Paper 2.

4 Taxation
Mr J. Mwelwa
Email: [email protected]
Tel: 0976 350654

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 Basic rules
• No smoking
• Switch off phones
• Participate but do not make noise

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 2.4 Taxation Exam
• 1 compulsory question – 40 marks
• Choose 3 out of 4 marks – 20 marks each

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 Paper 2.4 Taxation –
how to pass
• Work through the notes
• Understand the examples
• Practise questions
• Concentrate on the basics
• Maintain a level of discipline
• Set a goal on when you intend to finish

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4 1&2
 Classroom tuition and home study
• Classroom course
– Covers main/difficult areas of syllabus
• Home study
– Home study is vital for this paper
– Question practice essential
– 2 mock exams
– Guidance at the end of each day
• Tutor support with queries

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 INTRODUCTION TO THE
ZAMBIAN SYSTEM OF TAXATION
– Ch 1

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 Objectives
• To explain the nature and purpose of taxation
in Zambia dealing with:
• The Zambian system of tax
• Qualities of a good tax system
• Function of taxation in the economy
• The role of the MoF & ZRA
• Classification of taxes

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 The Zambia Tax System
• Tax – a compulsory levy on income or gains
• For the purpose of raising revenue for
government

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 Functions of taxation in the economy
• Revenue generation for the central government
– Used to meet public expenditure
• There are several ways in which government can
raise revenue
– Privatisation of state owned enterprises
– Borrowing from the international financial institutions
– Through issuing government securities/domestic
borrowing
– Donor funding
– Taxation
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 Functions of taxation in the economy
• To influence economic activity in the country
– Tax incentives and punitive taxes
• To redistribute income and wealth
– Higher taxes for the rich
• To maintaining the wellbeing of the
environment
– Tax on plastics
– Tax on old vehicles to reduce carbon emissions

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 Taxes in Zambia
• Income tax – chargeable on income & gains
accruing to all residents
• Mineral Royalty Tax – levy imposed on mineral
extraction
• Value Added Tax (VAT) – chargeable on taxable
supplies made by a taxable trader
• Customs and excise duties – charged on imported
goods
• Property transfer tax – chargeable on the transfer
of immoveable property
• Turnover tax – tax charged on turnover for small
businesses < K800,000.
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 Canons of taxation – Adam Smith
(1766)
• Equity
– Tax system should be equitable or fair, also implies
that taxpayers who earn more should pay more
• Certainty
– Imposition of tax must be based on known rules.
• Convenience
– Tax should be collected when it is most convenient for
the taxpayer, i.e. when he/she has income
• Economy
– The cost of collecting tax should not exceed the
benefits.

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 Other qualities of a tax system
• Tax system should not hinder efficiency
• Tax system should be compatible with other
foreign taxes, eg Organisation for Economic
Co-operation and Development (OCED) model

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 Classification of taxes
• Taxes can be classified in different ways, one
of the major ways is:
• Direct taxes and
• Indirect taxes

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 Direct taxes
• Tax imposed on a specific person
• Direct taxes are usually progressive, tax
charged is dependent on level of income
• Examples include:
– Income tax on individuals & companies
– Property transfer tax charged on sale of property

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 Indirect taxes
• Taxes that are not charged on specific persons
but charged as persons spend or consume
goods and services
• Therefore, tax charged is not dependent on
level of income of the taxpayer but on level of
consumption
• Example
– VAT

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 Other classifications
• Capital taxes
– Tax levied on capital income (disposal of capital
item)
– Example – property transfer tax
• Revenue taxes
– Tax levied on revenue income or receipts
– Example – income tax
• Homework – what is the difference between
capital and revenue income?

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 Other classifications
• Regressive taxes
– Tax rate decreases as income increases
– Also implies that tax is imposed regardless of
one’s ability eg VAT
• Progressive taxes
– Tax rate increases as income increases
• Proportional taxes
– Rate of tax is constant on income, whether it
increases or decreases.

