As part of its 2018 National Budget Recommendations, the Zambia Institute of Chartered Accountants (ZICA) is calling on the Ministry of Finance to consider granting tax relief to Zambian employees through reduction in Pay As You Earn (PAYE) tax rates and widening the tax bands for purposes of taxing income for salaried workers.
The accountancy body has observed that Zambia’s salaried employees are presently the highest taxed persons in comparison to other countries in the region. Statistics also show that Zambian workers have been the highest contributor to the national treasury averaging at about 25% of the total tax revenue in the last three years compared to 7% contribution by corporate entities in income taxes.
A comparison of effective PAYE rates among African countries shows that Zambia ranks highly at 34% for Annual income of $50,000. The Institute further established that an individual employee with a monthly salary of US$3,000 would bear a PAYE tax burden of close to $1,000 in Zambia whereas their counterparts in Kenya will pay around $420, close to $340 in Ghana and around $575 in Botswana.
These statistics, reveal the fact that the current PAYE system creates a disconnect with the economic objective of empowering this category of citizens as their disposable income is adversely affected. The current PAYE regime also negates the Seventh National Development Plan theme of “Accelerating development efforts towards the Vision 2030 without leaving anyone behind”
ZICA notes that the key deliverable of poverty and vulnerability reduction as well as reduced developmental inequalities may not be achieved if workers are continuously subjected to high taxes.
“There is need for a tax system that grants relief to this category of tax payers while at same allowing the wealthy to pay a little more, therefore we propose a reduction of the top tier PAYE tax rate from 37.5% to 35%. We are also proposing widening of lower tax bands to reduce the crushing tax burden on workers. The PAYE tax brackets have not been reviewed in a long time thereby placing a strain on individuals on payroll,” says ZICA’s Technical and Standards manager Bruce Mwewa.
He explains that reducing the top tier PAYE tax rate and widening of PAYE tax brackets would give reprieve to salaried taxpayers who are already subjected to other tax obligations in form VAT on consumption and withholding tax for those in rented housing. This would further lead to increased savings, thus stimulating economic activities.
Mwewa believes that the tax relief will create a strong middle class which is a prerequisite for economic growth. With sufficient disposable income, the middle-class consumers would generate the necessary demand for goods and services produced by the economy. In this regard, the institute holds the view that the middle-class consumer creates the business opportunities to spur investment.
ZICA further observes that the amount of allowable monthly pension deduction has been static at K255 for a number of years, hence its value has been eroded by inflation. The Institute therefore appeals to government to consider pegging this amount to the maximum ceiling for NAPSA contributions.
“Increasing the pension thresholds would mobilize savings for infrastructure development and ensure that the ageing population would have sufficient funds at retirement,” avers Mwewa, adding that government needs to consider an enabling environment that allows this category of salaried taxpayers to get some relief on tax from mortgage interest as this relief would encourage uptake for home ownership.
The National Treasury, through the office of the Minister of Finance is expected to present the 2018 Budget to Parliament on September 29.
As seen below from the effective PAYE rates across Africa and the benchmarking with other PAYE regimes in other countries, Zambian employees are the highest taxed.
|Member state||Annual income of $1,200||Annual income of $10,000||Annual income of $50,000|
|Republic of Congo||0.70%||15%||24%|
Bench marking with other countries
|Zambia PAYE Regime||Rate|
|$0 – $367.00||0%|
|$367.01 – $456||25%|
|$456.01 – $689||30%|
|Kenya PAYE Regime||Rate|
|$0 – 1,207||10%|
|$1,208 – 2,345||15%|
|$2,346 – 3,483||20%|
|$3,484 – 4,620||25%|
|$4,621 and above||30%|
|Ghana PAYE Regime||Rate|
|$413 – $618||5%|
|$619 – $905||10%|
|$906 – 8,237||18%|
|$8,237 and above||25%|
|Nigeria PAYE Regime||Rate|
|$1,501 – $3,000||11%|
|$3,001 – $5,500||15%|
|$5,501 – $8,000||19%|
|$8,001 – $16,000||21%|
|$16,000 and above||24%|
|South Africa PAYE Regime||Rate|
|$ 0- 11,824||18%|
|$18,468 – $25,558||31%|
|$35,758 – 45,585||39%|
|$45,585 and above||41%|