. What do the terms office and employment mean?

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 The Oxford Dictionary gives the meaning of office as, “a position to which certain duties
are attached, especially a place of trust, authority or service under constituted
authority.”

An office has been judicially defined as a permanent substantive position which has an
existence independent of the person who fills it and which goes on and is filled in
succession by successive holders. Example of office holders are, Ministers of the
Government of the Republic of Zambia; Town Clerks, Directors of limited companies,
etc.

An employment is regarded as existing where there is a legal relationship of master and

servant. An employee will be under a contract of service, whether written, verbal or
implied. An independent contractor, on the other hand, who is carrying on a trade,
profession, business or vocation enters into a contract for services with the person for
whom he undertakes to work; the master servant relationship is absent.

A contract of service subsists where the employer has the right to demand the services
of an individual specifically and to direct the manner and the method of the work to be
done. The employer will indicate not only what is to be done, but how it is to be done,
the times of attendance at the shop, factory or office, holidays to be taken and so on.
He will provide accommodation, any necessary materials, usually any special tools or
equipment required and be responsible for adequate heating, lighting etc of any
premises in which the services are performed.

It must be pointed out that tax in respect of income from employment is collected by
means of arrangements generally referred to as the Pay As You Earn Scheme (PAYE).
Under this Scheme, when an employer pays remuneration he is responsible for
deducting tax by reference to tax tables.

The undoubted importance of PAYE in the taxation system must not be allowed to
obscure the fact that it is merely a method of collecting tax.

5.1.4 Commencement and Cessation Rules

A company or a partnership or an individual in business may prepare accounts to any

date for their own purposes. However, income tax is charged by reference to the
income received in a charge year and the amount of business income assessable is the
amount received in the charge year ended 31st March. Therefore, for tax purposes
business accounts are required up to 31st March each year.

However, the ITA recognizes (Section 62) that accounts may be prepared to a non – 31st
March date and provides that, subject to various conditions, such accounts be accepted
for tax purposes including action may be taken on subsequent changes in accounting

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 dates and on the cessation of a business. These legislative provisions may be
summarized as follows:

(a) Accounts to 31st March may be required in any case for tax purposes.

(b) Accounts to a non – 31st March date may be accepted and if so may be assessed:

(i) For the “current charge year” (CY) i.e. charge year in which the accounts date
falls; or

(ii) For the “prior charge year” (PY) i.e. charge year ending before the accounts
date; and

(iii) Accounts for less than 12 months can be assessed as if they were for 12 months
[Section 62(1)].

NOTE:

(i) This covers new cases with first accounts to a non – 31st March date and also
changes from a 31st March to a non – 31st March date; and

(ii) Acceptance is discretionary and therefore not subject to objection or appeal

(Section 114).

(c) Subsequent accounts – must be made up to the accepted non – 31st March date as
in (b) except where (d) applies [Section 62(2)].

(d) Change of Accounts Date – where a non 31st March date has been accepted (b) and
change of accounts date is made, the business income for every charge year for
which accounts to the changed accounts date are made up and the last normal year
can be adjusted as the ZRA considers necessary [Section 62(3)].

Note: There is no right to refuse a change of accounts date in such a case. However,
the adjustments that can be made are discretionary and therefore not subject to
objection or appeal.

(i) Profits earned in the Accounting period:

The Commissioner - General may permit taxpayers to prepare accounts to dates

other than 31st March. In such a case, a company is required to include as
income in their provisional and final returns the income of the accounting
period [Section 62 (3A)].

(ii) Relevant Accounts:

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 This means the Accounts which are or will be submitted to the ZRA for purposes
of determining the profits or gains of the business for the charge year in
question [Section 62(3B)].

(e) Cessation - where a business ceases, accounts from the last accepted accounts date
to date of cessation are to be prepared. If the final period is more than 12months
separate accounts for 12 months and the final period are required [Section 62(4)].

(f) Assessment on Cessation – a final period of 12 months or less is assessed in the

charge year following the last normal charge year. If more than 12 months, the first
12 months are assessed in the charge year following the last normal charge year and
balance is assessed in the next charge year [Section 62(5)]. An assessment for a
charge year can be made even where the Taxpayer does not exist [Section 62(8)].

(g) Double Assessment - profits may have been doubly assessed in any case where an
adjustment has been made under (d) due to a change in accounting date. Where
business profits have been doubly assessed an estimate of the amount is to be
made and deducted from the final assessment on the business profits and any
balance from the penultimate (last but one) assessment on business profits [Section
62(7)].

Note:

(i) The estimate of the amount doubly assessed is subject to objection and
appeal.
(ii) The deduction of the amount doubly assessed does not create a loss in
either the last or penultimate year. If there is still a balance un-allowed
it cannot be allowed against any other year.

5.1.4.1 New Cases – First Accounts Requests to 31st March Date

Where the first accounts to 31st March are 12 months or less they will be
assessed on a current year basis (CY) i.e. for the charge year ending on the
Accounts date.

Where the first accounts to 31st March are for more than 12 months but not
more than 18 months they may be accepted and apportioned on a time basis.
The proportion from the date of commencement to the following 31st March
will be assessed for the charge year ending on that date and the balance of 12
months for charge year ending on the next 31st March. Capital allowances are
due in full in both years, there is NO apportionment.

Where it is intended that the first accounts to 31st March are to be for more
than 18 months the taxpayer or agent should be advised that separate accounts
from date of commencement up to the following 31st March and for the 12
months to the following 31st March are required.

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 Example:

(a) A person commences business on 1st October 2009 and adopts 31st
March as the Accounting Date. His K10, 000,000 trading profits for
the six months to 31st March 2010 will be assessed in 2009/10
charge year.

(b) If he commences business on 1st April 2009 and adopts 31st

March as the Accounting Date, his trading profits for the 12 months
profits to 31st March 2010 will be assessed in 2009/10 charge year.

(c) Taxpayer commences business on 1st November 2008 and adopts

31st March as the Accounting Date. His trading profits for the 17
months to 31st March 2010 are K17, 000,000, and will be assessed
as follows:

5/17 x K17, 000,000 K5, 000,000 2008/09 Charge year

12/17 x K17, 000,000 K12, 000,000 2009/10 Charge year

5.1.4.2 New Cases – First Accounts requests for Non - 31st March Accounts
Date:

The discretion provided by Section 62(1) to accept a non – 31st March accounts
date will be exercised on request in a new case in relation to the first accounts
as follows:
(a) in the case of a company, which is a member of a group or a subsidiary of
another company where the proposed date is the accounts date of the
group or parent company.
(b) in the case of a person where the proposed date is a date required by law;
(c) in the case of a farming business where the proposed date is 30th
September (i.e. date where there are no growing crops);
(d) in any other case where there are sound commercial reasons for the
proposed date e.g. minimum stocks date, provided it is clear that this will
not result in a significant reduction of tax or delay in payment of tax and the
ZRA approves.

Note:

In considering applications under (d), the reasons for requests are to be

ascertained in every case. Even where there may be sound commercial reasons,
a non – 31st March date is not to be agreed where it is obvious that the choice of
date materially affects the first charge year of assessment and payment of tax.

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 Where a non – 31st March accounts date is approved will be assessed as
follows, Accounts dates between:

1st July – 31st March Inclusive – should be assessed on Current Charge

Year Basis (CYB) i.e. charge year in which Accounts Date end.

1st April – 30st July Inclusive – should be assessed on Previous Charge

Year Basis (PYB) i.e. charge year ending prior to Accounts Date.

Where the first accounts are for 12 months or less they will be assessed for the
charge year as above. Capital allowances will be due for the full charge year.
There is no apportionment of these on time basis.

Where the first Accounts are for more than 12 months but not more than 18
months one set of accounts may be accepted. The profits should then be
apportioned on time basis and the proportion from the date of commencement
of business up to the agreed non – 31st March accounts date assessed for the
charge year as in above. The remaining 12 months are assessed for the
following charge year. Full capital allowances are due for both years.

Where the first accounting period is intended to be more than 18 months

separate accounts from the date of commencement of business to the first
agreed accounts date and for 12 months to the next agreed accounts date are
required.

5.1.4.3 Old cases with non – 31st March Accounts Date -Change of Accounts
Date:

Where a non – 31st March Accounts Date has been approved there is no
provision whereby the Zambia Revenue Authority can refuse to accept
subsequent accounts made up to a date which is not the agreed date. However
the assessment for any charge year for which accounts are not made up to the
agreed date and for previous charge year can be as the ZRA decides. If that
decision is to assess profits more than once, then when the business ceases, an
adjustment has to be made in the final year and if necessary, penultimate year
to remove the double assessed profits. The above also applies on all
subsequent changes of accounts date if any.

In all cases the reason for the change from a non- 31st March Accounts date is to
be established and the ZRA will consider whether this is purely for business
reasons and that the tax effects are incidental or that, while there may be
superficial business reasons, the main purpose or only purpose is to reduce or
delay payment of tax. Consideration should also be given to the possibility of
manipulation of accounts to create profits or losses in different periods to
influence the tax position particularly where there is a change in tax rates.
Where there is a major variation in profitability the reasons should be
ascertained. Where the main purpose is to obtain tax benefits or manipulation

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 appears to have taken place a report and the file should be sent to Head office.
In other cases the procedure to be followed is set out below.

Where the new accounts date falls to be assessed in the same charge year e.g. a
change from 30th September to 31st December or from 31st December to 30th
June the whole of the profits from the last normal charge (LNCY) accounts date
up to the new accounts date are to be assessed for the charge year of change
(CYC). Subsequent charge years (SCY) are to be assessed on the 12 months
accounts to the new accounts date on a Current Charge Year of previous Charge
Year basis as appropriate.

5.1.4.4 Cessation

In every case, irrespective of the accounts date, accounts from the accounts
date for the Last normal charge year to the date of cessation are required.
While Section 62(5) provides that separate accounts for 12 months and to the
date of cessation are required where the final period is more than 12 months, in
practice, separate accounts are only to be insisted upon where the final period
exceeds 18 months or where it is felt that a material tax advantage would be
obtained by not doing so. For example a final period of say 18 months with an
overall loss but a profitable or smaller loss period for the first 12 months and a
greater loss in the final period. The ZRA will approve requests for the submission
of separate accounts in such cases.

The assessments to be made in a cessation case where final accounts are less
than 12 months will be for the charge year following the last normal charge
year. For final accounts more than 12 months but not more than 18 months, the
final assessments will be for the two charge years following the last normal
charge year.

Notes:
In all the examples full capital allowances are due for each year for which an
assessment is made on a loss allowable.

5.1.4.5 Double Assessment of Profits- Adjustments

Where a business ceases, the ZRA will examine the tax file for any note of
doubly assessed profits. The amount doubly assessed is to be deducted from
the final charge year’s income and any balance from the previous charge year’s
income of the same business.

Note:

(i) Deduction limited to business income assessed.

(ii) Any excess over final and penultimate year business income not
deductible.

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 An Adjustment for doubly assessed Profits is not made in the case of an individual
partner ceasing unless the business as a whole comes to an end. There is no provision
for this.

