What are the key tax measures?
In the 2022/23 National Budget that Minister of Finance Sosten Gwengwe presented on Friday, government has introduced new tax measures that have attracted mixed reactions.
Gwengwe presented the K2.84 trillion budget in Parliament which contains the tax measures, chief among them being the removal of Value Added Tax (VAT) on tap water and cooking oil, as well as the removal of import duty and excise tax on solar lamps, solar fridges and sanitary pads.
In the 2021/22 Budget, government introduced VAT on cooking oil, a development that triggered price increases of the commodity, which has been a concern to consumers.
To promote local industries and get more cooperatives on industrial rebate schemes, government has reduced the minimum value addition requirement called Local Content. This will make it easier for local manufacturers to enter into the Industrial Rebate Scheme where import duty and excise tax, and in some instances VAT, is not paid on raw materials.
In previous financial years, the Industrial Rebate Scheme, which offers tax exemptions on raw materials for companies, was at 35 percent which only benefited big companies.
In the new provision, government has introduced four categories with a minimum value addition requirement ranging from 5 to 35 percent.
The new budget also seeks to support growth of the transport sector as well as the tyre manufacturing industry by removing import duty and excise tax on interchangeable tyre retreads.
In consideration of the importance of the energy sector, government has removed import duty, excise and VAT on spare parts for use in energy generation and distribution.
While government will forgo revenues from the tax exemptions, it has, on the other hand, introduced a 10 percent import duty on glycerine imported in bulk.
And to widen the tax base, government has also introduced a 15 percent import duty and 16.5 percent VAT on moulds, whose importation has significantly increased over the years.
Government has also revised upwards processing fees paid by importers—from K15 000 to K20 000—to ensure that the fee reflects cost recovery of providing the services.
Income tax measures
In continuing to improve the progressivity of the Pay As You Earn (Paye) system, while ensuring that government continues to raise realistic revenues from the tax, the monthly Paye schedule has been revised.
In the 2020/21 Budget, government increased the tax-free band from K50 000 to K100 000 to cushion low income earners and the budget had a blanket Paye pegged at 35 percent.
Workers whose salaries range from 0 to K100 000 remain at 0 percent; while those between K100 000 to K330 000 will be deducted 25 percent in Paye.
In the new budget, employees whose salaries range between K330 000 to K3 million have their Paye pegged at 30 percent; those between K3 million and K6 million will part with at 35 percent while those above K6 million will be paying 40 percent.
Meanwhile, taxation expert Emmanuel Kaluluma of EK Tax Consultants has said while the budget has introduced tax exemptions, for instance, on cooking oil, it may bring insignificant change on pricing.
He blamed manufacturers for the spike in cooking oil prices, saying they did not price their products rightly; hence, putting themselves out of business as consumers could not afford their product.
On her part, International Monetary Fund (IMF) resident representative Farayi Gwenhamo said the tax policy in the new budget will spur private sector investment and industrialisation. “But we will have to analyse the tax measures properly and give proper context because some of the tax measures are reducing revenue while others are increasing revenue,” she added.
