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ZAMBIA: FISCAL INCENTIVES TO PROMOTE MANUFACTURING IN ECONOMIC ZONES RE-INTRODUCED

By Joshua Mwamulima,Bwalya Chilufya-Musonda Thursday, November 11, 2021
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The Government has outlined its plans to grow the manufacturing sector by facilitating trade and investment, enhancing the competitiveness of local products and concretising value addition.

In his Speech, the Minister revealed that Government will reinvigorate the programme of multi-facility economic zones (MFEZs) and industrial parks by providing tax incentives to increase private sector investment.

The Zambia Development Agency Act 11 of 2006 (ZDA Act), a key legislation on foreign direct investment in Zambia, provides the legal basis for MFEZs and industrial parks in Zambia.

At present, four MFEZs have been established: the Lusaka South Multi-Facility Economic Zone (LSMFEZ), Zambia-China Economic & Trade Cooperation Zone (ZCCZ) (also called the Lusaka East Multi-Facility Economic Zone); Chambishi Multi Facility Economic Zone (CMFEZ) – a sub-zone of ZCCZ; and two industrial parks: Roma Industrial Park and Sub-Sahara Industrial Park.

The full potential of MFEZs has, however, not been fully realised, for example, the Lusaka South MFEZ has reported that of the 62 companies approved to operate in the MEFZ, 17 are operational, 31 are in the process of obtaining sector approvals and 14 are at different stages of construction.

The reinvigoration of the concept of MFEZs and industrial parks is based on the evidence that a strong and competitive manufacturing sector is the foundation for any country’s economic growth.

The Government has noted the need to penetrate regional and international markets to expand output from Zambia whose internal market is limited. This access to export markets will be encouraged through Zambia’s participation in regional trade bodies and ratification of the African Continental Free Trade Area.

To encourage investment in the MFEZs and industrial parks and to propel Government’s long-term strategy of promoting growth of the manufacturing sector, the Minister of Finance has proposed the following measures:

  • introduction of 0% tax for a period of 10 years from the first year of commencement of works in an MFEZ or industrial park, on dividends declared on profits made on exports;
  • introduction of 0% tax for a period of 10 years from the first year of commencement of works in an MFEZ or industrial park, on profits made on exports;
  • taxation on profits made on exports by companies operating in the MFEZs and industrial parks to increase to 50% of profits of profits for years 11 to 13 and 75% of profits for years 14 and 15.
  • reduction of the threshold for a Zambian citizen to qualify for incentives provided under the ZDA Act to USD 50 000.

In addition, the Government has suspended CIT for persons carrying on the business of manufacturing ceramic products for the 2022 and 2023 charge years. To further promote the growth of the ceramic industry, the Government proposes to increase customs duty to 25% from 15% on floor and wall tiles imported from outside the SADC and COMESA regions.

Apart from the tax incentives, and to align the above measures with other investment objectives, the Government has indicated that it will undertake a comprehensive review of the investment promotion strategy. Therefore, more changes aimed at encouraging investment in Zambia are expected.