5.1.5 Tax Refunds

Tax, once paid, is not refundable as it is each person’s contribution to the government
for its public expenditure needs. The only time tax paid is refundable is when it has been
incorrectly paid or computed, i.e. it has been overpaid.

In this case, it is not the whole amount that has to be refunded, but only the excess
amount, or the overpayment. Before this amount is refunded, however, the person’s
other tax accounts with the ZRA are cross-checked to ensure that any liability is offset
against this refund.

Through the Taxpayer’s Charter, the ZRA has committed itself to processing refunds
within 45 days.

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Module 6

6.0 TAXATION OF UNINCORPORATED BUSINESSES

 Taxation of Self-Employed Individuals (SEI’s) or Sole Traders
 Taxation of Partnerships
Partnership returns
61. Persons carrying on any business in partnership shall furnish a joint return of income of
the partnership for a charge year declaring therein the names and addresses of all the
partners and the amount of the share of the income to which each partner is entitled for
that year, together with such other particulars as the Commissioner-General may, in writing,
require.
 Applicable Capital Allowances & Tax Rules
Same as for individuals.

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Module 7

7.0 TAXATION OF LIMITED COMPANIES

7.1 Information as to companies

Every resident company shall deliver to the Commissioner-General a copy of its memorandum
and articles of association, and copies of all amendments thereto, and, if the Commissioner-
General so determines, all such particulars relating to the company's affairs and shareholders as
the Commissioner-General may in writing require.

7.2 Allowable and Disallowable Expenditure

7.3 Employee benefits in Kind

(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 etc., 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)].

(a) 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.

(b) 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.

Note:

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.

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 (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
- Settling in allowance

7.4 Computation of Tax Liability

Same as for individuals, except that tax rates for companies are not graduated.

7.5 Capital Allowances

As discussed already.

7.6 Tax Reliefs & Losses

7.6.1 Losses

(1) Subject to the other provisions of this section, any loss incurred in a charge year on a
source by a person, shall be deducted only from the income of the person from the
same source as that in which the loss was incurred.
(2) Subject to other provisions of this section, where a loss referred to above exceeds
the income of a person for the charge year in which the loss was incurred, the excess
shall as far as possible, be deducted from, the income of the person from the same
source as that in which the loss was incurred for the following charge year.

7.6.2 Transfer of losses

If a company has incurred a loss on a source for the purposes of this Act and that
company (in this section called the old company) -
(a) was incorporated outside the Republic; and
(b) carried on its principal business within the Republic; and
(c) is about to be wound up voluntarily in its country of incorporation for the purposes
of transferring the whole of its business and property, wherever situate, to a company
which has been or will be incorporated in the Republic (called the new company) for the
purposes of acquiring that trade and property and the only consideration for the
transfer will be the issue to the members of the old company of shares in the new
company in proportion to their shareholdings in the old company, the new company
after the transfer referred to in paragraph (c) shall be allowed the old company's loss as
a deduction from income from the same source as that in which the old company's loss
was incurred to the extent that the loss has not been allowed as a deduction under this

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 Act for any charge year and such loss shall be allowed in accordance with the provisions
of Section Thirty.
Provided that the combined period of loss carried forward for both the old and new
companies shall not exceed five years.

7.6.3 Error or mistake relief

If any person alleges that an assessment is excessive by reason of some error or mistake
in the return or statement made by him for the purposes of the assessment, he may, at
any time, not later than six years after the end of the charge year in respect of which the
assessment was made, make an application in writing to the Commissioner-General for
relief.

On receiving any such application, the Commissioner-General shall inquire into and
determine the matter and shall, subject to the provisions of this section make any
assessment or adjustments necessary to give effect to such determination.

In determining any application, the Commissioner-General shall have regard to all the
relevant circumstances of the case, and in particular shall consider whether the granting
of relief would result in exclusion from the charge to tax of income of the applicant, and
for this purpose the Commissioner-General may take into consideration the liability of
the applicant and assessments made upon him in respect of the other years.

7.6.4 Remission of Tax

The Commissioner-General may remit tax if he is satisfied that it is not recoverable; and
where the person to be charged with tax is also subject to equity levy under the
Equity levy Act, 1982 (Cap 338), and the amount of the equity levy is greater than the
amount of tax payable under this Act, the Commissioner-General shall remit such tax.

On the Commissioner-General’s recommendation the Minister may remit tax if he is

satisfied that it is just to do so. This section shall not give rise to any appeal or other
proceedings.

7.6.5 Reduction in tax for tax free zones

The Minister may, by statutory instrument, exempt from, or reduce the payment of
corporate tax, income tax and withholding tax on dividends for investors in
manufacturing, agriculture, commercial banking and insurance who operate in an area
declared a tax free zone under the customs and excise Act to such an extent as may be
specified in that statutory instrument.

7.6.6 Tax less than twenty thousand kwacha not payable.

Notwithstanding anything contained in this Act, no tax in respect of a Charge year shall
be payable by a person if the tax with which the person is chargeable in respect of that
year is less than twenty-thousand Kwacha.

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 7.7 Commencement & Cessation Rules

As discussed under individuals above.

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Module 8

8.0 TAXATION OF SMALL & MEDIUM ENTERPRISES

8.1 Qualification Rules for SME’s

The amendment to the Ninth Schedule introduced in 2004 categorised taxes

applicable to SME’s into two parts, Part I and Part II.
Part I relates to Presumptive Tax on individuals and partnerships carrying on the
business of public passenger transport. This is a final tax.
Part II relates to Presumptive Pax on annual turnover of K200,000,000 and below at
the rate of 3%. Turnover tax is also the final tax.
8.2 Applicable Income Sources

Presumptive tax is only applicable to persons carrying on the business of public

passenger transportation.

Turnover tax is applicable to all income sources, except for persons involved in the
provision of professional services (Accountants, Lawyers, Architects, Doctors, etc), who
are excluded.

Advance Income Tax is applicable to all importers of commercial goods who do not have
an active TPIN.

8.3 Advance Income Tax, Presumptive Taxes & Turnover Taxes

8.3.1 Presumptive Tax

This is a tax on Motor Vehicles for the carriage of persons. The Type of vehicle and
amounts of tax payable per vehicle is as follows:

Vehicle Sitting Capacity Amount per Annum

64 seats and above K7, 200,000
50-63 seats K6, 000,000
36-49 seats K4, 800,000
22-35 seats K3, 600,000
18-21 seats K2, 400,000
12-17 seats K1, 200,000
Below 12 seats (including Taxis) K 600,000

8.3.2 Tax on Turnover

Turnover per annum Tax rate

K200,000,000 and below 3 per centum

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 8.3.3 Advance Income Tax

This is a tax on importers of commercial goods. It was introduced as a compliance tools

targeted at cross border traders. The rate of tax is 6%.

8.3.4 Base Tax

This is a tax on marketers and other small-time traders. It is levied on a daily/weekly

basis together with council levies by the local authorities, with whom the ZRA has
partnered to enhance compliance.

8.4 Deduction Rules & Capital Allowances

These are not applicable as persons in this category are not required to prepare financial
statement, nor file income tax returns.

8.5 Tax Reliefs

Other than the reduced tax rates, there are no special schemes applicable to persons in
this category.

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Module 9

9.0 TAXATION OF FARMING BUSINESSES

9.1 Definitions

In this Part:-
"farm dwelling" means a permanent building, used as a dwelling (the original cost of
which is taken for the purposes of this Part as not in excess of ten million kwacha),
which is not used by the farmer claiming the allowance under this Part as the
homestead of himself and his family; and
"farm improvement" means any permanent work, including a farm dwelling and fencing
appropriate to farming and any building constructed for and used for the welfare of,
employees, and in relation to farming land owned or occupied by the farmer claiming
the allowance under this Part for ascertainment of his profit.

9.2 Applicable Income Sources

9.3 Capital Allowances for Farming

9.3.1 Development allowance

Where a person incurs expenditure on the growing of, rose flowers, tea, coffee, or
banana plant or citrus fruit trees or other similar plants or trees an allowance (referred
to as a development allowance) of ten per centum of such expenditure shall be
deducted in ascertaining the gains or profits of that business for the charge year.

The development allowance referred to above may, in the case of a person growing for
first time plants or trees referred to therein, be carried forward to the following charge
years up to the first year of production, but in no case shall the development allowance
in respect of more than three consecutive years be carried forward.

9.3.2 Farm improvement allowance

For any expenditure incurred in a charge year on farm improvements, a deduction

called improvement allowance shall be allowed in determining the profits of the farming
business for the charge year.

The Restriction of cost under the definition of "farm dwelling" has been as follows:-
K
With effect from 1st April, 1966 6,000
With effect from 1st April, 1980 8,000
With effect from 1st April, 1987 20,000
With effect from 1st April, 1995 200,000
With effect from 1st April, 1996 1,000,000
With effect from 1st April 2002 5,000,000
With effect from 1st April 20 10,000,000
With effect from 1st April 20 20,000,000

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 Divided use - Where the expenditure referred to in paragraph 2 partly in respect of a
farm improvement, and partly in respect of some other purposes, only such proportion
of that expenditure as the Commissioner-General may determine is taken into account
for the purposes for that paragraph.

9.3.3 Farm Works Allowance

Nature of farm works

This deduction (called the farm works allowance) is allowed to a farmer in respect of
expenditure on farming land in his ownership or occupation and for the purposes of
farming, on stumping and clearing, works for the prevention of soil erosion, boreholes,
wells, aerial and geophysical surveys, and water conservation (collectively referred to as
"farm works").

Farm works allowance

The expenditure incurred by any person for any charge year in respect of any farm
works is allowed as a deduction in ascertaining the profits of his farming business for
that year. Provided that where the person incurs the expenditure in a charge year prior
to the charge year in which he commences farming operations the expenditure shall be
allowed as a deduction in the charge year in which he commences farming operations.

9.4 Valuation of Livestock

In ascertaining a farmer's gains or profits the value of his livestock (other than livestock
bought by him for stud) is the standard value or if he so irrevocably elects, whichever is
the lower of the market value or the cost to him of the livestock.

For this purpose, the standard value applicable to any class of livestock shall be that
adopted by the farmer in the first return delivered by him after he commences farming,
if the Commissioner-General determines that such value may be approved and that
standard value shall not be varied for the purposes of any subsequent charge year
unless the Commissioner-General so determines, and subject to any conditions he may
impose on such determination.

For this purpose the value of livestock bought for stud shall be the cost price or market
value whichever is the lower.

9.5 Subsidies

The amount of any capital expenditure incurred in respect of farm improvement and
farm works will be reduced by the amount of any subsidy or grant from public funds
towards or in aid or in recognition of the object of such expenditure.

9.6 Computation of Tax Liability for a Farming Business

9.6.1 Averaging of farming and fishing income

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 Where a person or partnership carries on in two consecutive charge years a business of
fishing or farming, excluding the letting of property for such purpose, and irrevocably so
elects by notice in writing to the Commissioner-General before the end of the charge
year immediately following the end of the second such consecutive charge year, the
income received from, or loss incurred in, such business in each of the two charge years
shall be averaged, and the average income or loss shall be deemed to have been
received or incurred in each of the two said charge years:
Provided that there shall be no right of election where an election has already been
made under this section in respect of one or two consecutive charge years in respect of
the same income or loss.

