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THE upward adjustment in exempt threshold for Pay as You Earn will have a positive impact on the Zambian economy, according to Pricewaterhouse Coopers.
Analysing the 2014 national budget, PricewaterhouseCoopers (PwC) said the upward changes to the Pay As You Earn (PAYE) exempt threshold provides a proportionately higher increase in the take-home pay for lowly-paid workers.
The annual threshold of exempt income has been increased by 36 per cent to from K2,200 to K3,000 per month or K36,000 from K26,400 annually.
This means that individuals earning up to K3,000 per month would not be subject to any income tax on their emoluments.
“This should have a positive impact on the economy by increasing consumer spending power,” the multinational professional services firm said.
PwC, however, explained that the doubling of the Property Transfer Tax (PTT) to 10 per cent would impact both business and individuals as the burden of tax would double on the transfer of any land, property and shares.
“Unlike capital gains taxation, PTT is payable by reference to the open market value or nominal value of assets, whichever is greater. Where assets subject to PTT are purchased and sold frequently within a short period of time, the transactions will result in a high effective tax rate as there is no deduction for the purchase price and transaction costs,” the firm noted. “This could reduce returns for dealers that trade in private property and unlisted equity stocks.”
PwC further observed that the introduction of withholding tax on winnings from gambling activities is likely to increase the administrative burden on businesses within the gambling sector.
In a quest to broaden the tax base, Chikwanda proposed to introduce withholding tax on winnings from gaming, lotteries and betting at a rate of 20 per cent as a final tax.
“This measure is likely to increase the administrative burden on business within the gambling sector,” PwC stated.
On indirect taxes, PwC said the changes in the categorising of some goods and services from zero-rated to standard-rated could have some negative impact.
“For instance, standard rating ancillary services provided at the port of export could increase the cost of export from Zambia, thereby making the country’s exports less competitive,” PwC observed.
“Likewise, standard rating tourist activities – at 16 per cent – will increase costs for individual tourists. This could make Zambia a less attractive tourist destination.”
Meanwhile, PwC said the proposal to increase excise duty on airtime from 10 per cent to 15 per cent was likely to increase communication costs for both individual and businesses contrary to the government’s vision in the six national development plan (SNDP) of increasing coverage, access and efficiency in the provision of informational and communication technology services.
“The Ministry of Finance also proposes to increase excise duty on clear beer from 40 per cent to 60 per cent. This proposed change will impact on clear beer made from barley and sorghum,” the firm noted. “If customers are sensitive to price increases in this sector, then the resulting reduction in demand for clear beer could negatively impact the Zambian farming and brewing sector.”
PwC also observed that plans to remove the customs duty on the importation of crude oil in a bid to reduce the cost of petroleum products would only be effective if savings are passed down the supply chain to the final consumer.

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