BREAKING NEWS - BUDGET ADDRESS

Edited version below of the whole thing which can be downloaded from : http://www.postzambia.com/post-read_article.php?articleId=36730

So, what do readers make of it? I look forward to the debate.

__BUDGET ADDRESS BY THE HON. NG’ANDU P. MAGANDE, MP
MINISTER OF FINANCE AND NATIONAL PLANNING
DELIVERED TO THE NATIONAL ASSEMBLY ON 25TH JANUARY 2008__

1. Mr. Speaker, I beg to move that the House do now resolve into Committee of Supply on the Estimates of Revenue and Expenditure for the year 1st January 2008 to 31st December 2008, presented to the National Assembly in January 2008....

MINING

81. Mr. Speaker, investment in the mining sector, on the back of the high global commodity prices, has been an important engine of economic growth for Zambia. This investment has involved not only the establishment of new mines but has also attracted additional investments in mineral exploration, with very promising results.

82. Sir, in 2008, the role of the Government in the mining sector will continue to be that of providing an enabling environment for private sector led investment. In this regard, as announced by His Excellency the President during the opening of the 2nd Session of the 10th National Assembly, the Government will be introducing a new fiscal and regulatory framework for the mining sector.

83. Mr. Speaker, the mining sector under this framework will begin to adequately contribute to the advancement and the social and economic welfare of the people of Zambia. At the same time, the new regime will secure an appropriate return on investment by mining companies. The additional revenues arising from the new mining tax regime will be set aside and a clear and transparent mechanism for their utilisation will be established.

84. Sir, the proposed framework will also ensure transparency in the accounting and utilisation of mineral revenues and also protect the rights of all those investing in the mining sector.

85. Sir, another major policy intervention in 2008 will be to review the Petroleum (Exploration and Production) Act of 1985. Recent developments in this area have highlighted the inadequacy of this legislation in securing our national interests in the sector. The objective is to lay the groundwork for the eventual prospecting and production of oil.

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DIRECT TAXES

121. Mr Speaker, there has been an understandable concern that the tax burden is high. As a responsible Government, we are mindful of the burden of taxation on our workers especially those in the lower income groups. In order to reduce the tax burden, I propose to revise the Pay-As-You-Earn by increasing the non-taxable monthly threshold income from K500,000 to K600,000. The following is the proposed Pay-As-You-Earn regime:

122. Sir, this measure will give tax relief to workers in formal employment earning below K4,535,000 per month. The measure will result in a revenue loss of K64.8 billion, which will go in the pockets of the workers.

123. Mr. Speaker, currently, the interest paid on mortgage for residential property is not tax deductible. The Government fully recognises the aspiration of most families to construct or purchase their own houses. I, therefore, propose to allow mortgage interest to be deductible for tax purposes to any Zambian individual who obtains a mortgage for residential property. It is envisaged that this concession will encourage home ownership.

124. Mr. Speaker, I also propose to increase the low cost housing unit capital expenditure limit for tax purposes from K2 million and K10 million to K20 million. This is meant to encourage employers to build decent housing units for their employees, particularly, in the agriculture sector. This measure will have a minimal revenue loss.

125. Mr. Speaker, in an effort to encourage savings and streamline the collection of withholding tax on interest earned on savings and deposit accounts, I propose to reduce the withholding tax rate applicable from 25 percent to 15 percent. I also propose to abolish the exempt portion of the interest, which is not subject to withholding tax. This measure has minimal revenue impact.

126. Mr, Speaker, last year, this august House approved the proposal to increase the tax credit applicable to persons who are differently-abled from K36,000 per annum to K144,000 per annum. The Government believes that this increase was insufficient. I, therefore, propose an additional increase so that the threshold will now be K600,000 per annum.

127. Sir, I further propose to increase the allowable deduction for any employer who employs a differently-abled person from K500,000 per annum to K1,000,000 per annum for each such person employed. There will be minimal revenue loss as a result of this measure.

128. Mr. Speaker, all the above measures will take effect on 1st April, 2008.

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CHANGES TO THE MINING FISCAL AND REGULATORY REGIME

144. Mr. Speaker, in my 2007 Budget Address to this august House, I proposed new tax measures for the mining sector. I also informed the nation that the Government would engage mining companies, with whom we had signed Development Agreements, as part of the process of introducing the new tax regime for the mining sector.

145. Sir, given the complexity of the mining sector, a team of experts was appointed to study this matter in great detail. The findings of the study show that:
(a) the Development Agreements in their current form are lopsided; and
(b) even if mining companies were to move to the 2007 tax regime, the country would still not get a fair share from its mineral resources.

146. Sir, the Government has, therefore, decided to introduce a new fiscal and regulatory regime in order to bring about an equitable distribution of the mineral wealth between the Government and the mining companies.

147. Mr. Speaker, effective 1st April 2008, the new fiscal regime for the mining sector will include the following:
(a) The corporate tax rate will be 30 percent;
(b) Mineral royalty rate on base metals will be 3 percent of gross value;
(c) Withholding tax on interest, royalties, management fees and payments to affiliates or subcontractors in the mining sector will be at the rate of 15 percent;
(d) Withholding tax on dividend will be at zero percent;
(e) A variable profit tax of up to 15 percent on taxable income, which is above 8 percent of the gross income, will be introduced;
(f) A windfall tax will be introduced to be triggered at different price levels for different base metals. For copper, the windfall tax shall be 25 percent at the copper price of US $2.50 per pound but below US $3.00 per pound, 50 percent at price for the next 50 cents increase in price and 75 percent for price above US $3.50 per pound;
(g) Hedging as a risk management mechanism shall be treated as a separate activity from mining;
(h) Capital allowance, that is a depreciation of capital equipment, shall be reduced from 100 percent to 25 percent per year;
(i) A reference price, which shall be the deemed arms length price, shall be introduced for the purposes of assessing mineral royalties and any transaction for the sale of base metals, gemstones or precious metals between related or associated parties. The reference price shall be the price tenable at the London Metal Exchange, metal Bulletin or any other commodity exchange market recognised by the Commissioner General; and
(j) Capital expenditures on new projects shall be ring fenced and only become deductible when the projects start production.

148. Mr. Speaker, the new mining regulatory framework will be provided for in the Mines and Minerals Act. The framework will also have a modern licensing system based on transparent procedures.

149. Sir, these measures are competitive, reasonable and balanced. The expected additional revenues, in 2008, as a result of these new measures are estimated at US $415 million.
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