9.6.2 Exotic timber

Where land is disposed of for valuable consideration, and there is on that land exotic
timber which has been grown for sale, the market value of that timber at the time the
land is disposed of is included in income.

9.6.3 Farm stock

Any stock owned by a farmer at the beginning and end of each period for which he
makes up the accounts of his farming business shall, in computing the gains or profits
from such business, be taken into account:
Provided that where livestock bought by a farmer for stud has been included in stock at
the end of a period for which accounts are made up such livestock shall be included in
stock at the beginning of the next period for which accounts are made up.
For the purposes of this paragraph "stock" includes all livestock, produce, and crops
which have been harvested.

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Module 10

10.0 Value Added Tax (VAT)

10.1 Value Added Tax 1

10.1.1 Basic Principles, Scope & Registration

Before 1995 Zambia had a Sales Tax System, which was such an indirect tax. However
Sales Tax had certain disadvantages, such as double taxation and evasion, which were
damaging to the economy. The Minister of Finance therefore, announced in the 1995
Budget that Sales Tax in Zambia would be replaced by a tax on Value Added (VAT). This
tax was increasingly being used throughout the world, including many African
countries. This change was implemented on 1st July, 1995, and Zambia became the
fifteenth (15th) African country to introduce VAT.

The advantages of VAT for businesses can be summarized as:

 VAT is internationally proven in both developed and developing economies;

 VAT is invoice based and therefore uniform and uncomplicated, offering a sound
financial management system, with less collection weaknesses;
 As a result of increased tax compliance, brought about by the 'self policing' nature
of VAT, there is less distortion of trade between those who comply with the
indirect tax laws and those who do not. This is re-enforced by strong penalties and
effective control policies;
 VAT gives the potential for a stronger home manufacturing industry and more
competitive export prices;
 The input credit mechanism gives registered businesses back much of the tax they
paid on purchases and expenses used for making taxable supplies and, as a result,
largely avoid the 'tax on tax' characteristic of Sales Tax;
 A wider tax base has resulted in less distortion of trade and a greater sharing,
across all sectors of the business community, of the costs of collecting indirect
taxes and remitting them to the Government.

The ZRA has been tasked with the administration of VAT. The VAT system includes all
businesses in the production chain from manufacture through to retail. VAT is collected at
each stage in the chain when value is added to goods or services, hence the name "Value
Added".

The essential mechanism of VAT is as follows:

 The sale or disposal of goods, or the rendering of services is called Supplies.

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  When a business that is registered for VAT supplies goods or services, VAT is
charged and collected by the business, the VAT on these supplies is called Output
Tax.
 When a business that is registered for VAT purchases goods or services, the VAT
incurred on these supplies received is called Input Tax.
 At the end of each tax period, (which for most businesses is at the end of each
month) the VAT due is arrived at by deducting the total input tax on supplies
received, from the total output tax on supplies made.
 Where the output tax exceeds the input tax for the period, the difference must be
paid to the ZRA.
 If the input tax exceeds the output tax a VAT refund is due. VAT refunds will
normally be made within thirty (30) days. However, if a business in its previous VAT
return has a credit and it has been cleared, the business may offset this amount in
the next return.

10.1.2 Accounting for VAT

The following example shows how VAT works through the chain from Manufacturer to
Retailer. A manufacturer makes copper trays which are sold through a wholesaler to a
retail supermarket and then on to the consumer, the VAT rate is 16%. The manufacturer
sells the copper tray to the wholesaler for K1, 160.00 VAT inclusive, being K1, 000 for
the item and K160.00 VAT. He uses his own labour both to mine the copper and make
the tray so he makes no purchases. The tax position of the manufacturer is therefore:

Manufacturer:

Sales (supplies made) K1,000 Output VAT K160.00

Purchases (Supplies received) Nil Input VAT Nil

Value Added K1,000

VAT payable to the ZRA (Output tax minus Input tax) K160.00

The Wholesaler sells the copper tray to the supermarket for K2, 320 VAT inclusive (K0,
000 for the item and K320.00 VAT). The VAT on purchases was K160.00. The net VAT
paid to ZRA by the wholesaler is K160.00 (output tax minus input tax, K320.00- K160.00).

Wholesaler:

Sales (supplies made) K2, 000 Output VAT K320.00

Purchases (Supplies received) K1,000 Input VAT K160.00

Value Added K1, 000 K160.00

VAT payable to the ZRA (Output tax minus Input tax) K160.00

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 The retailer puts a mark up of K1, 000 and sells to the final consumer at a VAT inclusive
price of K5, 875. Since he suffered K700 VAT on his purchase, he only pays K175 to ZRA.

Retailer:
Sales (supplies made) K3, 000 Output VAT K480.00
Purchases (Supplies received) K2, 000 Input VAT K320.00

Value Added K1, 000 K160.00

VAT payable to the ZRA (Output tax minus Input tax) K160.00

So ZRA finally collects the K480 on a VAT inclusive total sales value of K3,480 in 3 stages,
i.e. K160.00 from the supermarket on a value added amount of K1, 000; K160.00 from
the wholesaler on a value added amount of K1,000; and K160.00 from the manufacturer
on a value added amount of K1,0500.00.

This example illustrates that although VAT is collected in stages by a VAT registered
business, it is a tax on consumer expenditure. The final consumer has paid the full tax of
K480 in the retail price. VAT is collected from the first person that is not registered for
VAT in the chain that begins with the manufacturer or importer and goes through the
distribution and retail chain to the final consumer.

10.1.3 Tax Invoices

For non – retailers, VAT is "invoice driven". In other words, the calculation of VAT is
based upon the issuance and retention of tax invoices. Non-retailers should issue a tax
invoice for every taxable supply, whether or not they have been granted the Cash
Accounting concession. Complete copies of invoices must be retained for a minimum
period of 5 years and must be produced to an authorised ZRA officer on request. As for
retailers, invoices should be issued to customers on demand.

Time for Issuing Invoices - it is best practice, though not obligatory, for VAT invoices to
be issued in the same month that the goods or services are supplied.

Issuance of Invoices - not more than one tax invoice may be issued for the same taxable
supply. A customer is entitled to ask for a duplicate invoice, which must be marked
prominently duplicate.

Details to be shown on Tax Invoices - The following details must appear on the tax
invoice:

 The words "tax invoice" in a prominent place.

 The name, address and VAT registration number of the supplier.
 The name or business name and address of the recipient (purchaser).
 The serial number of the invoice and date of issue.
 The quantity or volume of the goods or services supplied.
 A description of the goods or services supplied ,

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 and either
 The selling price, excluding VAT and any discount.
 The total amount of the VAT charged.
 The selling price including VAT, or the total charge on the invoice inclusive of VAT,
any discount and the rate of VAT.

In situations where it is impractical to issue a tax invoice or to include certain

information, and other records are maintained, the ZRA may be approached for the
necessary authority to dispense with this requirement. Tax invoices received, and copies
of those issued, must be retained for a minimum of 5 years and produced to the ZRA on
demand.

Manual Tax Invoices - it is mandatory that manually issued tax invoices be taken from a
serially numbered pre-printed invoice book.

Computer-Generated Tax Invoices - suppliers with computerised accounting packages

may apply to the Commissioner-General for approval to issue computer generated tax
invoices. Eligible accounting packages must have the following features:

(a) Printed invoices, credit notes and debit notes bearing all the mandatory features of
a Tax Invoice;
(b) Automatic and consecutive document numbering with inbuilt safeguard against
reallocation or resetting of the numbers in any circumstance;
(c) Transactions, once posted and a tax invoice printed, become read-only to all users
or, where editing is possible a read-only audit trail showing original details is in-
built;
(d) Periodic transactions reports showing invoice number, invoice date, customer’s
name, and description of goods or services supplied value before VAT and VAT
amount.

For tax invoices that are issued in foreign currency, the rate of conversion to Kwacha or
the Kwacha equivalent of the total supply obtaining at the time of the supply must be
indicated on the invoice.

Issuance Of Credit Notes - the issuance of a credit note is required where:

 The supply has been cancelled;

 The supply or total purchase price has varied or altered; or
 The goods have been returned to the supplier.
Note, when purchasers receive discounts for prompt payment (details of which must be
stated on the face of the tax invoice) credit notes need not be issued to cover the cash
discount given.

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 The details required on credit notes are the same as those required on tax invoices, e.g.
they must be headed credit note and show-the details of the person or business
receiving the credit, the quantity and amount credited for each item, the number and
date of the original tax invoice or a clear audit trail to show VAT was accounted for on
the original supply etc. A brief reason for the issue of a credit note is required. The VAT
on Credit Notes issued should be deducted from the total output tax in the period in
which the credit is given. Complete copies of credit notes must be retained for a
minimum period of 5 years and must be produced to the ZRA on request.

Receipt Of Credit Notes - if you receive a credit note e.g. for goods or services which
have been subsequently cancelled or returned you must ensure that input tax is not
claimed, or if it has already been claimed that it is corrected by deducting the VAT
amount from the input tax claimed in the same period in which the credit note is
received. There are severe penalties for claiming input tax to which you are not entitled.

10.1.4 Records & Accounting Systems

As far as possible, the ZRA tries to rely on the records and accounts ordinarily kept by
businesses. However to make sure that businesses keep appropriate records, the law
prescribes some minimum requirements.

Records that must be Kept – the ZRA will conduct visits to examine records to ensure
that businesses are accounting for the tax correctly. It is important that a business
retains sufficient records to enable them to do this effectively. If you are accounting for
VAT for the first time, some modifications to your normal accounting records will
probably be necessary.

10.1.5 Valuation of Supplies

VAT is a tax charged on taxable supplies of goods and services. The example above
shows VAT being charged and collected on a chain of supplies on the sale of a tray.
However there are many business transactions, in addition to a straight sale, which are
also viewed as supplies under VAT legislation. Examples include:

 Gifts of goods;
 Business goods taken for own use or consumption;
 Lease or Hire services;
 The service of carrying out a treatment of any goods;
 Imported goods and services.

Liability to VAT: Taxable & Exempt Supplies

Not all supplies are liable to VAT; the VAT legislation separates supplies between taxable
supplies, which are liable to VAT, and exempt supplies, which are specifically exempted
from VAT.

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 Taxable Supplier

A taxable supplier is a person who is registered or is required to be registered. Included

in the definition of ‘taxable supplier’ is a recipient of imported services and a tax agent.

Taxable Supplies

A taxable supply is a supply of goods or services made by a taxable supplier, in the

course or furtherance of a business (other than an exempt supply). This means that
supplies made by persons who are not required to be registered for VAT, are not taxable
supplies. For example, if the copper tray given in the example above was sold by the
supermarket, which was registered for VAT, to a small trader who was not required to
be VAT registered, the supply by the supermarket would be a taxable supply, but the
onward sale by the small trader to a consumer would not be a taxable supply for VAT
purposes.

