THE ZAMBIA SYSTEM OF TAXATION

Taxation can be defined as a process raising revenue for the central government through levy on
income and gains of resident persons.

A tax is a compulsory levy on income or gains of a person, resident in a particular country. Each
country has a form of tax system. Resident person pay a proportion of their income or gains to
the government

The main taxes chargeable in Zambia

1. Income tax- tax that is chargeable on income and gains of persons who are residents in
Zambia. The tax is charged on the aggregate income from various sources.
2. The mineral royalty tax- payment received as a consideration for the extraction of
minerals. The commissioner general is responsible for collecting mineral royalty from
any person who is in possession of minerals.
3. VAT-tax chargeable on the value on taxable supplies made by a trader in the course of
business. The trader must be registered for the purpose of tax.
4. Customs and exercise duties-custom duties is chargeable on the value for duty services
for imported goods and certain goods imported. They are also chargeable on certain
imported goods and locally imported goods and services.
5. The property transfer tax-tax chargeable on the realized value of property that is
transferred from one person to another. The tax does not arise when the property
transferred is tangible, movable such as a motor vehicle.
6. Turnover turn tax and presumptive taxes for transporters-turn over tax is tax on the
turn over a business where such turn over does not exceed over 800 thousand. Businesses
whose income exceeds turn over turn will be charged income tax on their taxable profit.
Persons who engage in business in transport of people pay presumptive taxes which
depends upon the sitting capacity of their vehicle.

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Qualities (characteristics) of a good tax

Adam smith

1. The tax which each individual is bound to pay ought to be certain and not arbitrary on the
certainty. The time of payment, and manner should be certain. The quantity should be
certain, clear and plain to the contributor.
2. Taxation should bear as lightly as possible on production, such that production will be
expensive. Taxes that bear on production lead to lower taxes
3. Every tax ought to be levied at a tie or even a manner likely to be convenient for the
contributor to pay(rentals payable convenient at a time for the contributor)
4. Every tax ought to be so contrived as both to take out or keep out of the pockets of the
people as little as possible over and above what it brings into the public treasury of the
state.
5. The subject of every state ought to contribute towards the support as nearly as possible in
proportion to their respective responsibilities

Stiglitz 1980

1. There must be economic efficiency- the tax should not prevent resources
2. Administrative simplicity-tax should be easy and in expensive
3. Should be very flexible-respond easily to changes in economic conditions
4. Transparency-individuals should able to ascertain their tax burdens, so that they can be
politically tailored to what society regards as desirable
5. Fairness-tax system should be fair to the treatment individuals( horizontal equity-
individuals who are the same in aspects should be treated equally.. vertical-equal share to
taxes except in the case of benefit taxes which individuals are charged taxes with the
benefit the derive from public goods or services)

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RATIONALE/reasoning behind taxation in the economy

1. The revenue generation of the central government- they are levied in order to raise
revenue for central government. This revenue is then used to meet public
expenditure(expenditure incurred by the central government and used in the provision of
public goods and serviceseg education, health).Ways in which the central government
raises revenue:
- Taxation
- Privatization of state owned enterprises- process for transferring state owned
enterprises to the private sector. Huge amounts of revenue while they are state owned
enterprises to sale. Once all are sold, it would mean that they will be no source of
revenue for the government. Privatization cannot be fully relied on as a source of the
government.
- Borrow from the international financial institutions- government can borrow from
IMF and IBRD to finance certain projects only. Amounts borrowed like the IMF and
IBRD will normally have conditions and in addition the amounts have to be serviced
normally at a very high rate. The government may not have funds to repay when
borrowed (it’s a disadvantage in that they fail to manage the debts)
- Issuing government securities/domestic-instead from borrowing from international
institutions, the government can be able locally through the issue of bonds and
treasury bills (this method a disadvantage in that it is costly). It leads to high interest
rates and also causes inflation. Government can use this to raise short term finance for
a specific purpose
- Donor funding- various donor agencies have been set up that provide funding to poor
countries. However, these donors provide funds for clearly defined projects and
cannot provide for the funds for the governments to meet all the recurring public
expenditure. In addition, donors can only be able to fund if funds are available

All these methods may not be successful as raising revenue through taxes because the cost which
will be incurred to raise the revenue will be too high. If revenue is raised through taxes are
relatively manageable.

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 2. Influencing economic activities in the country- this is done through giving tax incentives
to individuals and institutions that engage in activities that contribute to economic growth
eg capital allowances given on properties and equipment and non-current asserts. All
these assets in the conduct of business activities that lead to economic growth. Savings
are encouraged through the imposition of low rates of withholding tax on interests and
similar income earned from savings and other financial investment made by both
individuals, companies and other entities
3. The re-distribution of income and wealth- some individuals generate more income than
others. Those who generate more income get richer, while those that generate less income
get poorer. If this trend continues, the rich will keep getting richer and richer while the
poor poorer. The government uses progressive tax system to redistribute income and
wealth. This prevents the poor from getting poorer and the rich from getting richer at the
expense of the poorer
1. Tax es help in maintaining the wellbeing of the environment. In some countries, heavy taxes
are imposed on income and gains arising from activities which are not friendly to the
environment.

CLASSIFICATION OF TAXES (main types of taxes)

1. Direct taxes. These are taxes that are levied direct on income and gain. Normally a percentage on
income and gain are paid in the form of a tax. They are very progressive in nature and are paid
direct to ZRA. Examples of direct tax in Zambia are;
i) Income tax
ii) Mineral royalty tax
iii) Property tax

A persons whose income is low will not pay the same income as one who earns more.

2. Indirect taxes. As the name suggests, these are taxes that are imposed indirectly. They are
expenditure taxes and therefore they are born by consumers. Traders who are registered for
charging indirect taxes charge these taxes on supplies; they make and collect the parts on behalf
of ZRA. The indirect taxes collected must be paid to ZRA on a set date. The amount of VAT does
not depend on the income of the consumer. An example of an indirect tax is VAT (charged on the
consumption of goods and services). Another example is the Customs and Excise Act

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 3. Capital taxes. These are taxes on capital receipts. A capital receipts are amounts arising from the
disposal of
4. Proportional taxes. These are taxes were the percentages of income paid in taxation always stays
the same. The average rate of taxation is constant irrespective of the level of income

SOURCES OF TAXATION

Statutes-law emanating from statutes is called principle law. Acts of parliament make it legal for
taxes of law to be levied. The main acts of parliament which control the tax affairs of Zambia
include:

- ZRA Act- under which the Zambia revenue authority as set for to take over the tax
affairs from the then income tax department
- Income tax Act
- Custom and exercise Act
- The VAT Act

Decided cases- there is no common tax law in Zambia and therefore judges cannot make tax
law. However, in taxation decided cases are ceased with the interpretation of particular statutes
that relate to specific circumstances of a case. Taxing Acts are a special form of statute
demanding a strict or predictable form of interpretation.