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 Sources of tax law
• The statutes
– Laws enacted by Parliament eg Income Tax Act, VAT
Act, etc
• Statutory Instruments
– Laws issued by Minister of Finance
• Case law
– Precedents made by the courts as they interpret the
law.
• Practice Notes
– ZRA’s interpretation of the Acts. Provide guidance to
taxpayers but have no legal backing.

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 Home study
• Role of ZRA &
• Role of Ministry of Finance

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 Introduction to Income Tax

Chapter 2

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 Overview
• What is income and income tax?
• Taxable and exempt persons
• Taxable and exempt income
• Introduction to income tax computations

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 What is income and income tax?
• Taxable income is any income derived from:
• carrying on a business (active) or
• from investments (passive) or
• from personal exertion or
• from employment of capital.

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 Definition of business
• Business is defined by the Act as “business"
includes:-
• any profession, vocation or trade;
• any adventure or concern in the nature of trade
whether singular or otherwise;
• manufacturing; and
• farming;
• hedging
• agro processing

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 Classification of income
• Income includes, for any charge year -
• Gains/ profits from any business for whatever
period of time carried on;
• Emoluments;
• Annuities;
• Dividends;
• Interest, charges and discounts;
• Royalties, premiums or any like consideration for
the use or occupation of any property;
• Income from the letting of property.
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 Taxable person
• Income tax is charged on persons resident and
ordinarily resident in Zambia.

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 Residence
• Individuals
– Physically present in Zambia for not less than 183
days.
– Residence applies to the whole year
• Companies
– Incorporated or formed in Zambia; or
– The place of effective management (place where
key management and commercial decisions ) of
the company's business or affairs is in Zambia for
that year.
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 Ordinary residence
• Not defined by the Act, but connotes intention
to stay in Zambia for the longer term.
• Individuals who normally live in Zambia are
resident and ordinarily resident in Zambia
• Individuals who come to Zambia with the
intention of staying for more than 12 months
are deemed to be resident & ordinarily
resident from arrival date.

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 Domicile
• Not defined in the Act, but defined in the UK
as a country one makes as their permanent
home.
• Two types of domicile
• Domicile of origin:
– Acquired at birth
• Domicile of choice:
– Individual can choose a permanent home on
attaining the age of 16.

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 Exempt Persons
• Certain persons are exempted from tax, including
• The President
• Local Authorities, Approved funds
• The Commonwealth Development Corporation
• Clubs, societies or associations for social welfare
or recreation
• Registered Trade Unions
• Registered political parties
• Other persons listed in 2nd Schedule Part III
• Statutory bodies
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 Exempt income
• Handout to be provided

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 Personal tax computations
• Charge year or tax year
– The year in which income is assessed or subject to
tax
– The charge year runs from 1 January to 31
December, annually.
– Amendments to the Income Tax Act are normally
effective from 1 January.

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 Tax Rates
• Farming income is taxed at 10% only.
• Other taxable income for individuals:

Income Total Rate

band income
K %

First K1–K39,600 39,600 0

Next K39,601– 9,600 25
K49,200
Next K49,201– 25,200 30
K74,400
Over K74,400 37.5

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 Class Example 1
• Mr Chushi has business profit of K79,000 for
the tax year 2019. The turnover of the
business for the tax year 2019 was K900,000.
• Required
• Calculate the income tax payable by Mr
Chushi for the tax year 2019.

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 Class Example 2
• Mrs Tundu runs a farm on a commercial basis
in the Central Province of Zambia. The annual
turnover from her business has always
exceeded K800,000. Her farming profits for
the tax year 2019 were K109,500. She has no
other sources of income.
• Required
• Calculate, for Mrs Tundu, the income tax
payable for the tax year 2019.

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 Class Example 3
• Mr Njuka is employed at annual salary of
K108,000 which is payable to him in 12
monthly instalments. He was in employment
throughout the tax year 2018.
• Required
• Calculate the income tax payable by Mr Njuka
for the year 2018.

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