10.1.6 Place of Supply

To be within the Zambian VAT system a supply must be made in Zambia. Supplies made
outside Zambia are outside the scope of Zambian VAT. The place of supply is not always
obvious (especially where supplies of services are concerned. There are rules to help
businesses work out the place of supply for goods and services. These are set out
below:

Place of Supply of Goods

The place of supply is the location of the goods when you allocate them to a customer's
order. If the goods are in Zambia when you allocate them, the supply is in Zambia. This
applies to goods supplied for export as well as goods supplied to customers in Zambia. If
the goods are not in Zambia when one allocates them the supply is normally outside the
scope of Zambian VAT. If one supplies goods that are assembled or built for the first
time on site, then the place of supply is the place where the assembly or building takes
place.

Place of Supply of Services

You supply services in the place where you belong. You belong where you have a
business or some other fixed establishment, including a branch or agency. If you have
no such establishment you belong where you usually live. In the case of a company this
is where it is legally constituted. If you have establishments in more than one country,
the supply takes place at the location of the establishment most directly concerned with
the supply.

Where services are supplied wholly or partly in Zambia, but on or near the border
between Zambia and another country and whether or not the services are paid for in
Zambia, the Commissioner-General may, by notice, determine that they shall be
regarded as supplied in Zambia where:

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  The business supplying the services is registered in Zambia; or
 The business operates on a de facto basis in Zambia;
 The services are imported. Services are imported when they are performed,
undertaken or utilized in Zambia or when the benefit of their supply is for a
recipient in Zambia; or
 Other circumstances, as the Commissioner-General considers relevant, exist.

The place of supply of radio, television, telephone or other communication services,

where the signal or service originates outside Zambia, shall be treated as being
supplied at the place where the recipient receives the signal or service, provided that a
consideration is payable for receiving the service or signal.

10.1.7 Tax Point - The Time When Taxable Supplies Are Made

It is important to establish when a taxable supply is made because that is the point at
which 'tax becomes payable to ZRA; hence it is called the tax point. It is the earliest of:

 For goods, the time when they are removed from the supplier's premises; or made
available to the person to whom they are supplied; or the time when a payment is
received; or the time when a tax invoice is issued.
 For services, the time when a payment is received; or the time when a tax invoice
issued; or the time when they are actually rendered or performed.

10.1.8 Taxable Value

The taxable value is the price that is charged for goods and services onto which VAT at
16% is added. For goods and services, which attract Excise Duty, it is the net selling
price plus Excise Duty. Below is an example illustrating the taxable value concept
where Item 1 does not attract Excise Duty and Item 2 attracts Excise Duty at 10%.

Item 1 Item 2

Net Selling Price K2, 000 K2, 000

Excise Duty [at 10%] nil K 200

Taxable Value K2, 000 K2, 200

VAT K 320 K 352

Total Selling Price K2, 320 K2, 552

For imported goods the taxable value is the Value for Customs Duty Purposes (VDP),
with the addition of any duties and other charges. On duty free goods on which VAT is
applicable, the taxable value is the VDP.

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 There are some circumstances where the taxable value is calculated differently. For
instances;

 When goods are supplied as a gift;

 In barter or part exchange transactions;
 Where goods or services are supplied at a reduced price to employees and others
associated with a business.

In such cases, the open market value must be used. The open market value is the
price at which the goods or services concerned would have been supplied in the
ordinary course of business, to a person independent of him.

Minimum Taxable Values

For some products such as carbonated and non-carbonated soft drinks, beers, cigarettes
and cement, a Minimum Taxable Value (MTV) is imposed by law. The effect is that if
these items are sold for a price less than the MTV, VAT due is based on the MTV. If they
are sold for more than the MTV, VAT is due on the actual selling price.

10.1.9 Rates of Taxable Supplies

Taxable supplies are subject to VAT at one of two rates:

 Standard-rate of 16% applies on most supplies of goods and services.

 Zero-rate of 0% applies on exports of standard rated goods and some specified
goods and services (listed in Schedule 2 of the VAT Act).

10.1.10 Administration & Penalties

Registration Rules

A supplier must apply to register if the value of taxable supplies in the course of
business exceeds or is likely to exceed K200 million in any 12-month period or K50
million in 3 months.

A business is any entity that is engaged in trade, whether by manufacture, production,

wholesale, retail or the provision of a service. As a general rule a business is usually
profit motivated, however, the use of this as criteria indicative of the carrying on of a
business is not the sole determining factor.

Effective Date of Registration (EDR)

The date when a business becomes eligible for registration for VAT is as follows:

 For a new business - If the turnover threshold is likely to exceed K200m, from the
date of commencement of trading

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  For a continuing business which has exceeded the turnover thresholds:

 Within one month of an application being made or from the date the
application was received or;
 Where the application is not made within one month of first becoming liable to
register, on the day following the first period during which the limits were
exceeded.

The Legal Entity to be registered for VAT

The legal entities that can be registered as suppliers for VAT purposes include:

 Individuals (e.g. sole proprietors);

 Companies;
 Partnerships;
 Trust;
 Groups of persons (associations and clubs);
 Joint Ventures.

Businesses with Branches

Normally only legal entities are registered for VAT and not their individual outlets or
branches. This means that businesses with a number of branches or outlets will
normally have a single registration and make one return and payment for each tax
period, keeping administration burdens to a minimum. However, where for some
practical reasons it is more convenient, a branch or division of a business may
separately be registered and carry on the obligations of a registered supplier if:

 It maintains an independent system of accounting; and

 It can be separately identified in terms of the nature of the activities carried on or
location thereof.

If this is done VAT has to be charged on supplies between separately registered

divisions.

Group Registration

Groups of Companies or incorporated companies that have common control may,

subject to certain conditions, apply for a single VAT registration. This provision requires
the consent of the Commissioner-General. The Commissioner-General may, for the
protection of the revenue, exclude any member from the group at any time.

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 Special Rules Relating To Government Agencies

With effect from April 2003, government agencies are required to be engaged in normal
taxable supplies in order to be eligible for VAT registration. Government agencies that
are not eligible to register for VAT may channel their refund claims through the Ministry
of Finance. Government agencies include:

 Any Ministry or Department of the Government;

 A statutory corporation or board;

 Local authorities; or

 Any institution or body in which the government has direct or indirect control; or
which is wholly or partially owned by the government.

Registration Procedure

All businesses that qualify for registration are required to complete a VAT registration
form (VAT 1). No registration fee is payable and in normal circumstances no bond or
other security will be required. On registration, businesses will be allocated a
registration number.

6.11 Cancellation of VAT Registration

A trader must notify the ZRA in writing if the following circumstances and cancellation of
registration must take place: -

 When there is a change in the legal status of an entity (e.g. a partnership is

dissolved);
 If the business ceases trading permanently;
 If the business is sold;
 If registered as an intending trader and the intention to make supplies ceases.

Cancellation of registration may take place when:

 If one was granted registration in anticipation of commencing a business on a

certain date but do not carry on any business on or before the due date.
 If one submits a nil VAT returns for twelve consecutive standard periods.
 If one applies for de-registration, provided the annual taxable turnover does not
exceed K200 million.

Effective Date of Cancellation

Cancellation of registration will normally take effect from the last day of the month in
which the cancellation application is approved by the ZRA. However, if you only opted to
apply for de-registration, it is important that you continue to charge VAT until your
registration is formally cancelled.

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 Payment of VAT on Assets on Hand at De-registration

VAT registered businesses are required to pay VAT on the value of any stocks on hand
at the date of de-registration. This is because the registered supplier is, in effect,
making a taxable supply to himself as a newly unregistered business. However, no
VAT will be paid on motor vehicles in respect of which input tax deduction was not
allowed.

Application For De-registration

All applications for de-registration should be in writing and addressed to the

Commissioner-General through the nearest ZRA office and should include the supplier’s
registration number and full details of the circumstances giving rise to the request.

Changes Not Requiring Cancellation Of Registration

The following changes will not normally require cancellation of registration:

 A change in the trading name of the business or the name and/or address of any
partner in the business
 A change in the address of the principle place at which the business is carried on.
 Transfer of a going concern.

For such changes, a supplier should notify the nearest VAT office and have the changed
details amended.

Late Registration Penalties

Late VAT registration for VAT attracts automatic penalties consisting of ten thousand fee
units for each standard tax period the supplier remains unregistered after meeting the
registration threshold.

Reclaiming of VAT Prior to Registration

Under the provisions of section 18 (7) of the VAT Act and the regulations there-under,
input tax incurred on the acquisition of goods and services for up to three months prior
to the Effective Date of Registration may be allowed, provided in the case of goods, the
goods are in stock on the effective date of registration. In other words, input tax
incurred prior to registration cannot be claimed with regard to goods that have already
been supplied regardless of the three months period.

Intending Traders

Intending traders are suppliers who are registered for VAT before they commence
trading activities. Such registration is normally for the sole purpose of claiming input tax,
which relief is granted as follows:

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 o up to four years for traders engaged in farming, exploration and mining;

o up to two years for all others

ZRA may request any such suppliers to give security as a condition for repaying input
tax.

Voluntary Registration is no longer available with effect from February 2004.

Supplies to take into account when calculating Taxable Turnover

Include Exclude

Value of standard rated supplies Exempt supplies

Value of zero-rated supplies

In estimating the future "level of taxable supplies, account should be taken of seasonal
variations or one-off abnormal receipts that have either occurred or are expected to
occur during the year.

Obligations of A VAT Registered Supplier

A VAT registered supplier is required to:

 Prominently display in the public area of the business the VAT registration
certificate, similarly copies of this registration must be displayed at all other places
of business that the registration applies to.
 Charge VAT on taxable supplies.
 Submit returns and pay VAT on or before the due date to the ZRA i.e. within 21 days
after the end of a tax period, unless the Commissioner-General has allowed a longer
time.
 Provide "tax invoices" containing the details required by law.
 Maintain sufficient records, and retain them for a minimum period of 5 years, to
enable the, ZRA to verify the VAT liability.
 Advise the ZRA of any change in business details e.g. change of address or telephone
number, addition of new partner, cessation of business, etc.
 Allow officers of the ZRA to enter the business premises and examine goods and all
business records.
 Provide information about the business as required by officers of the ZRA.

Note: There are automatic penalties and interest charges for late submission of returns
and payments. To be fair to all businesses and to avoid non-payers getting a competitive
advantage, tax debts are enforced vigorously using distress and other legal remedies
available to ZRA.

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 Making VAT Payments and Returns

A VAT return for each tax period, and any VAT payable, must be rendered to the
ZRA not later than the 21st day after the end of a tax period. For example, for a
tax period ends on 31st July, the VAT return and payment should reach ZRA by 21 st
August. A brief guide (VAT Leaflet 7) on how to fill in a VAT return is available.

Failure to make a return and/or to pay the tax due by the due date will result in
penalties and interest charges being applied as follows:

 For late submission of a return the penalty is K180, 000, or 1/2% of the tax payable
(whichever is the greater) for each day that the return is not submitted;

 For late payment of VAT the penalty is 1/2% of the tax due for each day the VAT is
unpaid;

 Interest is chargeable for each month or part of a month that a payment is overdue
and is charged at the Bank of Zambia discount rate plus 2%.

Where a repayment return or a 'nil' return is made late, these penalties are still
chargeable.

Claiming back Input Tax

The tax incurred on supplies received such as purchases and expenses is called Input
tax. We have explained above the basic mechanisms of VAT and how output tax and
input tax are to create a net liability either to the ZRA as a payment, or to the supplier
as a refund.