Statutory Instruments- form of delegated legislation issued by a government minister. S.I’s

related to tax matters are issued from time to time form the minister of finance, economic
plaining. S.I’s empower the minister to make orders to give effect to registration.

Practice Notes- other form of tax registration derives directly from the ZRA. Where this as has
no legal effect, it assists in the smooth running of the taxation system. Each charge year the ZRA
issues practice notes that broadly state what is ZRA vies at the tax treatment of a particular
operation. For example practice number 001/99 was issued to give an outline of the accountancy
and tax treatment of leasing in relation to the acquisition of fixed asserts.

Legislation and Tax avoidance

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The structure for an Act of a country can be expected to be different from other countries
because of considerations of local drafting, legislative history of tax laws in the country in
question and the policy choices made by the authorities

Most tax Acts are divided into parts, some parts are very long while others contain one section
but sometimes are very length. Most parts deal with specific issues.

Tomlin well said that “every man is entitled to order his affairs so that tax attaching under the
appropriate acts is less than it otherwise could be”, as stated in the case IR v DUKE of
WESTMINISTER, however people adopt various methods in order to reduce their tax liability

INTERPRETATIONOFTAX

Tax Evasion

Tax avoidance

Tax Mitigation

Tax Evasion, tax avoidance and the pressing need for revenue lead to extensive changes in the
structure of taxation Acts. Changes that we see in taxation Acts. In order to facilitate
administration and cap evasion and avoidance, governments constantly amend the various
positions of the tax Acts.

TAX EVASION

Tax evasion is the ilegal version of taxes by individuals, corporations and trusts. Tax evasion
often entails tax payers deliberately misrepresenting the true state of their affairs to the tax
authorities to reduce their tax liability. This includes:

- Dishonest tax reporting, such as declaring less income, profits or gains than the
amounts actually gained or over stating expenditure.

Tax evasion is associated with the informal sector. One measure of the extent of tax evasion (tax
gap) id the amount of unreported income, which is the difference between that mount of income
that should be reported to the tax authorities

AVOIDANCE

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 In contrast, tax avoidance is the legal use of tax laws to reduce ones tax burdens. Both tax
evasion and avoidance can be viewed as form of tax incompliance as they describe a range of
activities that intend to subpage the state’s tax system. Tax payers use the ambiguity or
vagueness in the words of a statute to avoid paying taxes by interpreting the law to their
advantage. Correct interpretation of the law plays an important role in issues of tax avoidance
and evasion.

TAX MITIGATION

Is a situation where the tax payer takes advantage of a physical incentive afforded to him by the
tax legislation or the tax law by actually submitting to the conditions and economic
consequences that the particular tax legislation entails. A good example of tax mitigation is the
setting up of a business under taking by a tax payer in a specified area such as the multi facility
economic zone (MFEZ)

Interpretation of tax laws

Talk about the golden rule, mischief (when there is a defect in the law, go to the common law,
Re Headon case), literal rule (take the law as it is), context (a word carries the meaning in which
group it is).Presumptions and case law (stare decisis). Development (law and policy), of which
policy talks about government having an agenda and then moves to parliament (1 st reading,
committee, report, 2nd, 3rd then president). Then ZRA comes in to minister the law.

- Statutory interpretation is the process by which courts interpret and apply legislation.
Some amount of interpretation is necessary in important on case involving statue
Sometimes the word of a statute have a plain and straight forward meaning. But in
many cases there is some ambiguity or vagueness in the words of the statute that must
be resolved by the judge.
- The judiciary interprets how legislation should apply in a particular case as no
legislation unambiguously addresses all matters. Legislation may contain
uncertainties for a variety of reasons
Words are imperfect symbols to communicate intent, they are ambiguous and change
in meaning over time (late ((allow)).

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 - Unforeseen situation are inevitable and new technologies and cultures make
application of existing laws difficult. (Is email subject to the same protection as
documents held by the person or less protected since it’s in the hands of a third
party?)
- Uncertainties may be added in the statute in the course of enactment such as the need
for compromise to certain groups therefore the courts must determine how a statute
should be enforced to avoid tax avoidance.

WHAT IS INCOME AND INCOME TAX

Term income is used to mean a tax that is imposed or levied on income and not on capital.

TAXABLE PERSONS

Persons who are taxed are those who are resident in Zambia. The term persons refers to
individuals and persons other than individuals, such as Zambian companies

RESIDENCE

Residence applies to both taxable individuals and other taxable persons. The income tax Act
states how to establish residence status in respect of individuals as well as in respect of others
who are other than individuals.

Individuals

An individual is resident in Zambia if that person is physically present in Zambia for a period of

no less than 183 days in a charge year. For example, if Michelle is physically present in Zambia
for 183 or more days in the charge year say 2016. She will be resident in Zambia for that charge
year. A person other than individual, is resident in Zambia if:

i. That person is incorporated in Zambia

ii. If the central management and control of the persons business
or affairs are exercised in Zambia

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A person other than an individual is centrally managed and controlled in Zambia if the board of
directors or other central management board of that person meets in Zambia for the purpose of
decision making for that person.

ORDINARY RESIDENCE

Intention

Individuals who normally live in Zambia and ordinarily resident in Zambia. Individuals who
come to Zambia with the intention of living in Zambia for more than 12 months are deemed to be
ordinary in Zambia from that same date when they arrival. Lysaght v IRC(1936). In this case,
ordinary residence was defined as to mean residence is not casual and uncertain but that the
person held to reside does so in the ordinary course of his life.

DOMICILE

This concept relates to a place which an individual can refer to as a permanent home. Therefore a
person is domiciled in the country that is his or her permanent home. The two types of domicile
are domicile of origin and choice.

Domicile of origin

This is a domicile that is acquired at birth. This means that individuals are domiciled in the
country in which they are born.

Domicile of Choice

This is the domicile acquired by choice. Individuals can be able to make a choice as to what
country should be there permanent home once they attain the age of 16.

The concept of domicile can affect the amount of income that will be assessed on a taxable
individual where such an individual has income from all over the world. Individuals who are

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domiciled in Zambia will be liable to Zambia income tax on their worldwide income whether the
foreign income is limited to Zambia or not, unless the income is specifically exempt from
income tax. However the system applicable in Zambia is to assess income to tax if it has a
Zambian source. As a result, the worldwide income may not be assessed in Zambia if its source
is not a Zambian source.

THE EXEMPT PERSONS

Persons who are not resident in Zambia are exempt from Zambian income tax then certain
persons are exempt from Zambian income tax even if they are resident, and these are in Part III
of the Income Tax, but these include;

i. Republican President on the income received as a president

ii. The income of chiefs
iii. Local authorities
iv. Approved funds
v. Commonwealth development corporations
vi. Societies, associations
vii. Registered trade unions
viii. Political parties

TAXABLE AND EXEMPT INCOME

Income that is liable to tax is income that arises from a source within Zambia. Those are taxable
incomes and are exempt may include:

i. Rental income from letting of property in Zambia

ii. Emoluments such as holding an office or being employed
iii. Interests from banks and buildings
iv. Loan and debenture
v. Dividends
vi. Loyalties that are received

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 vii. Income received by way of annuities

Certain income is exempt from tax, these are;

1. Scholarships
2. Bursary payments by students
3. The incomes of the republican president as a result of him holding office
4. Chiefs
5. War disability challenged

Income received by way of a grant as compensation of loss of office or disturbance by an officer.

