To enhance domestic revenue collection, the Ministry of Finance and National Planning in Zambia has proposed mid-year tax changes for the current fiscal year. These changes are detailed in the Customs and Excise (Amendment) Act 2025 and the Income Tax (Amendment) Act 2025, both of which were enacted by the Zambian Parliament on 19 August 2025.
In addition, the Supreme Court of Zambia recently delivered a landmark judgment on transfer pricing in the case of Zambia Revenue Authority v. Nestlé Zambia Limited (Appeal No. 03/2021).
This article highlights the impact of this judgment and outlines changes related to betting services, withholding tax on government securities, the newly introduced minimum alternative tax (MAT).
Betting services
A new excise duty of 10% has been introduced on both online and brick-and-mortar betting activities, such as casino games and lotteries.
Similarly, service providers, including those offering betting services, are now required to maintain detailed records of transactions and submit monthly returns to the Commissioner General. This is aimed at improving compliance and ensuring accurate tax reporting.
Withholding tax on government securities
Withholding tax on interest for treasury bills and government bonds issued by the Bank of Zambia (BOZ) has been increased from 15% to 20%. This increase applies to both treasury bills and government bonds. The increase will result in a decrease in the amount of interest paid to holders of these securities. BOZ will now deduct 20% from all interest payments made to subscribers of government securities.
Minimum alternative tax
A new MAT has been introduced at a rate of 1% on the total turnover of a person or partnership. The MAT aims to broaden the tax base and combat tax avoidance. It is applicable in addition to the maximum tax rate on income, but the MAT amount can be used as a credit against the income tax liability for the current year. However, this credit cannot be carried forward beyond five subsequent charge years. Additionally, entities that currently pay presumptive or turnover tax are exempt from MAT.
The Supreme Court’s decision on transfer pricing
The Supreme Court of Zambia considered an appeal in which Nestlé Zambia Ltd (Nestlé Zambia) challenged a tax assessment of ZMW 13.86 million (approximately USD 573 000) raised by the Zambia Revenue Authority (ZRA) following an audit of the company’s first five years (2010-2014) of operation, during which it reported continuous losses.
The ZRA’s assessment was based on findings that Nestlé Zambia had engaged in a significant volume of transactions with related entities, which it alleged were structured to artificially shift profits out of Zambia and that Nestlé Zambia was thinly capitalised, with a disproportionate debt-to-equity ratio below the recommended 10% threshold.
In upholding the assessment, the Supreme Court held that a tax assessment issued by the ZRA is presumed to be valid and accurate, and that the burden of proving otherwise rests with the taxpayer.
The Court further confirmed that taxpayers may aggregate transactions for benchmarking purposes in transfer pricing analyses where such transactions are economically linked. It also affirmed that the ZRA is entitled to require the production of any documents considered necessary for the purposes of an audit, and may rely on foreign comparables in benchmarking, provided appropriate adjustments are made to reflect the Zambian context.
Conclusion
The implication for businesses is that taxpayers would need to set up excise modules to capture betting transactions and generate monthly returns. Lenders and investors should review financing documents to determine whether ‘gross-up’ clauses account for the 5-point WHT increase. Corporates with thin taxable profits must overlay a 1 % turnover floor when forecasting effective tax rates and budgeting provisional payments.
In addition, the Supreme Court’s decision underscores the importance of robust transfer pricing policies and documentation, as tax assessments issued by the ZRA are presumed valid unless successfully challenged. The Supreme Court’s decision also highlights that taxpayers cannot rely on the absence of local comparables to avoid scrutiny and further that thin capitalisation may attract additional attention from the tax authority when assessing intergroup transactions and financing arrangements.
