Zambia Chamber of Small and Medium Business Associations

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The 2013 Budget Reviewed

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Following the K 32.2 trillion 2013 budget address by Hon. Alexander B. Chikwanda, Minister of Finance, delivered to The National Assembly on Friday 12th October, 2012, ZCSMBA organised a budget review workshop on 19th October at Grand Palace Hotel inviting key stakeholders in the MSME fraternity. These included its Lusaka based business association executives and other members of the National Apex for MSME Associations (NAFMA)
Veteran consultant Jones Kalyongwe lead the captains of the industry through a very interesting session that was aimed at scrutinising the budget with a view to gauge what was in store for micro, small and medium scale entrepreneurs (MSMEs).
In his budget address, the Minister stated that the allocation of resources in the 2013 Budget was informed by the policy priorities and objectives of the PF administration. The major areas of health, education and skills training, agriculture and local government have been prioritized alongside sectors with high employment generation potential, that is, tourism, infrastructure development and manufacturing.
In line with Government’s development agenda, substantial resources have been allocated for economic affairs programmes. The outlay has been increased from the 2012 allocation of K8.1 trillion to K8.9 trillion, with the bulk of it going to the agriculture, energy and transport. It is gratifying to note that government has continued to recognize the importance of key sectors such as agriculture which employ more than 70% of the entire MSME population in Zambia.
The agriculture sector is expected to contribute over half of the new employment opportunities over the next five years. Out of the total allocation of K1.9 trillion, K1.1 trillion has been provided for core agriculture programmes including those aimed at promoting the sector’s diversification and cater for livestock, fisheries, crops and irrigation development. K500.0 billion has also been allocated to the reformed Farmer Input Support Programme, which by mainstreaming the e-voucher system, will also promote crop diversification. This is commendable as the future of the agriculture sector lies in promoting other crops rather than just maize. It should however be noted that even though there has been a rise by 9.9 %, this allocation is still low considering the importance of this sector.
In terms of manufacturing, the weak forward and backward linkages have been cited as major constraints in the Zambian manufacturing sector alongside underutilization of available capacity narrow product range; the high cost of production; limited access to long term financing; low skill levels and generally obsolete technology.
The government’s strategic focus in this sector is now to promote products that can be competitively exported or successfully substituted for manufactured imports. This will be achieved through value addition to locally available raw materials by putting in place appropriate industrial infrastructure for MSMEs, particularly in rural areas as well as promoting foreign direct investment in the Multi Facility Economic Zones (MFEZ’s). The tailoring of the investment incentives to entrepreneurs that invest in value addition ventures and promote employment as a strategy is also a good catalyst.
It has also been proposed that where exemption from customs duty is granted as an incentive, it will only apply on goods that are not locally produced. This is definitely good in promoting local value addition.

Infrastructure-wise, the Government in making good its promise to improve the quality of the economic infrastructure including the road network has proposed to spend K3.4 trillion. This will facilitate work on at least 1,500 km of Zambian roads. While on-going projects will be continued, the focus for new roads, it was learnt will be on roads identified in the Link Zambia 8000 Programme. This is yet another good initiative as a good transport network reduces by over 30% the cost of production and overall, the cost of doing of business.
The Government has also mobilized K642.6 billion to recapitalize the rail network in a bid to improve the efficiency of the railway system in order to divert heavy traffic from road to rail, and thereby reduce future road maintenance costs and lower the cost of doing business. These have been calls from the private sector for very long time and it is re-assuring that these concerns have now been taken on board.
Issues to do with tax have also always been contentious. It is another sigh of relief for the MSMEs that in order to promote efficiency in the tax administration and reduce the cost of tax compliance for MSMEs, the government has proposed to increase the threshold under which businesses are required to pay taxes on a turnover basis to K800 million from the current K200 million annual turnover. This has been advocated for by the private sector in many past budget submissions and it is gratifying that finally these too have received favorable consideration.
Another very exciting development has to do with the tax reforms. Major reforms were last undertaken in 1992 which resulted in the creation of the Zambia Revenue Authority and the introduction of a broad-based consumption tax, Value Added Tax, among others. Over the last two decades there has not been effective built-up on these reforms. This, it was learnt has partly resulted in a declining tax to GDP ratio due to a proliferation of inefficient tax incentives and an increasingly non- performing VAT system.
The current tax incentive regime in Zambia according to the minister remains one of the most generous in the region but admitted it has not translated into creation of decent employment opportunities for the Zambians. So as part of their resolve to review the tax incentives regime, the following changes have been proposed:
Making it a requirement for tax incentives to be granted only when an investor meets their obligations related to employment creation for Zambians. This will be achieved by amending the Zambia Development Agency Act, the Income Tax Act and the Customs and Excise Act, to make the realization of employment pledges by investors an essential trigger for them to access the incentives.
Revising upwards to 20 % from zero the Withholding Tax payable on any management fees, consultancy fees or interest payment to a non-resident contractor by a person developing a Multi-Facility Economic Zone or an Industrial Park as well as any person operating in a Multi-Facility Economic Zone or an Industrial Park.
Changing the effective date on which tax exemptions on business profits and dividends for businesses developing or operating in priority sectors, MFEZ’s and Industrial Parks take effect. The effective date of the exemptions will now be the date of commencement of business operations instead of the date of first declaration of profits or dividends, currently in place.
The minister further proposes that in order to further rationalize granting of incentives, goods and services when supplied to or imported by businesses operating in MFEZ’s or Industrial Parks will be at standard rate.
All in all, the gathering at Grand Palace Hotel generally agreed that the 2013 contained interesting proposals that enterprising Zambians would take advantage of and benefit from if well implemented. The budget has been received as well-meaning and had tried to take into consideration the aspirations of the many Zambian MSMEs, directly and indirectly. However as with all budgets, it was not possible to accommodate all submissions but this is good start for the PF administration.

Last modified on Monday, 06 May 2013 09:50

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