Income received in conjunction with the award of military, police, fire brigade as an old age
pension or public fund or as a benefit paid under written law.

 PERSON TAX COMPUTATION

 Employment-state of having paid work
 Employee-person employed for wages or salary
 Emolument- profit, salary or fee from employment or office
 Emoluments, office and employments

Tax is chargeable under the PAYE system in emoluments of an office or employment. It’s
important to define employments or office so as to establish whether they exist or not. The
existence of employment or an office will certainly indicate the income arising therefrom will be
liable to income tax under PAYE system.

a. Emoluments- these include all salaries, wages, fees, bonuses, overtime pay, leave pay,
benefits and advantages and allowances and all payments which an individual receives as
a result of holding office or employed. The term is quite wide, it’s defined in a broader
sense under the discussion of what types of emoluments are taxable and exempt from
income tax. As a general rule that all payments received by an individual during
employment are taxable unless they are specifically exempt under the provision of the
Income Tax Act
b. Office- this is a position that exists independently of the person presently occupying it, it
must be capable of being declared vacant as in the case Great Western Railway and

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 company v Barter, in this case Rowland Justice defined office as a subsisting, permanent,
substantive position which as an existence independent of the person who fills it, which
goes on and is filled in succession by successive holders. The existence of a position that
can be filled in by any eligible person is strong ground for concluding that the operation
of the payee system will be required. In the case of Edward v Clinch, a civil engineer
acted occasionally as an inspector on temporary adhoc employment, in this case it was
held that there was no ongoing office which could be vacated by one person and occupied
by another. As a result, the fees receivable from the temporal assignments where not
taxable as emoluments as there was no office.
c. Employment- this exists where they is a legal relationship of master and servant. The
master will be the employer while the servant will be the employee. The legal
relationship maybe evidenced by a contract or it may be implied by conduct. There is no
specific form that the contract, where there is one, is expected to take. As such the
contract maybe a hollow contract or it may be by written contract. A contract maybe
implied from conduct if two parties conduct themselves towards one another in such a
manner that it would be clear to any third party that there exists a legal relationship of
master/servant relationship. An example is where a person agrees to carry some work in
retain for a payment and that payment is actually made as agreed upon. However care
must be taken whether employment exists as the distinction between employment and
self-employment is quite thin. The nature of the contract whether be written or oral need
to be studied very careful.

EMPLOYMENT COMPARED WITH SELF EMPLOYEMNT

The Income Tax Act does not defined the term employment and self-employment. In order to
make a distinction, reliance is placed on case law. Most of the decided cases in the earlier may
not be necessarily tax cases but give some guidance as to when employment exists and when it
doesn’t. ZRA will consider several factors in establishing whether someone is employed or self-
employed.

1. Type on Contract- if there is a contract of service, it will indicate the existence of a legal
relationship of master/servant relationship. A contract for services will indicate the

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 existence of self-employment. As already noted from this, the contract may be written or
oral. Where the contract is written, a copy should be obtained and the content of that
particular contract should be studied. In the case of oral contracts, the parties to the
contract should be interviewed to establish to what has been agreed upon. Care should be
taken when examining written contracts, as they are not likely to contain all the relevant
points. It is always important to use several other methods of gathering the relevant
information and not only on one source.
2. Work performance- employees must perform the duties assigned to them themselves
while the self-employed may hire other people to perform the work for [Link] a person
does not have a right to hire helpers, that is likely to lead to the conclusion that there is
employment. The self-employed person will normally have the right to hire their own
[Link] contract of service, personal performance is always required while in the case
of contracts for services there may be personal performance or there may not be one. In
the case Hall v Lorimer, a vision mixer was engaged under a series of short term
contracts. It was held that this vision mixer was self-employed because the nature of the
factors surrounding the case was that of self-employment.
3. Control- the work of an employee is controlled by the employer who will normally
stipulate working hours, place where the duties are to be performed, how the work is to
be performed and other conditions. A self-employed person will decide when to perform
the duties and how to perform the duties. Where there is an absence of the right of
control, employment may still be present. In certain employments, it is not usually
possible for the employer to tell employee what to do, when and place the duty needs to
be done as in the case Mitchell and Edon v Ross, where a doctor with a private practice
also held a part time employment with a regional hospital board. It was held the income
for the part time employment was liable to income tax as emoluments. This was despite
the fact that the income of the practice itself was taxable as business tax.
4. Payments and financial risks-employees are paid an agreed salary on a monthly or
weekly basis and incur no form of financial risks. In order to earn an extra sum,
employees have to work an overtime. Also employees are going to get any other
additional pay if they meet a set target in which case they will receive a bonus or
commission. Employees do not assume any form of financial risk and they cannot profit

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 from sound management of the affairs of the company. Self-employed persons are
normally paid a proportion of the contract price (consideration) based on the amount of
work performed. This will also bare the full financial risk. If they manage their affairs
well they are going to profit from them. Care is required when handling certain types of
employment as the absence of financial risk will not always indicate that there is
employment. The fact that a casual worker runs the risk of being and able to find work
when a particular engagement comes to an end is not relevant to the determination
whether employment exists or not as in the case Lee Ting Sang v Chung Chi-Keung.
5. Place of work- employees will normally be told where the duties ought to be performed
from. This is normally at the employer’s premises or at the premises of the client. In most
of the employments, the premises at which the duties are to be performed from are those
of the employer. Self-employed persons will perform the duties at the place of their
choice. If the person performing duties can only do so at the employer’s premises then
that person is an employee. If the person can choose a place then that person is self-
employed.
6. Tools and equipment- an employer will provide the tools and equipment which the
employes are to use. The fact that the employer does not provide the tools will not be
conclusive. In certain types of employment, the employees will normally be required to
provide their own tools and equipment. Self-employed individuals will provide their own
tools and equipment. In the case Ready Mixed Concrete Ltd v The Minister of Pension
and National Insurance, drivers who were engaged provided their own Lorries. It was
held that the drivers were self-employed. There existed contracts of carriage between
them and the company
7. Rectification/correction of work- employees will normally rectify any faulty work during
the normal hours and will still be paid. Self-employed will rectify outside the contract
time and will not be paid for the extra work. If the person performing duties is not paid
for the time spent on correcting work, then the person is self -employed on the other hand
if the person is paid for the time spent on correcting work, that person is an employee.
8. Engagement and dismissal- the employer will dismiss employees. The employer will
have a right or power to terminate the contract of employment by giving the employee an
appropriate notice. A self-employee person will normally enter with a client specifying

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 the beginning and the end. The contract normally ends when the work has been
performed not just performed but completely and accurately.
9. Insurance- employers will normally provide insurance cover for the actions of their
employees. This is because they are vicariously liable for the offences committed by their
employees. Self-employed persons will have to provide for their insurance needs. The
hirer is not vicariously liable for the offences committed by the hired self-employed
contractor. If the person who is performing the duties take insurance cover personally,
then that person is self-employed. But if insurance cover is not taken by person
performing the duties personally then that person is employee.
10. Exclusivity-employees normally work for one employer. A self-employed will wait for a
number of client’s simultaneously. The courts will also consider whether an individual’s
activity is fully integrated within the organization. If this where the case, it will be
difficult for an individual is self-employed.