Restrictions on the Input Tax that can be reclaimed

To ensure that only input tax which relates to taxable business activities is claimed and
to protect the revenue from inappropriate claims, there are some restrictions on what
can be reclaimed: -

Business Use/Private Use

The expenditure must be for the purposes of the business i.e. not for private use.
Where Purchases are partly for business and partly for private use, only the business
proportion can be reclaimed. For example, if a business pays for diesel for a car used by
a director or employee both for private (which includes travelling to and from home to
work) and business motoring and the private motoring is 25% of the total mileage, only
75% of the input tax on the diesel may be reclaimed.
One Year Time Limit for Reclaiming Input Tax

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 Input tax cannot be reclaimed after a period of one (1) year from the date of the tax
invoice or, for imported goods, the appropriate VAT import document. And also input
tax cannot be claimed on a return for a period before the tax invoice date.

Evidence for Claiming Input Tax

A tax invoice for local supplies; or form CE 20, receipt and Release Order, showing the
amount of VAT paid at importation, must be held before any claim is made.
Photocopy documents are not acceptable.

Errors and Omissions

Interest is chargeable at the Bank of Zambia discount rate plus 2% on amounts under-
declared on VAT returns e.g. under-declarations discovered and assessed following a
VAT inspection visit. Also, a taxable supplier is required by law to include on his next
VAT return all under-declarations; and over-declarations he discovers he has made on
previous returns. In applying any interest or penalty in relation to such corrections the
Commissioner-General shall take into account circumstances of the correction.

False Returns/Documents/Information/Statements etc and Fraudulent Evasion

Under VAT law it is a criminal offence to make incorrect or false returns or declarations
or to produce any false document, statement or information and on conviction this is
punishable by heavy penalties and or imprisonment for up to two years. Fraudulent
evasion is punishable by heavy fines including up to three years imprisonment.

10.2 Value Added Tax 2

10.2.1 Zero Rated Supplies

A Zero-rate of 0% applies on exports of standard rated goods and some

specified goods and services. These are listed in Schedule 2 of the VAT Act.

Businesses Making only Zero Rated Supplies -Waiver of Registration

A supplier may make an application for the requirement to register to be

waived if the business deals solely in zero-rated supplies. Where the
Commissioner-General is satisfied that all supplies of such a supplier are
indeed zero-rated he or she may by notice waive the requirement of the
business to register. However, the Commissioner-General reserves the
right to rescind the decision any time he deems necessary. In waiving the
requirement for registration, the business must forego the entitlement to
reclaim input tax on those goods and services used in connection with
making zero-rated supplies.

10.2.2 Exempt Supplies

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 These are items specifically excluded from liability to VAT such that even when
they are supplied by a taxable supplier, no VAT is charged. These items are listed
in schedule 1 to the VAT Act.

10.2.3 Contrasting the Two

Both mean that there is no VAT charged on the supply. So what is the
difference? Dealing in taxable supplies, including zero rated supplies, allows a
business to reclaim input tax, which is not the case with exempt supplies. For
instance;

 A business making only zero-rated supplies: Because zero-rated supplies are

taxable supplies, a VAT registered business dealing in them is still entitled to
reclaim input tax on purchases made (supplies received). This means that most
suppliers dealing in only zero-rated supplies will have input tax, which exceeds
their output tax, if any, and they will be making claims for refund from ZRA. A
good example is a pharmaceutical company whose produce is all zero-rated but
whose purchases (supplies received) include items with VAT on them.

 A business making only exempt supplies: Because exempt supplies are not
taxable supplies, a business dealing only in them is not entitled to register for
VAT. This means that this business will have no opportunity to reclaim input tax
on purchases (supplies received).

 A business making both taxable and exempt supplies: Such a business is

described as "partially exempt". There are special rules that govern how a
partially supplier may reclaim input tax

10.2.4 Special Schemes

Non-Retailers: Accounting options

Non-retailers are normally required to issue invoices for their supplies. Output
tax is normally charged and collected on the issue of an invoice, whether or
not the amount due has been paid, this is called the invoice basis of
accounting. However some suppliers can apply for a concession to account for
output tax when a payment is received. This is called the payment or cash
accounting basis.

Note: Whether or not you use the invoice basis or the payment basis for
accounting for VAT as a non-retailer you should issue tax invoices for every
supply.

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 Non-Retailers -The Invoice Basis

Businesses which use the invoice basis must account for output tax on all
taxable supplies (sales), both cash and credit, whether or not payment has
been received for the supplies made. A supply of goods and services is deemed
to take place once the tax point occurs. Similarly, input tax can be claimed on
cash and credit purchases at the time the tax invoice is obtained. However, if a
payment or part-payment is received before an invoice is issued a tax point has
occurred and the tax is due on that payment.

For transactions for which payment is not made wholly in cash, e.g. barter, part
exchange, business gifts, etc. a tax point is created and the tax is due
immediately.

Non-Retailers -Payment or Cash Accounting Basis

Invoice driven businesses, which are permitted to use the payment or cash
accounting basis are required to account for VAT to the extent that payment has
been made or received. In other words, output tax (e.g. on sales) is accounted
for on the cash receipts from taxable supplies made and input tax (e.g. on
purchases) is recovered only on those invoices where payment has been made
for taxable supplies received during the tax period.

For transactions for which payment is not made wholly in cash, e.g. barter, part
exchange, business gifts, etc. a tax point is created and the tax is due
immediately.

This concession is subject to limitations and may only be granted following a

written application to the Commissioner VAT. Currently only members of the
Association of Building and Civil Engineering Contractors (ABCEC) are eligible
upon application to be on Cash Accounting basis for VAT purposes.

Cash Accounting for suppliers involved in mineral prospecting and intending

traders

With effect from 1st February 2003 all suppliers engaged in mineral prospecting
activities and intending traders are supposed to reclaim input tax based on Cash
Accounting.

This measure is aimed at ensuring that such suppliers only claim, as input tax,
the VAT on payments they have actually made to their supplies. In other words
the refunds will be made based on amounts actually paid.

Non-Retailers - Making Mixed Supplies

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 If you make a mixture of non - retail and retail supplies you must use the
invoice basis for your non-retail portion. A cash register must be used to
capture the sales for your retail Supplies.

Imported Goods

Imported goods are liable to VAT. This is to ensure that manufacturers in

Zambia are not placed at a disadvantage as compared to foreign suppliers.
Like customs duty, VAT is chargeable on all importations of taxable items
whether by private persons or by businesses (and whether or not they are
registered for VAT).

Export of Goods

Subject to certain conditions, the export of taxable goods is zero-rated for VAT.
To zero-rate at exportation, the goods must be supplied (i.e. sold) direct to a
business abroad and the exportation of the goods made by or on behalf of the
supplier. To be satisfied that the zero rating is correct, proof of exportation will
be required to be produced

Reverse charge on services supplied to registered suppliers in Zambia by non-

resident suppliers

The supply of services, including consultancy, research, advertising,

management fees, royalties, etc, which are provided by non-resident suppliers,
who do not have business establishments in Zambia were not taxed because
such suppliers were not eligible to register for VAT in Zambia. But similar
services provided by local suppliers were and continue to be subject to VAT.
This state of affairs created an unfavorable competition for local suppliers and
did not level the playing field. Reverse charge levels the playing ground.
However, it is only applicable in cases where the non-resident supplier has not
appointed a local tax agent.

Partially Exempt Businesses

Purchases or business expenses on which VAT input credit is claimed must

relate to taxable and not exempt supplies. Businesses that deal only in exempt
supplies are not eligible to register for VAT and therefore get no opportunity to
reclaim any VAT input tax. See paragraph 5.4 for further information on what
are taxable and what are exempt supplies.

Businesses that deal partly in exempt supplies and partly in taxable supplies
are Partially Exempt businesses. Because businesses that deal only in exempt
supplies cannot reclaim input tax, equally partially exempt businesses are not

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 allowed to reclaim all their input tax except the portion relating to taxable
supplies.

We call inputs that clearly relate to either taxable or exempt supplies directly
attributable inputs. Inputs which may not be clearly attributed in this way are
called non-attributable inputs; e.g. overheads which cover all the supplies of
the business. ZRA has developed special methods to assist partly exempt
businesses to calculate the amount of input tax they may reclaim and all partly
exempt businesses must adopt one of them.

Specific Items On Which Input Tax Cannot Be Reclaimed: Non- Deductible

Items

In addition to the general rules on input tax there are also specific items on
which VAT cannot be reclaimed.

Telephone and Internet Services: Non- Deductible

Input tax credit is not allowed on telephone bills and internet services except
on: -

 Interconnection fees and other services provided by one telephone or

internet service provider to another
 Telephone and/or internet services provided by a hotel, lodge and similar
establishment to its clients if such an establishment accounts for output tax
on the supply of the telephone service its clients.

Motor Cars: Non- Deductible

Input tax credit is not allowed on motorcars, however car dealers who buy cars
for resale, cars to be leased by leasing businesses or financial institutions
engaged in leasing and (businesses may reclaim VAT input tax in the normal
way.

Maintenance and repairs to motorcars, used solely for business purposes can
be claimed. Where a motor car is used partly for personal purposes e.g. to
transport business executives, VAT incurred on vehicle maintenance and
repairs must be apportioned and only that part which directly relates the
business can be claimed. Motorcars are defined as motor vehicles that have
side windows or a seat to the rear of the driver's seat. This restriction will
therefore apply to saloon and estate cars, to wagons, and to twin cabs. It will
not usually apply to pick-up trucks and to other commercial vehicles such as
vans.

Business Entertainment: Non Deductible

Input tax may not be reclaimed on business entertainment. Entertainment is

defined to include hospitality of any kind, provided in connection with a

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 business. This includes the supply of meals, drinks, entertainment at clubs and
the provision of recreational facilities. However, input tax can be reclaimed on
business hotel accommodation from 1st July 1999 but not the tax incurred in
the supply of any food, beverages, transportation or hospitality of any kind.

Input Tax Incurred for the Benefit of Directors, Employees etc.

VAT incurred on any food, beverages, transportation or hospitality of any kind,

or goods or services provided for directors, managers, partners, proprietors,
employees, customers or potential etc. cannot be claimed e.g. the tax on
furniture, on electricity bills, or for a house rented by a business.

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Module 11

11.0 Taxation of Investments

Section 82A Deduction of tax from certain payments - Subject to the provisions of this section,
every person or partnership making a payment of-

11.1 Rental income

“(c) rent from a source within the Republic;

… irrespective of whether such payment under this subsection is made outside the
Republic, shall, before making any other deductions, deduct tax from the payment.”

WHT is deducted from all rental payments at the rate of 15%, but is not the final tax.
SME’s may opt into the turnover Tax scheme.

