Premier companies all over Zambia listened with intend when Minister of Finance delivered the 2018 budget to parliament on 29 September 2017. In his presentation, he stated that it would be in 4 parts. Overview of the global economy, performance of the local economy, details of the budget for 2018 and concluding remarks. However, TFHZPC was only concerned with the nuances in the budget that impacted premier companies in Zambia. Here is our analysis.
Although the international macro environment is important, this article will not dwell too much into. It will however focus on the issues that will affect premier companies in the coming year. To start with, premier insurance companies will be smiling with the removal of the insurance premium levy on re-insurance. This measure is intended to streamline taxation of insurance products according to ZRA. They believe this will enhance insurance risk management for both the insured and the insurer. Listed insurance firms such as Prima Reassurance and Professional Insurance would have been listening keenly to this statement as this offers them a new dimension in value creation.
We were surprised by the upward adjustment of the presumptive tax rates applicable on buses and taxes. However, upon further investigation it was explained that the measure was necessary for inflation purposes as the tax had not been adjusted in 10 years. Furthermore, the consumer price index had increased by over 180% over the last 4 years. In comparison ZRA argues that the presumptive tax was only being adjusted by 50%.
Premier companies that have intellectual property (IP) on their balance sheets will take note of the newly introduced property transfer tax on IP at a rate of 5%. Apparently, the measure is intended to provide for the taxation of the transfer of IPs such as trademarks, patents and brands which the tax man believes will broaden the tax base.
Working capital management also got a bit of breathing space. As part of housekeeping, the VAR return date has now been moved to the 18th of every month from the 16th. These two extra days for premier companies gives them time to accrue additional revenue that can be used to service their obligations with the tax man.
Under compensating measures, in a move that the can be seen as government encouraging the use of the financial system for payments, a new levy at a rate of 15% has been introduced on all imports (except for petty importations) that are not accompanied by a corresponding proof of payment through the banking system. This move is intended to curb under valuation, money laundering and illicit financial flows.
Premier companies in the mobile telecoms sector will be pleased with the removal of customs duty on simcards. Although the move is intended to promote the use of electronic transactions and facilitate the implementation of the use of fiscal registers, we believe mobile telecommunication companies will benefit and may consider choosing a strategy that focuses on easing electronic transactions.
Agricultural premier companies such as Zambeef, which controls its value chain, will be pleased with the suspension of customs duty on imports used in the manufacture of animal and fish feed. Government believes this will help support the growth of the agricultural sector. In addition, there is an amendment on the exemption order for unprocessed and semi processed tobacco from VAT. This move is meant to align the treatment of unprocessed and semi processed tobacco with the treatment of other agricultural produce that is exempt from VAT purposes. British America Tobacco (BAT) will be reviewing this statement very carefully as they meditate over their position in Zambia following their recent declaration of earnings erosion due to various forces in the market.