In order to come to a final conclusion as to whether an individual is an employee or self-

employed all the above factors are generally taken into account and weighed. There is no specific
way of indicating of which points are important than others or otherwise. It all depends upon the
factors of each case. What may indicate of weighing basis, the existence of employment may not
indicate the same in another case.

If it is established that the individual performing is an employee, then all payments made to him
will be subject to income tax under the PAYE system, after deducting allowable expenses if any.
This means that the employer will be responsible for deducting income tax from all the payments
and for paying that tax to Zambia Revenue Authority. The rules governing emoluments and
allowable expenses together with operation of the PAYE system.

TAXABLE AND EXEMPT EMOLUMENTS

The following are the tax treatments of the various payments which employees may be entitled
too:

1. Salaries, wages and bonus-these are taxable emoluments without any exemption. The
actual amount received by an employee is taxable in full on that employee. The exception
is where the salary is equal to or less than the tax free pay, which for the tax year 2016 is

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 3000 per month. If this is the case the only entitlement that the employee receives, that
salary will not be taxable. Similarly if the net amount of emoluments after deducting the
pension is not more than the tax free pay the employee will not pay tax.
2. Allowances paid to employees- all allowances qualify as emoluments and as such they
are fully taxable. If an employee however is reimbursed any expenditure incur once
performing the duties of employment then only the excess of the reimbursed amount over
the actual expenditure incurred by the employee shall be taxable. This normally occurs
where an employee is required to spend personal money when performing duties and then
submit receipts to the employer for reimbursement.
3. Benefits in kind- a benefit in kind is a benefit of some sort which is not money. They
include benefit derived from employment through the use of personal to order vehicles
and through the provision of free residential accommodation by the employer. Benefits
which cannot be converted into cash are not treated as emoluments of the employees.
These benefits are taxable on the employer instead.
4. Maintenance of a residence by an employer- any amount paid by the employer to assist
an employee in meeting the cost of up keep of the residence are, as a general principle,
taxable as emoluments of the employee. If the employer undertakes to pay all the on-
goings in respect of the house including Rates, rents, taxes, insurance, securities,
electricity, telephones, entertainment and the general maintenance of residence including
surroundings, then this constitutes monies worth and is taxable on the employee as
emoluments.
5. Clothing or Uniform Allowance- if an employee receives an allowance for the purchase
of uniforms for official purposes or functions, the allowance received is taxable as
emoluments or income of the employee. Employees may however claim for expense
relief in respect of any amount incurred on the purchase of uniforms for use in the
performance of official duties.
6. Medical expenses- expenses incurred by the employer on behalf of an employee, his or
her family or household for the cost of medical treatment are not chargeable emoluments.
However, a medical allowance paid to an employee for the purpose of medical treatment
are taxable.

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 7. Funeral benefits- payments paid in respect of assisting an employee where there is a
bereavement are not taxable emoluments.
8. Board, lodging and meals- where an employee is provided with meals provided by the
employer, there is no taxable emoluments on the employee concerned. If however an
employee receives an allowance in lieu thereof, the allowance received will be taxable. If
an employee is required to work late at night such that it would be unreasonable to expect
him to use public transport for his journey home then the cost to the employer of
providing such an employee with private transport home is not a taxable emolument of
the employee.
9. Compulsory payment for board- where arrangement exist to pay wages to employees
gross, out of which a certain amount must go towards the payments of board then the
gross amount payable to the employee is a taxable emolument where certain addition are
put and they are payments like allowances, these are taxable.
10. Restrictive undertakings- a payment made by an employer in respect of an agreement
entered into by an employee, the effect of which is to restrict the activities of the
employee or the ability of the employee to compete with the employer is a taxable
emolument of that employee.
11. Tips and Service charges- if an employer operates a scheme under which he pays
employees tips from customers or service charges, the amount paid to employees are
taxable emoluments on those employees.

ALLAWABLE EXPENSES

Expenses which are deductible from emoluments are revenue expenses which are incurred fully
and exclusive for the purpose of employment, such expense include:

i. Travelling expense incurred in the course of employment.

These are expenses an employee incurred while performing the duties of employment, they
include the following

a. Cost incurred in travelling between two places at which the duties are to be performed

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 b. Cost incurred travelling between home and work, if duties begin at work as like a medical
doctor, for such doctors, duties commence when they get a call that they are required at
the hospital

The following travelling expenses are not deductible:

i. Cost incurred in travelling between two employments as in the case of employees

working in a full contract with the company and part time contract with another. The
cost incurred in travelling between the premises of full time employment and
premises of part time employment are not deductible.
ii. Cost incurred in travelling between home and work. In the case of Rickett v
Colquhoun, a London barrister was also recorder of Portsmouth, his emoluments
where asserts under PAYE. He claimed deduction for expenses to travel between
London and Portsmouth plus hotel expenses. The deduction was refused because the
expenses were not in the performance of duties which did not begin till he arrived at
the court in Portsmouth and where not necessary, he need not lived in London but
Portsmouth
c. Capital allowances on property–used exclusively in the performance of duties of
employment. This is in the case where employees are required to provide their own tools
as in the case of tradesmen. Those who opt to use their own tools when the employer has
provided suitable tools cannot claim capital allowances on those tools
d. Contribution to approved pension funds- the allowable contributions is restricted to a
lower of
i. 15% of emoluments
ii. K 3060 of the charge year
Employee’s maybe members of two or more approved funds. In such a case the
restriction on the allowable amount relates to the total of all the approved funds. The
NAPSA is given priority over other approved funds. The deductible amount maybe
therefore a part of the contribution to the scheme, with all the contribution to other
schemes to not being deductible at all because of the limitation of allowable
deductions to the maximum of K3060 per annum as at 2013

18
 e. Subscriptions to professional bodies which are relevant to the employment- subscription
to professional bodies whose membership is not relevant to employment are not
deductible. Subscription which will be deductible are those paid to the LAZ by lawyers
who are members or ZICA by accountants who are members and subscription to all other
bodies pledged by members.

PAYE SYSTEM.

This is a system that is used for collecting Income Tax on the emoluments from holding in office
or employment. Under the PAYE system the procedures relating to tax compliance are
transferred from the employee to the employer. The employees receive their enrolment not of
income tax. This reduces on the trouble that would be encountered if employees were required to
pay Income Tax on the enrolments several months after those enrolments had been received.