11.2 Interest Income

“(b) interest and royalties from a source within or deemed, under section eighteen, to be
within the Republic:
Provided that-
(i) where the interest payment to an individual during any one month on any
single savings account, deposit account or building society account does not
exceed Seven Hundred and Fifty Thousand Kwacha, then that interest payment
shall be exempt from the requirements of this section;
(ii) this section shall not apply to interest payable on a bill of exchange drawn for
one hundred and eighty days or less; and
(iii) the payment of any amount in excess of the original issue price for any
treasury bill or any other similar financial instrument sold at a discount from
face value shall be deemed for the purposes of this section to be payment of
interest when any such treasury bill or any other similar financial instrument is
presented to the Bank of Zambia for redemption or re-discount;

… irrespective of whether such payment under this subsection is made outside the
Republic, shall, before making any other deductions, deduct tax from the payment.”

All interest earned from financial institutions is subject to WHT at the rate of 15%.
Interest earned by individuals has an exemption threshold of K750, 000.

11.3 Dividends

Section 81 Deduction of tax from dividends

“Subject to the provisions of this section, every company incorporated in the Republic
shall deduct from every payment of dividend, other than a dividend paid to the

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 Government, tax at the rate specified in the Charging Schedule or as the
Commissioner-General directs … and shall account for such tax as if the payment were
subject to Part VI (which relates to Pay As You Earn); and for the purposes of this
subsection payment shall be deemed to be made on the day the dividend accrues to the
share or stockholders … “

WHT is deducted at the rate of 15% from all payments of dividends at source. Payments
of dividends by companies listed on LuSE are exempt from tax.

11.4 Grossing-up Income

The Amount of dividends, interest or royalties to be included in income received from

which tax is deductible or on which tax is payable shall be the gross amount before
deduction or payment.

Provided that the amount of income received by way of dividends from which tax has
been deducted in accordance with the direction of the Commissioner-General made
pursuant to the provision of Section Eighty-one shall be the amount that would have
been received if tax had been deducted at the rate that would have been deductible but
for the direction.

The amount of income received from a source outside the Republic (foreign income)
shall be the gross amount of that income before the deduction of the amount of the
foreign tax.

The amount of the income received by a beneficiary from a trust or deceased's estate
on which tax has been paid or is payable by the trust or deceased's estate shall be the
gross amount of that income before the deduction of tax at the rate paid or payable on
that income by the trust or deceased's estate.

11.5 Medical Levy

11.5.1 Introduction

In an effort to raise additional revenue for the Health Sector, the Government
introduced a Medical Levy through the Medical Levy Act, 2003. Banks ad other
Financial Institutions are required to deduct the Medical Levy from Gross Interest
earned by any Person And Partnership on any Savings or Deposit Accounts, Treasury
Bills or Government Bonds. Medical Levy is thus chargeable on all Interest earnings
from Banks and Other Financial Institutions by any Person, natural or otherwise. The
levy so deducted will be remitted to the Zambia Revenue Authority.

11.5.2 Definitions

The following words and expressions will have the following meaning:

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 “Bank:
A company holding a banking license under Section 4 of the Banking and
Financial Services Act.

Financial Institution
A person licensed under Section 10 of the Banking and Financial Services
Act.

Levy:
Medical Levy charged under Section 4 of the Medical Levy Act.”

The words and expressions not defined in the Medical Levy Act but defined in
the Income Tax Act shall have the meaning assigned to them in the Income Tax
Act.

Interest is not defined in the Income Tax Act, but it is to be taken as an amount
calculated according to a fixed ratio on Debt, Borrowings or similar Instrument.

11.5.3 Administration

The Commissioner-General shall be responsible for collecting of and accounting for the
Medical Levy to the Ministry of Finance and National Planning.

11.5.4 Deduction

i) Banks or Financial Institutions when making a payment of interest on savings or

deposit accounts, treasury bills, government bonds or other similar financial
instruments, to any person or partnership during a charge year, will be required to
deduct Medical Levy at the rate of 1%. The deductions are to be made from the gross
payments before any other deductions.

ii) The Banks or Financial Institutions will be required to remit the Medical Levy
deducted to the Zambia Revenue Authority by the 14th of the following month in which
the deduction is made.

iii) The Banks or Financial Institutions will be required to record the details of the
interest paid, amount of levy deducted and other particulars as the Commissioner-
General may require on the prescribed form.

iv) The prescribed form on which these details will be recorded shall be submitted to
the Zambia Revenue Authority within fourteen days from the end of each charge year.

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 However, the Commissioner-General may extend the period in which the form may be
submitted.

11.5.5 Penalty for Late Submission

Where the Medical Levy is not paid by the due date, a penalty of 5% of the amount of
levy payable will be charged per month or part thereof for the period the levy remains
unpaid. It should be noted that such penalty shall be deemed to be part of the levy for
the purpose of collection and recovery. However, the Commissioner-General may at his
discretion waive the penalties either in part or in whole.

11.5.6 Recovery

The provisions that relate to the collection and recovery of Income Tax will also apply to
Medical Levy that remains unpaid.

11.5.7 Exemption

The Minister may, by statutory order, exempt any person or partnership from payment
of Medical Levy.

11.5.8 Regulations

The Minister may by statutory instrument make regulations for the better carrying out
of the provisions of the Medical Levy Act.

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Module 12

12.0 Customs & Excise Duty

12.1 Introduction

The Customs & Excise Division (C&E) of the ZRA is responsible for collection of Customs
Duties, Excise Duties, Import VAT, Fuel Levy, Advance Income Tax and Cigarette Stamps.
As well as providing a revenue source for the government, the division also performs
the following services to the nation:

 Protection of Local Industry;

 Prevention of Smuggling;
 Provision of Trade Statistics;
 Protection of the Public, Plant & Animal Life.

C&E duties contribute about 25% of the combined revenue collected from income and
trade taxes.

12.2 Administration of Customs & Excise Duties

The operations of the C&E division are concentrated along the main ports of entry into
the country and provincial capitals, where they conduct their functions on all persons
entering the country, and random compliance activities on the general trading public.

12.3 Rules

Individuals will be entitled to enter with personal goods worth US$250 duty free on
each occasion. They will however be subjected to AIT, where they are bringing in
commercial goods, if they do not have an active taxpayer identification number (TPIN).

New and returning residents will be entitled to bring in all their household goods,
including one family motor vehicle, free of C&E duties. There is however a condition
that returning residents should have been away for at least two years.

Other concessions apply to investors in priority sectors under the ZDA Act.

12.4 Value for Duty Purposes

The computation of C&E duties on various imported items follows the international HS
coding system. These duties will be based on the Value for Duty Purposes (VDP), which
is made up of the accumulated cost of the imported item up to the point of entry (cost,
freight, insurance, overland charges, etc).

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 A typical computation of the taxes and duties payable on importation of a car, for
example, will look like this:

MOTOR VEHICLE IMPORT TAX COMPUTATION

MAKE Toyota
MODEL Corolla Saloon
YEAR 2005
DETAILS AMOUNT
1 FOB 3,500.00
2 Freight 900.00
3 Insurance 100.00
4 JEVIC 50.00
4 CIF Durban 4,550.00
5 Freight & Other Charges 1,200.00
6 CIF Livinstone-Vic Falls 5,750.00
7 Exchange 4,800.00
8 VDP 27,600,000.00
9 Customs Duty @25% 6,900,000.00
10 Excise Duty @30% 10,350,000.00
11 Import VAT @16% 7,176,000.00
12 AIT @6% 1,656,000.00
13 Total Taxes 26,082,000.00
14 Carbon Emission Tax 150,000.00
15 MV Fee 263,000.00
16 CED Fee 50,040.00
17 Total Amount Due 26,545,040.00
Note: Remove AIT if tax payer is registered and
compliant

Other computations on all other types of imports will follow this same basic format, the
only variation being the rate of C&E duties applicable, depending on the item imported.

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Module 13

13.0 Other Taxes

13.1 Property Transfer Tax (PTT)

The Property Transfer Tax Act, CAP340, provides that whenever property is transferred,
Property Transfer Tax (PTT) is charged upon and collected from, the person transferring the
property (transferor) on the Realizable Value (i.e. Open Market Value or Contract Price,
whichever is higher). The tax is payable by the transferor.

For this purpose, "Property" includes:

• Any Land in Zambia (including any building);

• Any Building, Structure, or other improvements thereon;
• Any Share issued by a company in Zambia that is not listed on the Lusaka
Stock Exchange (LUSE). All LUSE listed shares are exempt from PTT.

Realised Value

The property transfer tax is calculated on the realisable value of the property, which is the price
at which it could, at the time of transfer, be sold on the open market. For shares, the realisable
value is the higher of the open market value or the nominal value.

Transfers to Immediate Family Members

Where a person transfers his property to a member of his immediate family, the realised value
of such property is the actual price received by the transferor, if any. This means such transfers
will go at NIL value if no price has been charged (mere gift).

The term "immediate family" means “a spouse, child, duly adopted child or step- child".

Internal Reorganisation within a Group of Companies

Where, within a Group of Companies, a company transfers property to another company (other
than a company which is not resident in Zambia) within the same group for the purposes of
internal reorganisation of the Group, the Commissioner General may treat such transfer as
having no realised value.

Exempt Organisations

The following organizations are exempt from property transfer tax:

(a) The Government of the Republic of Zambia;

(b) Any Foreign Government;
(c) Such International Organisation, Foundation or Agency as the Minister of
Finance approves for this purpose;

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 (d) Any Charitable Organisation or Trust registered under Section 41 of the
Income Tax Act Cap 323 as a Charitable Organisation, as the Minister of
Finance approves for the purpose;
(e) Any Cooperative Society registered under the Cooperative Societies Act;
(f) A Local Authority;
(g) Registered Trade Unions;
(h) Club, Society or Association registered under Section 41 of the Income Tax
Act Cap 323 as a Charitable Organisation, as the Minister of Finance approves
for the purpose;
(i) Approved Pension Fund or Medical Aid Society;
(j) Approved Employees’ Savings Scheme or Fund;
(k) Political Party registered as a statutory society under the Societies Act.

Other Exemptions

(1) The transactions as a result of the sale or other disposal of any stock or share listed by the
Lusaka Stock Exchange.
(2) Contribution towards the Equity for a company:
“The Commissioner General may treat a transfer of property by a shareholder of a
company incorporated under the Companies Act, if such transfer is his contribution
towards the equity of that company.”

For exemptions involving transfers of property between related persons, a DEED OF GIFT or
DEED OF TRANSFER should be attached to the property transfer tax returns.

For exemption applications involving the transfer of shares or other properties in a

reorganization, proof of number of shares through a share certificate should be attached. A
group of companies exist where there is a Holding or Parent & Subsidiary company relationship.
This should be established and proved. Mere assertion of existence of a Group does not suffice;
neither is an application by ‘Sister Companies’ under common ownership/shareholding a basis
of qualification for approval.

Objection to Values

Objections against PTT assessments are settled based on their merit. More details about the
property and the reasons for dispute will be requested for.

If the grounds of objection are not satisfactory, the assessment will be upheld. A professional
valuation report is always handy for this purpose. The taxpayer has recourse through an appeal
to the Revenue Appeals Tribunal (RAT).

Refunds of Tax Paid

There will be instances when the transaction is aborted for various reasons well after the tax has
been paid and a tax clearance has been issued. Such cases will be refunded upon application.
Applications for refunds will be scrutinized to ensure that the tax was actually paid.

