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Zambia: 2023 National Budget – manufacturing to stimulate growth and value addition

13 October 2022
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Zambia continues to consistently recognise manufacturing as a key driver of economic transformation and job creation. Currently, the manufacturing sector contributes about 9.4% of the country’s GDP, a figure public officials say is too low to achieve real economic transformation.

In setting out the first steps towards economic growth through the sector in the 2022 Budget, the Minister identified Multi-Facility Economic Zones (MFEZs) and industrial parks to propel Government’s long-term strategy of promoting growth in the manufacturing sector. The Minister introduced a 0% tax for a period of 10 years from the first year of commencement of work in an MFEZ or industrial park, on profits made on exports; and reduced the threshold for a Zambian citizen to qualify for incentives provided under the ZDA Act to USD 50 000, among other measures.

A year later, the Minister revealed that, as a result of the 2022 measures, the Lusaka South Multi-Facility Economic Zone had attracted more than 30 companies, with a total pledged investment of USD 230 million and 4 00 jobs. The Minister also revealed the establishment of a MFEZ in Kalumbila, a mining town, to promote mining and non-mining linked manufacturing for both the Zambian and Congolese markets.

Corn starch

In the Budget, the Minister further revealed major tax reforms to allow agro-processing businesses operating in MFEZs, industrial parks or rural areas to keep more of their own money, encouraging investment, boosting productivity and creating jobs.

The Minister announced new tax concessions on income generated from local sales of corn starch to unlock private investment in corn starch processing, which will in turn promote value addition to maize. In particular, the Minister has proposed the following corporate income tax (CIT) and withholding tax (WHT) related measures:

  • for the charge years 2023 to 2033, CIT is levied at 0% on profits derived from local sales of corn starch;
  • for the charge years 2034 to 2036, CIT is levied at 50% on profits derived from local sales of corn starch;
  • for the charge years 2037 to 2038, CIT is levied at a rate of 25% on profits derived from local sales of corn starch; and
  • WHT exemption on dividends declared on profits from local corn starch sales for the charge years 2023 to 2033.

The Minister has further proposed to revise the basis on which environmental impact assessment (EIA) fees are charged, moving from the value of the investment to a graduated pollution-based classification charge, a measure which is expected to enhance an enabling business environment.

The manufacturing sector is likely to benefit from this measure considering the EIA screening criteria for manufacturing sector investments. The initiative will also help improve EIA practice in the sector and ensure sustainable development for a country embracing green growth and a green economy.

Clear beer

Other measures, anchored on fostering forward and backward linkages and value addition in the manufacturing sector, include the reduction of excise duty on locally produced clear beer from cassava from 10% to 5%, and the reduction of excise duty on locally produced clear beer made from malt from 40% to 20%. The measures, which will take effect in the last quarter of 2023, will apply to production levels over and above a specified threshold for a period of three years.

PVC and HDPE pipes

To encourage local production of polyvinyl chloride (PVC) and high-density polyethylene (HDPE) pipes, the Minister proposes the introduction of a surtax at a rate of 5% on selected imported PVC and HDPE pipes that are locally produced. Along with supporting domestic businesses in this manufacturing sub-sector, this measure will reduce costs for farmers purchasing the products from local manufacturers.

ITBD Bill and ZDA Act

Alongside the series of tax and related incentives, the Minister also announced the introduction of new legislation, already tabled in Parliament, to strengthen the country’s legal and regulatory framework for investment and development — The Investment, Trade and Business Development Agency Bill (ITBDA Bill) and the Zambia Development Agency Bill (ZDA Bill).

The ITBDA Bill is expected to provide greater promotion of trade and investment, economic diversification, domestic and foreign direct investment, and to facilitate the development of industrial infrastructure and commercial services in a way that is ecologically sustainable.

The ZDA Bill, on the other hand, seeks to provide a more comprehensive framework for the administration and operation of the Zambia Development Agency (ZDA). It will also repeal and replace the Zambia Development Agency Act 11 of 2006 (ZDA Act), a key legislation regulating foreign direct investment in Zambia that also provides the legal basis for MFEZs and industrial parks.

The Minister’s proposals, tax as well as legislative, are likely to improve the business environment and stimulate private sector investment in the Zambian manufacturing sector considering the reduced set-up and operational cost and improved regulatory framework.