Documentation required in order to operate the PAYE system.

The person who starts up in business is required to contract ZRA if he or she if to engage some
people, the inspector will contain a package including the following:

1. The employers guide to PAYE

2. Tax tables

The main documents and forms required to operate PAYE include

1. tax deduction cards ITF/P8

2. Employees leaving forms ITF/P13 (part 1)
3. Details of old employee’s
4. Particulars of employee commencing employment ITF/20
5. Certificate for pay and tax form deducted ITF/P22
6. Pay as you earn monthly return form
7. Employers annual declaration and certificate known as a CF/P18

PAYEE PENALTIES

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Penalties are charged under the PAYE when all the procedures concerning payment of tax and
submission of returns are not complied with. If tax is not permitted by the due date (which is 14
of the following month) (for VAT it is 21 st of the following month) and (NAPSA its 10 th),
then a penalty of 5% per month or part thereof, of the outstanding tax is charged. Interests is also
charged from the due date from 14th to the date of payment at BOZ discount rate plus 2%. If
there is a loss of tax due to fraud, willful default or negligence of an employer, the employer may
be liable to penalties amounting to 52.5%, 35% or 17.5% respectively of the omitted income

- Look at business income, what a business is, what is a vocation, profession, what is
trade

BUSINESS, INCOME and PROFITS

1. Business- a business has been defined in section 2 of the Income Act as any profession,
vocation or trade and includes:
- Any adventure or concern in the nature of trade whether singular or otherwise
- Manufacturing
- Farming
- Hedging

A profession was defined in the case IRC v Maxsc, as an occupation requiring either the
use of purely intellectual skill or manual skill directed by the intellectual skill of the
operator.

A vocation on the other hand was defined in the case of Partridge v Mallandaine, as a
way in which a person passes his or her life.

The statutory definition cannot be relied on to establish whether a trade exist or not. In
order to establish whether a trade exists, the budges of trade are used. Now these budges
of trade where developed in the UK by the royal commission on taxation.

2. Budges of trade

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These are indicators of the existence of a trade. When a series of transaction is engaged
in, reliance on the determination as to whether those constitute trading is pressed on the
badges of trade. The main badges of trade are as follows:

i. The subject matter of realization- some assets are normally held as trading stocks
while others are not. If the assets that have been sold are one which is normally
held as trading stock, the presumption that a trade is being conducted will be
greater. In the case of Martin v Lowry, an agricultural machinery merchant
purchased the government’s entire stock of aircraft linen amounting to almost
45million yards. This merchant had wanted to sale the linen to manufacturers but
instead was forced to sale it through an extensive retail operation direct to the
public. He made a huge amount of profit. It was held that there was a trade.
In the case Rutledge v CIR, the tax payer while in Germany on business
purchased 1 and a quarter million toilet rolls. Shortly after his return to London he
sold them making some profit. It was held that he was trading. If an asset that has
been sold is one which is not normally a trading stock, it is likely that the
transaction may not be interpreted as trading.
ii. The length of period of ownership–guidance has been provided that trading stock
is not normally held for a long period of time. As a result, if a person disposes off
an assets that he or she held for a long period of time, it will be quite difficult to
determine whether the assets has been held as a trading stock. Assets held for long
periods of time are normally investments. Wisdom v Chamberlain, this case the
taxpayer used borrowed money to buy silver bullion which he intended to use as a
hedge against possible devaluation. After about a year, he sold the silver bullion
making some profit. It was held that there was a trade. In passing judgment,
Harman LJ said “this was a transaction entered into on a short term basis for their
purpose of making a profit and if that is not an adventure in the nature of a trade, I
do not really know what it is”.
iii. The frequency of similar transaction –if the frequency of similar transactions is
high, chances of classifying a tax payer as a trader are high. Pickford v Quicke,
the tax payer was one of the syndicates who purchased the shares of the
company’s, de liquidated them and sold the assets at a profit. The tax payer had

21
 entered into four transaction each resulting into profit. It was held that he was
trading. Where the frequency is low, chances are also very low. Harman LJ in
JBolsm and son ltd v Farrelly, as cited by Beardon D, said a deal done once is not
trading, done 3 or 4 times it is.
iv. Supplementary work and marketing –if an asset is acquired in a poor state,
supplementary work is carried out to improve the asset by making it more
marketable, then such an asset when sold will give rights trading profits. The
argument is that supplementary work is performed so that asset could be sold at a
higher price than its value.
v. Circumstances giving rise to realization - it is not always that whenever an asset
has been sold, the asset will give rise to trading profits. Circumstances that give
rise to the sale are also taken into account. If a tax payer disposes off or sales an
asset in order to raise money in order to raise money for some financial problem,
it will be difficult whether the asset was trading stock.
vi. Taxpayer intention –when you have intentions to trade it clearly constitutes
trading. However, intentions to make a profit may not constitute trading. As such
it has been established as to whether a tax payer sold an assets because the
intention was to trade.

In addition to the six budges of trade, they are additional factors which have to be taken into
account. These are:

i. The taxpayers other circumstances or activities (looking at what other things someone
is doing beside the trading factor). If the other activities of the taxpayer indicate the
existence of a trade, then even the current transaction is likely to be interpreted as an
indication of the existence of trade.
ii. The way the assets was acquired –if the assets sold was acquired by inheritance or
gift, the transaction may not be considered to a trading transaction.
iii. Methods of finance –if the assets sold was bought using borrowed money, the
assumption that the assets was trading stock is high, the presumption is even greater if
some interest was paid on the amount of money borrowed at a high interest rate.

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EXPENSES

THE GENERAL RULE FOR DEDUCTION OF EXPENSES SUCH AS DEPRECIATION

In order for an expense to be allowed for the purpose of taxable profit computation

a. It must be revenue and not capital ( when they say revenue, they mean that they are used
in the operation of the business and when they say capital they mean an asset to a
business)
b. It must be incurred wholly and exclusively for the purpose of the business

Rules applicable to other expenses:

a. Capital expenditure- this is specifically disallowed. All expenditure of fixed assets cannot
be deducted in the computation of taxable profits. Also depreciation of fixed assets and
losses on disposal of fixed assets are non-deductible expenses. Profit on disposal of fixed
assets are also not taxable. When expenditure is made once and for all but with a view to
bring into existence an asset or advantage of the enduring benefit of a business, that
expenditure will reasonably be treated as capital expenditure.
Problems arise generally when dealing with repairs and renews. Repair is restoration by
renew or replacement of subsidiary parts of the whole. In the case of Samuel Jones and
company (devondale) ltd v CIR, expenditure incurred on a new factory chimney
replacement was allowed as the chimney was a subsidiary part of the work. On the other
hand, renew is the construction of the entirety, in the case of Brown v Burnley Football
and athletic Company ltd, expenditure incurred on the construction of a replacement
specters stand was held to be capital.
When an asset is acquired which requires substantial expenditure to be incurred on it
before it can be used in the trade, this expenditure will normally be capital. In Law
Shipping Company ltd vs CIR, it was held that expenditure on making recently acquired
ships sea worth was capital, however, expenditure incurred on recently acquired assets to
remedy normal wear and tear is revenue and allowed. This was held in the case Oden
Associated Theatre ltd vs Jones.
b. Goods taken for personal use- if a trader withdraw goods for personal or family use, he
should be charged at the market value of the goods, as such if the goods have been