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 Expired Certificates

Certificates are issued with a period of validity in order to ensure that the title passes whilst the
assessment is still current. Certificates, which expire due to an unreasonable delay by any of the
parties to the transfer, will be subjected to a reassessment of the realisable. The higher of the
original assessment and the reassessed value will be taken and additional tax, if any demanded
before the certificate is renewed.

Share Transfers

Documents required in support of application:

 Share Transfer Form 27;

 Latest Financial Statements of the company in which the shares are held;
 Shareholders’ Resolutions.

GROUP Companies seeking NIL transfers via INTERNAL REORGANISATIONS will have to prove a
GROUP STRUCTURE through Share Ownership Certificates.

13.2 Mineral Royalties

Mineral Royalty is charge under the Mines and Minerals Act Chapter 213 of the Laws of Zambia
on any holder of Large-Scale Mining Licence, Small-Scale Mining Licence, Gemstone Licence, or
an Artisan Mining Right for extracting the minerals from the earth. The Commissioner-General
of Zambia Revenue Authority has the responsibility of administering and collecting the Mineral
Royalty.
Computation
Mineral Royalty is calculated based on the gross value of the minerals produced. For the
purposes of computing Mineral Royalty ‘Gross Value’ is defined as “the realizable price for sale
Free on Board at the point of export in Zambia or point of delivery within Zambia”

Rates

Initially, any holder of a Large-Scale Mining License, Small-Scale Mining License, Gemstone
License or an Artisan’s Mining Right had, in accordance with the license and the Mines and
Minerals Act, to pay to the Government a royalty at the rate of –

 Three per centum of the gross value of the base metals produced under the licence;
 Five per centum of the gross value of the gemstones or precious metals produced
under the licence; or
 Two per centum of the gross value of the minerals other than the minerals referred to
in paragraphs above produced under the licence.

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 For companies that entered into development agreements with the government (signed before
1st April 2007), the applicable rate was imbedded in the development agreement. This currently
stands at zero point six per centum. However, these development agreements are now a subject
of renegotiations.

Returns

Every holder of Large-Scale Mining Licence, Small-Scale Mining Licence, Gemstone Licence, or an
Artisan Mining Right is required to submit a Monthly Mineral Royalty Return within Fourteen
Days after the end of the month in which the Sale of the minerals is done.

Due Date

Mineral Royalty is due and payable within fourteen days after the end of the month in which the
sale of minerals is done. Failure or late payment of mineral royalty attracts penalty and interest
in accordance with the provisions of Section 78 and 78A of the Income Tax Act Chapter 323 of
the Laws of Zambia.

Deductibility of Mineral Royalty

Under the Income Tax Act the Mineral Royalty payable or paid is an admissible deduction in
arriving at the gain and profits of a person carrying on mining operations.
Assessment
The Commissioner–General (CG) is responsible for the assessment and collection of Mineral
Royalties (MR). He may delegate this responsibility.

Recent Amendments

The following amendments to the Mines and Minerals Act came into effect on 1st April 2006-

Definitions

One amendment removed the definition of “ Former Zambia Consolidated Copper Mining
Company” and introduced a definition of “Base Metal”.
“Base metal” means a “non-precious metal that is either common or more chemically active,
or both common and chemically active and includes iron, copper, nickel, aluminium, lead,
zinc, tin, magnesium, cobalt, manganese, titanium, scandium, vanadium and chromium”.
Another amendment introduced the definition of “Commissioner-General.”

“Commissioner-General” means “Commissioner-General appointed under the Zambia

Revenue Authority Act”.
Royalties

This amendment provided for a 0.6% Mineral Royalty Rate for any Mining Company holding a
Large-Scale Mining Licence and carrying on the mining of Base Metals.

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 This brought the Mineral Royalty Tax Regime to:

Category Mineral Royalty

Rate

Holder of a Large Scale Mining Licences and carrying on Mining of Base 0.6%
Metals.

Holder of a Gemstone Licence or Small-Scale Mining Licence or an Artisan 5%

Mining Right to mine Gemstones, Base Metals or Precious Metals.

Holder of any Other Mining Licence. 2%

Computation of Mineral Royalty

The computation of Mineral Royalty is based on the Gross Value of Minerals Produced.

“Gross Value,” means the realized price for a sale free on board (FOB) at the point of export
from Zambia or point of delivery within Zambia.

Royalties

The first amendment specified that Mineral Royalty is due and payable within 14 days after the
end of the month in which the sale of minerals is done.

Note: A penalty of 5 % per month or part thereof is charged on late payments of mineral royalty
as provided for in Sec 78 of the Income Tax Act. Further, interest is levied on overdue payments.

The second amendment specified that Monthly Mineral Royalty Returns are due within 14 days
after the end of the month. Every person, liable to pay Mineral Royalty, is required to submit
Monthly Mineral Royalty Returns in the prescribed form containing such particulars as may be
required by the Commissioner–General within Fourteen Days after the end of the month in
which the Sale of the minerals is done.

Note: A penalty of K180, 000.00 for individuals or K360, 000.00 for companies is charged per
month or part thereof for failure to submit a Monthly Mineral Royalty Return.

More Recent Amendments

The following amendments to the Mines and Minerals Act came into effect on 1st April 2007-

Interpretation

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 Mining Operations - the amendment introduced a new definition of “Mining Operations” which
means “any operation carried out under a mining right referred to in Section Six”.
Mineral Processing – the amendment introduced the definition of “Mineral Processing” means
“the practice of beneficiating or liberating valuable minerals from their ores which may combine
a number of unit operations such as crushing, grinding, sizing, screening, classification, washing,
froth flotation, gravity concentration, electrostatic separation, magnetic separation, leaching,
smelting, refining, calcining and gasification and includes other processes incidental thereto”.
Certain Persons Disqualified from Holding Mining Rights

The amendment prohibited the granting of Mining Right to an individual or company, whose
operations consists solely of Mineral Processing. This means that any person solely carrying out
Mineral Processing shall not be entitled to incentives that are available to persons carrying out
Mining Operations.

Development Agreements

(i) This amendment provided for development agreements to be subordinate to the Law.
(ii) The amendment further provided for the exclusion of Fiscal Matters in development
agreements.

Royalties on Production of Minerals

a) This amendment introduced a mineral royalty tax regime for any holder of Large Scale
Mining Licence, Small Scale Mining Licence, Gemstone Licence or an Artisan Mining Right,
based on Type Of Minerals extracted as follows:

(i) 3% of the gross value of the Base Metals produced under the licence;
(ii) 5% of the gross value of the Gemstones or Precious Metals produced under the licence;
(iii) 2% of the gross value of the minerals other than those in (i) & (ii) above.

b) The amendment further provided for an increase in Mineral Royalty Rate from 0.6% to 3%
of the gross value of the Base Metals produced under the licence.

However, any mining company holding a large scale mining licence issued under section
twenty-five of the Mines & Minerals Act and carrying on the mining of base metals and is a
party to a development agreement signed prior to 1st April 2007, pursuant to section nine of
the Mines & Minerals Act, shall after the commencement of this Act renegotiate with the
government the rate of mineral royalty to be paid by such company and any such rate which
is agreed upon in the negotiations shall be the rate payable under the development
agreement.

Computation of Mineral Royalty

The computation of mineral royalty is based on the gross value of minerals produced.

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 “Gross Value,” means the realized price for a sale free on board (FOB) at the point of
export from Zambia or point of delivery within Zambia.

The following table shows the current Mineral royalty Tax Regime:

Category Mineral Royalty Rate

Base Metals produced under the licence 3%

Gemstones or Precious Metals produced under the licence 5%

Any other minerals 2%

Provided that if the Minister considers that the realised price does not correspond to the price
that would have been paid for the minerals if they had been sold on similar terms in a
transaction, at arms length, between a willing seller and a willing buyer, a notice may be given
to that effect to the licensee, and the amount of the gross value shall be determined in
accordance with mechanism contained in Section Ninety-Seven A to Ninety-Seven D of the
Income Tax Act (Transfer Pricing Provisions).

Provided that a company which is party to a development agreement signed prior to a 1st April,
2007, shall after 1st April 2007 renegotiate with the Government the rate of mineral royalty to
be paid by such company to the Government and any such rate which is agreed upon in the
negotiations shall be the rate payable under the development agreement.

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Module 14

14.0 OUTLINE OF ISSUES IN TAX PLANNING

14.1 Avoidance

No set-off in transactions involving change of ownership of shares in a company

The Commissioner-General shall not allow any set-off or refund of tax deducted where he
determines that the object, or one of the objects of a change in ownership of shares in a
company, whether direct or indirect, was to obtain such setoff or refund.

Transactions designed to avoid tax liability

Where the Commissioner-General has reasonable grounds to believe that the main purpose
or one of the main purposes for which any transaction was effected was the avoidance or
reduction of liability to tax for any charge year, or that the main benefit which might have
been expected to accrue from the transaction within the three years immediately following
the completion thereof, was the avoidance or reduction of liability to tax, he may, if he
determines it to be just and reasonable, direct that such adjustments shall be made as
respects liability to tax as he considers appropriate to counteract the avoidance or reduction
of liability to tax which would otherwise be effected by the transaction.

Without prejudice to the generality of the powers conferred above, the powers conferred
thereby extend to –
(a) the charging with tax the income of persons who, but for the adjustments, would not be
chargeable with any tax or would not be chargeable to the same extent;
(b) the charging of a greater amount of tax than would be chargeable but for the
adjustments;

Any direction of the Commissioner-General under this section shall specify the transaction
giving rise to the direction and the adjustments as respects liability to tax which the
Commissioner-General considers appropriate.

Examples of such transactions:

 Inter-company shareholdings;
 Loans to effective shareholders;
 Incurred losses, not deductible in certain cases;
 Trusts, Commissioner-General may avoid.

14.2 Transfer Pricing

14.2.1 Definitions

“actual conditions" means conditions which are made or imposed between any two
associated persons on their commercial or financial relations;

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 “arms length conditions”, means conditions or no conditions which would have been
made or imposed if persons were not, associated with each other.

14.2.2 Application

The transfer pricing provisions shall apply where, by reason of the actual conditions
having been made or imposed instead of the arms length conditions, there is a
reduction in amount of income taken into account in computing the income of one of
those associated persons.

The income taxes of these parties shall be computed for tax purposes on the basis that
the arms’ length conditions had been made or imposed between the associated persons
on the arm’s length basis. Special provisions apply where actual conditions include
issuing securities in a Group.

14.2.3 Objections and appeals involving transfer pricing

The Minister shall make regulations enabling a person to appeal to the Revenue Appeal
Tribunal.

14.2.4 Successions

Where a person succeeds to another person's business or there is a change in any

partnership engaged in the business, any property which immediately before the
succession or change was in use for the purposes of the business, and, without being
sold, is in such use immediately afterwards, is treated as if it had been sold for an open
market price at the time of the succession or change to the person carrying on the
business immediately afterwards.

No initial allowance shall be deducted by virtue of this paragraph; but where there is a
written application of the parties concerned, adjustments may be made to provide for
the continuity of those allowances.

14.2.5 Subsidies

The amount of any capital expenditure is reduced by the amount of any subsidy or grant
from public funds towards or in aid or in recognition of the object of such expenditure.