23
 recorded in the profit and loss account as sales at cost then the profit should be added
when computing taxable profits. If the goods have not been recorded even at cost then the
amount to be added to the accounting is the market value.
c. Bad debts 9- rules which apply to bad debts are as follows
- trade debts written off but now recovered
- Specific provision for bad debts are allowed that is to say an increase is deductible as
an expense and a decrease is taxable as an income.
- General provisions for bad debts are not allowed. These provisions are specifically
not allowed for tax purposes because they do not represent a specific debt that will
fall bad.
- Defalcations- losses suffered by a business due to dishonesty of a person who has
some control such as a proprietor or managing director are not allowed. But if the
losses are suffered because of the dishonesty of a subordinate who has no control are
allowed.
d. Payments to family members- if a trader employs members of his family, wages and
salaries paid to them will be disallowed if they are not wholly and exclusively incurred.
What is reasonable as not been defined but the ZRA would seek explanation as to
whether those wages and salaries where wholly and exclusively incurred. The wages and
salaries paid to employees who are non-members of the traders family will also be taken
into consideration in a establishing whether the payments to members of the family
where reasonable.
e. Legal and professional fees- costs of normal accountancy work are allowed. Legal costs
are allowed if they are revenue. An example allowable legal costs is the legal costs of
recovery of bad debts. Other legal and professional fees are dealt with as follows
- Cost of preparing the income tax returns, however additional accountancy costs
incurred as a result of investigation reveling discrepancies are not allowed.
- Legal cost for advise in connection with tax liability are allowed
- Normal accountancy expenses incurred in connection with agreeing tax liabilities is
allowed
- Costs incurred in connection with defending title to existing fixed assets are allowed

24
 f. Gift and entertainment- expenditure incurred in entertaining third parties like suppliers,
customers etc is not allowed. However in entertaining employees is allowed. The cost of
a gift is allowed if :
- Bares a prominent advertisement for the donor
- The total of such gifts in the year to any customer does not exceed K100
g. Travelling expenses

Difference between between a tax invoice and invoice is that a Tax invoice you will find some
has written a VAT number on it meaning they are registered for the VAT system, invoices they
will not indicate the VAT number but just the invoice number.

How to avoid tax evasion – look at the law critically, look at mitigation.

Taxable value on an invoice

INTRODUCTION TO VAT

Taxation in the form of direct and indirect taxes aims at primarily raising money for the
government to pay for public goods, merit goods and demerit goods. Income tax levied on
individuals, companiesand trusts is direct tax. VAT is an example of indirect taxation. VAT was
introduced in Zambia with effect from 1sr July 1995 to replace sales tax. Zambia was a 25
African country to I ntroduce VAT which is increasingly being used throughout the world to
raise government revenue.

Meaning of VAT

Vat is an indirect tax, as the impact an incidence of the tax fall on different persons falls on
different persons. It is a broad based consumption tax. It is charged on a wide range of goods and
services and on imports (taxable supplies). VAT is a tax on the consumption on the goods and
services in the republic. It is levied at every stage in the production and distributionchain and
collected bit by bit along the chain of manufacturer, whole seller and retailer until it finally hits
the final consumer who does not add value, but uses up the [Link] is charged on value added.

Registration for VAT

25
ZRA administers the VAT in Zambia under domestic taxdivision. The primary law relating to
VAT is Cap 331. The subsidiary legislation comprises general regulations made by the Minister
of Finance and National Planning through statutory instrument and administrative rules made by
the commissioner general of ZRA through gazette notices.

Arguments for and against VAT

Arguments for include:

1. It is invoice based and therefore uniform and uncomplicated, offering a sound financial
management system with less collection witnesses.
2. VAT has a self-policing nature there by enhance compliance.
3. It gives the potential for a stronger manufacturing industry and more competitive export
prices
4. The input credit mechanism gives registered businesses but much of the tax they pay on
expenses used for making taxable supplies and as a result largely avoids tax on tax
character of sales tax
5. VAT is internationally proven in developed and developing countries or economies
6. In view of the broad tax base, revenue yield is generally high and stable and is less
susceptible to fluctuations. Increased revenue are major goals of VAT
7. VAT is less complex than sales tax

Arguments against VAT

1. VAT is regressive.
2. The claim that small business may find it difficult to maintain the required VAT record
maybe exaggerated. Proper business records are necessary for all businesses big and
small. They are required for proper management for any business. In fact adequate
records are required for other taxes to such as income taxes. These records maybe
concealed to invade tax.

Principles of VAT

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Meaning of supply- a supply is generally anything done for a consideration i.e whether supply of
physical goods or services rendered. The most common type of supply is a sale of goods or
services made in the process of carrying on business. Taxable supplies are goods and services
sold by taxable suppliers. This means that supplies made by persons who are not required to be
registered by VAT are not taxable supplies in accordance with the VAT Act [Link] small trader
who is not required to be VAT registered business that is engaged in trade whether by
manufacture, production, whole sale. As a general rule, a business is usually profit motivated
however, the use of this as a criterion is indicative of carrying on a business but it is not the sole
determining factor. There are many business transaction in addition to a straight sale which are
also viewed as supplies under VAT. Lease or higher services, imported goods, imported services.

Taxable supplies are liable to VAT either at standard rate (16%) (0%).

Consideration for a supply is the amount paid in money or monies worth. It is also defined as a
payment in money or otherwise and includes any act or forbearance. It is a price. Thus there is
consideration when goods and service are sold in a transaction. A seller receives consideration
for goods and services sold, a buyer pays a price (consideration for goods and services
purchased). Consideration is value of a supplier + VAT.

VAT Administration

Registration for VAT

VAT registration and de-registration rules– compulsory or statutory registration- a supplier must
apply to register if he or she deals in taxable supplies and his or her turn over exceeds the
following fresh holds:

i. The VAT fresh hold in the course of business of at least 800, 000 in any twelve
months. Another way of saying the same thing is that a trader is required to register
for VAT if his taxable supplies are likely to exceed 800, 000 in the course of
12months.
ii. 200, 000 in any 3 consecutive months or
iii. Taxable turnover is expected to exceed either of the above limits in the subsequent 12
or 3 months respectively. This is per 28(1) of the VAT Act Cap 331

27
Initially compulsory registration fresh hold was 30 million in any 12 months period or 7.5
million in any 3 months period. With effect from April 1 2002, the VAT fresh hold was
increased to 100 million per annum or 25 million per 3 months period or is likely to exceed
either of these figures in the coming years or of such quarters respectively. Before the
existingfresh hold the requirement to register was a turnover to 200, 000.

Voluntary Registration – businesses which did not meet the statutory registration fresh
holdwould apply for voluntary registration subject to fulfilling certain conditions. With effect
from 1st April 2004 voluntary registration was scrapped.

Effective date for registration (EDR)– is the date when a business becomes registrable for VAT.
This date is:

i. For a new business. The date of commencement of trading is the effective date for
registration if the turn over fresh hold are likely to be exceeded.
ii. For a continuing business which has exceeded the turn over fresh hold – the effective
date of registration is within one month of an application being made to ZRA for
registration or from the date the application was received by the commissioner
general or if the application is not made within one month of first becoming liable to
register, on the day following the first period during which the 200 fresh hold was
exceeded. An application for registration must be made within a month of first
becoming liable for register VAT. If an application is received belatedly, tax will be
due on all sales made after the correction registration date whether or not tax has been
charged on the supplies made
Failure to register at the correct time is an offence punishable by fine or imprisonment

Registration procedure – involves completing a VAT registration form, VAT 1. No registration

fee is payable and in normal circumstances, no bon or other securities will be required. On
registration, businesses will be allocated a VAT registration number.

Legal entities to be registered for VAT – the following are: individuals, companies, partnerships,
groups of people (associations), sole traders, joint ventures, even companies in liquidation.

Businesses with branches or divisions – normally the legal entity is registered for VAT and not
individual branches in normal circumstances. Accordingly businesses with outlets will normally

28
have a single VAT registration and make 1 return and payment for each tax period thereby
minimizing administrative burdens.

Group registration – groups of companies can, subjected to certain conditions such as consent of
the CG apply for a single VAT registration. However applications can be made for a separate
registration of any division of a business meeting registration conditions if it maintains an
independent accounting system separately identified of activities carried. If this is done VAT has
to be charged on supplies between separate registered divisions

Government agencies –there are special rules to enable government agencies to register for VAT
and reclaim the VAT incurred on products they buy for their purposes. Government agencies
include: a ministry or department of government, a statutory corporation or board, an institution
or boarding which the government has direct or indirect control.

Obligations of a VAT registered supplier – the following are the obligations. It is important that
these are observed. A VAT registered supplier is to:

i. Notify (which is written), ZRA when the business starts or circumstances change
ii. Display the VAT registration certificate
iii. Charge VAT on taxable supplies
iv. Complete and submit returns by the due date which is specified by ZRA and pay
VAT promptly by the due date

Cancellation of VAT registration–notify the ZRA in the following circumstances and

cancellation of registration must take place

i. Where there is a change in the legal status of an entity (when you dissolve a
partnership).
ii. If the business seizes training permanently.
iii. If the business is sold.
iv. If you registered as an intended trader and your intention to make supplies seizes.

Cancellation of registration can take place:

i. If you have been granted registration in an anticipation of commencing a business on

a certain date but do not carry out on or before the due date

29
 ii. When the value of taxable supplies falls consistently below the VAT registration
fresh hold

Effective date of cancellation – cancellation of registration will normally take effect form the last
day of the month in which cancellation application is approved by ZRA. However, it is important
that you continue to charge VAT until your registration is formally cancelled.

Application for de-registration – application must be in writing, be addressed to the

commissioner general through the nearest ZRA office and should include the supplies VAT
registration number and full details of the circumstances given rise to de – registration.

Changes not requiring cancelation –

i. Change in the trading name, the name of the business or an address of any partner of
the business
ii. Change in the business address of the principle place of which the business is carried
on
iii. Transfer of a going concern (business will continue for a long time)

All a business in the above circumstances is to notify the nearest ZRA office and have a changed
detail or amended

Property Transfer Tax

Scope of property transfer tax

PTT is chargeable on any person who transfers property to another person. The source of law is
The Property Transfer Act Cap 340 of the Laws of Zambia which provide that whenever
property is transferred, PTT is charged upon and collected from, the person transferring the
property. The person transferring the property is known as the transferor and the person to whom
the person is transferred is known as the transferee. Property transfer tax is chargeable on the
realized value of the property transferred. This tax is payable by the transferor by property, it is
not payable by the transferee. The tax to be paid within 14 days from the dates when the
transaction is complete.

30
 1. Property –for the purposes of PTT, there are 3 categories of assets that qualify as
property, they are all immovable property, which means that PTT does not apply on the
transfer of chattels. Chattels are intangible movable property. Most property, plants and
equipment’s are chattels. Whether the chattels are used in a business and capital
allowances have been claimed oo ,n them does not change the position. The categories of
properties chargeable are:
i. Any land in Zambia (including any building on that land)
ii. Any building or any other improvements thereon
iii. Any share issued by a company in Zambia that is not listed on the Lusaka Stock
Exchange. All Lusaka stock exchange listed shares are exempt from property transfer

Transfer of property – a transfer of property occurs when there is change in ownership of that
property. Therefore the transfer includes the following

i. A disposal of property
ii. A disposal of a part of the property ( a part disposal as in the case of shares)
iii. A gift of the property ( in the case of family members generally)

Realized value –this is the amount on which property transfer tax is charged. It is the price at
which the property could, at the time of the transfer be sold on the open market. As a general
rule, the realized value of any property is the higher of:

i. The contract price agreed upon by the transferor and the transferee and
ii. The open market value

For shares, the realized value is the higher of

i. The open market value of those shares

ii. The nominal value of those shares

As only shares in private limited companies are chargeable property, there is need to agree an
appropriate valuation method to use when attaching to these shares.

Transfer to immediate family –a member of an immediate family is any of the following:

i. A spouse, on blood child, during adopted child or a step child. Where a person
transfer property to a member of an immediate family, the realized value of such

31
 property is the actual price received by the transferor, if any. This means such
transfers will be treated as having a realized value of nil if no price has been charged.
As a result when a person makes a gift of property to a member of immediate family
PTT could not be payable.