14.2.6 Controlled sales

In relation to the transfer by sale or otherwise of any property in respect of which any
deductions have been allowed, where either -
(a) the transferee has control of the transferor, or the transferor has control of the
transferee, or some other person has control of both; or
(b) the Commissioner-General determines by reference to the consideration given for
the property that the transfer was not at arm's length;
Such property when transferred at a price other that in would have fetched if sold in the
open market, then the like consequences shall ensue as would have ensued if the

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 property had been sold for the price which it would have fetched if sold in the open
market.

Where the transferee uses the property transferred for the purposes of a business,
then, subject to the parties to the transfer by notice in writing to the Commissioner-
General so electing, the above shall not have effect, but the like consequences shall
ensue as would have ensued if the property had been transferred for a sum equal to the
residue of capital expenditure on the property still un-deducted immediately before the
transfer, and, in the case of such an election -
(a) no initial allowance shall be deducted in respect of the transferee; and
(b) in respect of a subsequent sale or cessation of use of the property for the purposes
of the business by the transferee, the amount included in his income as a capital
recovery shall be such an amount as would have been included in the transferor's
income in a like case but for the transfer, and as if the transferor had been allowed all
such deductions in respect of the property as were, in fact, allowed to the transferee.

14.2.7 Tax Avoidance vs. Tax Evasion

Tax avoidance is the application of the income tax laws to the best advantage of the
taxpayer. As the taxpayer is within the legislation, tax avoidance, also called tax
planning, is legal.

Tax evasion is the illegal circumventing of the existing tax laws in order to obtain
advantage. As such, it is punishable by fines or imprisonment, or both.

14.2.8 Penalties

Any person guilty of an offence against this Act shall, unless any other penalty is
specifically provided therefor, be liable on conviction therefor to a fine not exceeding
ten thousand penalty units or to imprisonment for a term not exceeding twelve months,
or to both.

14.2.8.1 Penalty for failure to comply with notices, etc.

Any person who-

(a) without just cause shown by him fails to furnish a full and true return in
accordance with the requirements of any notice served upon him or fails to give
notice to the Commissioner-General;
(b) without just cause shown by him fails to furnish within the required time to
the Commissioner-General or to any other person any document; or
(c) fails to keep any records, books, accounts or documents that he is required
to keep; or
(d) fails to produce any document for the examination or inspection of the
Commissioner-General or other person; or
(e) without just cause shown by him fails to attend at a time and place in
accordance with the requirements of any notice served on him; or

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 (f) without just cause shown by him fails to answer any question lawfully put to
him or to supply or furnish any information lawfully required from him; or
(g) otherwise contravenes or fails to comply with any of the provisions of the
ITA or of any regulations made there under, or fails to comply with any
requirements of the Commissioner-General lawfully made; or
(h) obstructs or hinders any officer acting in the discharge or his duty;

shall be guilty of an offence against the ITA.

14.2.8.2 Penalty for incorrect returns, etc.

Every person who negligently or through willful default or fraudulently-

(a) fails to furnish a return of income or a provisional return of income and tax;
(b) makes an incorrect return by omitting there from or understating therein
any income;
(c) gives any incorrect information in relation to any matter affecting his own
liability to tax or the liability to tax of any other person; or
(d) submits any incorrect balance sheet, account, or other document;
shall pay a penalty equal to:-
(i) in case of negligence, seventeen point five per centum of the amount;
(ii) in the case of wilful default, thirty-five per centum of the amount; or
(iii) in the case of fraud, fifty-two point five per centum of the amount;
of any income omitted or understated, or any expenses overstated, in
consequence of such failure, incorrect return, information or submission.

The penalties provided by this section are a debt due to the Government and
shall be treated as if they were tax for the purpose of recovery and shall be
recoverable accordingly whether or not any proceedings are commenced for
any offence.

The Commissioner-General may accept a pecuniary settlement instead of

taking proceedings for the recovery of a penalty under this section and may, in
his discretion, mitigate or remit any penalty or stay or compound any
proceedings for recovery thereof and may also after judgment in any
proceedings further mitigate or entirely remit the penalty.

Notwithstanding anything contained here, where, in any appeal against an

assessment which includes penalty, one of the grounds of appeal relates to the
charge of such penalty, then the decision of the Revenue Appeal Tribunal in
relation to such ground of appeal shall be confined to the question as to
whether or not the failure, claim, understatement or omission which gave rise
to the penalty was due to any neglect, willful default or fraud.

14.2.8.3 Time limit

No complaint charging any offence shall be made at any time subsequent to six
years after the date of the commission of the offence.

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 14.2.8.4 Penalty for fraudulent returns, etc.

Any person who willfully with intent to evade or to assist another person to
evade tax-
(a) omits from a return any income which should be included therein; or
(b) makes any false statement or entry in any return; or
(c) gives any false answer, whether verbally or in writing, to any question or request
for information asked or made; or
(d) prepares or maintains or authorizes the preparation or maintenance of any false
books of account or other records, or falsifies or authorizes the falsification of any
books of account or records; or
(e) makes use of any fraud, art or contrivance whatsoever or authorizes the use of
any such fraud, art or contrivance; or
(f) makes any fraudulent claim for the refund of any tax;
shall be guilty of an offence and on conviction shall be liable to a fine not
exceeding thirty thousand penalty units or to imprisonment for a term not
exceeding three years, or to both.

Whenever in any proceedings under this section it is proved that any false
statement or entry is made in any return furnished under this Act by or on
behalf of any person or partnership or in any books of account or other records
maintained by or on behalf of any person or partnership, that person or the
partners shall be presumed, until the contrary is proved, to have made that false
statement or entry with intent to evade tax.

14.2.8.5 Bodies corporate

Where any offence has been committed by a body corporate, every person
who, at the time of the commission of the offence was a director, general
manager, secretary or other similar officer of such body corporate or who was
acting or purporting to act in any such capacity, shall also be guilty of that
offence, unless he proves that the offence was committed without his
knowledge or consent, and that he exercised all such diligence to prevent the
commission of the offence, as he ought to have exercised, having regard to the
nature of his function in such capacity and all the circumstances.

14.2.8.6 Power to search and seize

If an officer authorized by the Commissioner-General to inquire into the affairs

of any person satisfies a magistrate that in fact or according to reasonable
suspicion that person has committed an offence, the magistrate may, by
warrant, authorize the officer to exercise all or any of the following powers:
(a) between sunrise and sunset to enter any premises to search for money or
documents or electronically stored data;
(b) to open, or remove from the premises and open, any article in which money
or documents or electronically stored data may be contained;

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 (c) to seize any documents or electronically stored data which may be necessary
for assessment or any criminal or other proceedings and retain them for so long
as they are required for such purposes.

14.2.8.7 Documents in evidence

In any civil or criminal proceedings under the ITA any relevant document in the
Commissioner-General's possession shall be received in evidence on mere
production as such and shall be prima facie evidence of its contents, but the
person affected by such production shall be given not less than four days’ notice
of intention to produce a document, and he shall be given an opportunity to
inspect and copy that document.

Statements made or documents produced by or on behalf of any person shall

not be inadmissible in any proceedings by reason only that it has been brought
to his attention that -
(a) in relation to tax the Commissioner-General may accept pecuniary
settlements instead of instituting proceedings; and
(b) though no undertaking can be given as to whether or not the Commissioner-
General will accept such a settlement in the case of any particular person, it is
the practice of the Commissioner-General to be influenced by the fact that a
person has made a full confession of any fraud or default to which he has been a
party and has given full facilities for investigation; and that he was or may have
been induced thereby to make the statements or produce the documents.

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Module 15

15.0 OBJECTIONS AND APPEALS

15.1 Assessments good until disproved

Subject to the Commissioner-General's powers relating to assessment, every assessment

shall stand good unless proved otherwise by the person assessed upon objection or appeal.

15.2 Objection to assessment

Within thirty days of the date of service of notice of assessment, the person assessed may make to the
Commissioner-General a written statement of objection to the assessment setting out the grounds of
objection, and the Commissioner-General shall give that person written notice of his decision
concerning that objection:
Provided that-
(i) the Commissioner-General may determine that an objection may be made within a longer period
than thirty days but where he does not so determine he shall give the person written notice of his
determination and the person may appeal against the determination without making an objection;
(ii) the right of objection to an amended assessment which is not made as a result of an objection shall
be restricted to the items in that assessment which differ from, or are additional to, the items in the
assessment for the same charge year made immediately prior to that assessment and only to the extent
of such difference or addition;
(iii) the right of objection to an amended assessment which is made as a result of an objection shall be
the same right of objection as existed to the assessment objected to; and
(iv) an amended assessment issued as a result of an objection shall, unless objected to, be the
Commissioner-General's written decision concerning the objection.

15.3 Appeal against assessment

If a person assessed is dissatisfied with the Commissioner-General's decision concerning his objection to
the assessment, that person may, by written notice to the Chairperson, within thirty days of the date of
service of the written notice of the Commissioner-General's decision, appeal against the assessment to
the Tribunal and shall send a copy of the notice to the Commissioner-General.

15.3.1 Determination of Appeals

Upon the hearing of an appeal under the Revenue Appeals Tribunal Act, 1998, (No. 11 of 1998)
the Tribunal may make such order in relation to the assessment under appeal as is in
accordance with this Act.

15.3.2 Appeal to High Court and Supreme Court

Either party to an appeal to the Tribunal may appeal to the High Court from the decision of the
court on any question of law or question of mixed law and fact but not on a question of fact
alone.

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 The High Court shall hear and determine any such appeal and may confirm, reduce, increase or
annul the assessment determined by the Tribunal and make such further or other order on such
appeal, whether as to costs or otherwise, as to the High Court may seem fit.

An appeal from a decision of the High Court under this section shall lie to the Supreme
Court as it lies in the case of and as though it were a judgment of the High Court made in the
exercise of its original civil jurisdiction.

15.3.3 Privacy of proceedings

Where a person assessed so requests, all proceedings concerning him under this Part
shall be in private, or in camera, as the case may be. Nothing shall prevent the printing or
publishing of the judgement or order made on the determination of an objection or appeal if the
High Court or the Supreme Court does not prohibit publication, but any such publication shall
not disclose the identity of the taxpayer concerned.

15.3.4 Adjustment on successful objection or appeal

On the final determination of an objection or appeal against an assessment, the

Commissioner-General shall make all assessments and adjustments as are necessary to
give effect to the determination and the provisions of section eighty-seven shall apply to
any tax paid in excess as a result of such determination.

15.3.5 Appeals from Commissioner-General's discretions and determinations

Where it is provided by this Act that any matter is subject or according to-
(a) the Commissioner-General's discretion, such discretion shall not be questioned in any
proceedings;
(b) the Commissioner-General's determination, such determination shall only be questioned in
any proceedings on the ground that it is unreasonable.

If a person is dissatisfied with a determination of the Commissioner-General, that person may

object to or appeal against that determination as if the determination were an assessment and
the provisions relating to objections and appeals against assessment shall apply mutatis
mutandis.

Where the Commissioner-General’s determination in relation to any assessment, any appeal

against that determination shall be heard as a preliminary point upon an appeal against that
assessment, and in any other case such appeal shall be heard as if the determination were an
assessment.

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