CUSTOMS AND EXCISE cap 322

Custom and Excise arises in situations between trading between countries. Zambia trades with
other countries when it exports and imports to and from other countries. Some trading
occursbilaterally for instance between Zambia and Tanzania. In such trading situations Zambia
will observe any bilateral agreements made with Tanzania in its customs and excise duties for
goods exported to Tanzania and imported from there. Accordingly it will also do the same for
reginal trade in the COMESA and SADC and international trading with both the world.
Protocols and agreements have to be adhered to in customs and excise. Custom and excise
division is responsible for collecting these duties and enforcing exports and imports controls. The
division also implements bilateral, reginal and international trade agreements and combats
smuggling “illegal” exportation of arms and drug trade. Customs and excise is responsible for
imports and exports and the duties arising in that situation. Customs and excise are trade taxes
levied according to the letter of the Customs and excise Act 322 of the Laws of Zambia and also
in accordance with any agreement, whether bilateral, reginal and international

Functions of the Custom and Excise Division

This Act of the Zambia revenue authority has a number of functions relating to trade taxes. They
are as follows:

1. Revenue collection- the division collects the following duties.

- Custom duty
- Excise duty- tax are imported goods as well as goods manufactured in the country of
a luxury nature.
- Import VAT- VAT on import at entry point based on value for duty purposes
- Tax on fuels- such as petrol

32
 - Dumping duty- tax on goods which are imported into Zambia which unfairly
disadvantages Zambian goods and are such the tax is meant protect Zambian
industries fir unfair competition
2. Protecting local industries- the division is responsible for protecting Zambia industry
from unfair competition using various means under the customs and excise Act
3. Prevention of smuggling- smuggling takes place when goods are imported or exported
without being cleared by customs so that trade taxes are not charged on them. Goods
smuggled prevents unfair competition to those are subjected to customs and excise.
Protecting exportation of certain goods without an export payments.
4. Providing trade data and statistics- ZRA is obliged to provide trade data to the
government via certain agencies such as the BoZ, central statistics office etc. the
information is used for various purposes including and policy formulation.

Other functions

The division is also charged with other functions, such as protecting the public by ceasing
harmful and dangerous goods such as necrotic substances, pornographic materials, protecting
plants and animal life by ensuring compliance with the Laws of the Republic.

Powers of ZRA officials

Officers of custom and excise division have power to do the following under section 9 of
subsection 1 to subsection 2

1. To stop and search any person, including any persons within or upon any ship, aircraft, or
vehicle, whom he has good reason to suspect of having secreted about him or in his
possession any dutable good or any goods in respect of which there has been a
contravention of the law.
2. For the protection of revenue and proper administration of the customs and excise Act, an
officer may :
- Enter any shop, office, store, structure or enclosed area for making such examination
and enquiry, as he considers necessary
- Demand for any book, documents or thing which is required under the Act

33
 - Examine and make extracts from and copies of such books and documents
- Take with him on to such premises an assistance who may be a police officer

Section 9 (3) to (6) is details of what the officer is empowered to do in entering and while in the
premises. Section 9 (7), section 9 (8), section 5, section 10 and section 11.

Officials and commercial documents

To implement the letter of the law when dealing excise and custom division, documents are
critical

Official documents

These are documents prescribed in the legislation. All persons transacting with the division must
do so on official documents, similarly the division must deal with other stake holders on official
documents to provide a transaction trail, establishing accountability and follow laid down
procedures. Prescribed forms must be used at all times.

Commercial documents

These include the following:

- commercial invoices
- contracts
- bill of lading
- airway bills
- correspondence
- statement of accounts or of final accounts
- letters of credit or documentary credits

Licenses and permits

Read notes about it

Excise duty

This is a tax on particular goods or products, domestic or imported. Imposed at any stage of
production of distribution of production of distribution by difference to such things a s weight,
quantity of goods or strengths or by reference to their value is according to the value. Excise duty
34
is levied on the following such as cigarettes, carbonated soft drinks, opec bears, wines, beauty
make-up kits etc.

Penalties

Late submission of returns and non-payments of taxes will attract interest at the prevailing bank
of Zambia rates plus 2% per annum and penalties of 1000 penalty units and an additional 1000
penalty units for each day or the return.

Bonded ware houses (section 55)

A bonded ware house is a building, an installation or an area licensed in terms of section 55 in

which goods maybe stored without payment of duty. The commissioner general may determine
what kind of goods may be warehoused. A bonded ware house maybe registered by anyone in
Zambia provided they follow the laid down regulations. The proprietor or occupier of the ware
house should make an application to the local customs stationed manager requesting permission
to have the ware house approved and licensed. This application should be made using customs
form CE 17. If the applicant wishes to manufacture under bond, an addendum declaring thye
intention and outlining the process of manufacture should be attached to the application form. A
plan/ diagram of the structure may accompany the application.

Upon receipt of the application, the station manager will make arrangements for inspections of
the warehouse, the following points are really emphasized.

- The ware house must be conveniently situated, that is within 20 kilometers for the
controlling station
- The warehouse must be secured and separate for retail outlets
- The doors must be strong (grilled doors are recommended) and have provisions for a
customs lock
- Access into warehouse should be restricted and however the licensed of a bonded
ware house is not transferrable from one operator to another

Advantages of a bonded warehouse

- Goods can be stored without payments of duty, thus giving the importer enough time
to source enough funds

35
 - Some goods may sale slowly due to fluctuating demands, hence duty can be paid
according to demand
- Constant supply of raw materials can be assured in manufacturing industry by
importing in bulk and payments being made according to production demands.

The maximum period goods may remain in the ware house at present is 2 years for goods on
which duty and import VAT exceed a K180 or one year for those goods on which duty and
import VAT does not exceed K180. Goods must be paid for and removed from the bonded ware
house before the period expires

Currency declaration

Any person importing into or exporting form Zambia currency notes, in any currency exceeding
in value of $5000 shall make a declaration in customs and excise currency declaration form CE
10 as provided under section 41(a) of the customs and excise Act. Where a person refuses to
make a declaration or makes an incorrect or false declaration and is found with currency notes in
excess of the specified amount, the currency notes in excess of that amount shall be ceased and
forfeited to the state.

A commercial bank, bureau change or nay other financial institution licensed under any law
relating to the registration of banks shall not be required to make a declaration under section 41
(a).

Surtax on carbon emissions

The carbon tax is an environmental tax on emission on carbon dioxide. CO2 is considered to be
at the heat of greenhouse gas combined and the purpose of carbon tax is to protect the
environment by penalizing emissions of carbon dioxide, which may cause global warming.
Scientific consensus holds that greenhouse gas emission are the primary cause of global
warming. Carbon dioxide is a major greenhouse gas and as such is considered an air pollutant.
Therefore government has seen the need that the amount of gases are reduced by instituting
taxes. And two governmental mechanisms are being considered or implemented to reduce this
amount: environmental taxes of which carbon tax is one.

36
Exam points
Direct taxes. They are very progressive in nature and are paid direct to ZRA. Disadvantage of direct
taxes is that they are easily evaded.
Indirect-An example of an indirect tax is VAT (charged on the consumption of goods and services).
Another example is the Customs and Excise Act.

Disadvantage of these taxes is regressiveness.

Regressiveness is an advantage to VAT in that equity is imposed

Rationale of taxation

- It’s the governments revenue so as to ensure public goods (non-rival(you are not
diminishing to the detriment of another use and non-exclusion- shopping mall
meaning you are all entitled to it because it is a public good).
- Financial institutions giving

Principles of tax policy

- Canons- certainty, simplicity, flexibility, should be economic

Compliance

- IRC vs Duke of Westminster- people do not want to comply with taxes. Tax evasion,
tax avoidance.

DOUBLE TAXATION

Income Act sections 74, 75 and 76 provide for double taxation.

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