On Friday, 28th May 2021, the Minister of Finance Honourable Felix Mlusu presented to Parliament the 2021/2022 fiscal budget which contains a duty free week and a restructured Pay As You Earn (PAYE) among various new tax measures.
The National Budget is framed under the theme ‘Building Back Better: Achieving Aspirations of the Nation Together’.
“Madam Speaker, to boost the growth of small businesses and to reinvigorate the economy suffering from the effects of Covid-19 pandemic, Government is introducing a duty-free week for imports not exceeding US$3,000.
“Taxpayers will benefit from this facility once a year. The dates for the duty-free week will be gazetted within the year for taxpayers to prepare and benefit from it,” the Finance Minister said.
Under Income Tax measures, the Finance Minister highlighted that a good tax system needs to conform to the principles of progressivity or vertical equity in that high-income earners should pay more taxes.
“Government has now introduced two new Pay As You Earn (PAYE) brackets of 25 percent for incomes between K100,000 to K1.0 million per month and of 40 percent for incomes of more than K6.0 million per month
“Accordingly, the new monthly PAYE schedule will be K0 to K100,000 at 0 percent; between K100,000 to K1.0 million at 25 percent; between K1.0 million to K3.0 million at 30 percent; between K3.0 million to K6.0 million at 35 percent; and from K6.0 million and above at 40 percent,” he said adding that the new measure will promote distribution of wealth in the country and increase disposable income for all low income earners.
More measures have also been introduced to bring into the tax net the huge number of businesses in the informal sector of which the Minister proclaimed that Government is aware of.
The oncoming national budget, according to the Finance Minister, will run for nine months and total revenue and grants are estimated at K1.271 trillion, representing 12.4 percent of GDP.
“Domestic revenues are estimated at K1.101 trillion, of which tax revenues are estimated at K1.044 trillion, representing, 10.2 percent of GDP. Other revenues have been estimated at K56.9 billion.
“Grants, Madam Speaker are estimated at K170.3 billion, representing a 1.7 percent of GDP. This comprises K58.4 billion from foreign Governments and K111.9 billion from international organisations in form of dedicated and project grants,” he said.
Giving an overview of the current financial year, the Minister said total revenues and grants is projected at K1.523 trillion. Of the amount, domestic revenues are expected to close the year at K1.186 trillion while grants are projected at K337.5 billion. Tax revenues are projected at K1.116 trillion, other revenues are estimated to close at K69.6 billion.
Customs and Excise measures will be effective from midnight after the budget presentation while, Value Added Tax (VAT), Income Tax, and Administrative measures will be effective 1st July, 2021 when Parliament passes relevant Bills.
Among Customs new tax measures, the threshold for COMESA Simplified Trade Regime has been increased to US$3,000 from US$2,000 to support growth of small businesses. Excise tax and Value Added Tax is however payable where applicable.
Government has considered and granted the request by churches for duty free importation of building materials for construction of churches or mosques. Accordingly, the Customs Procedures Code (CPC) 422, which allows churches to import various items duty free will be amended to include building materials.
To encourage importation of modern vessels and improve water transportation and tourism, Government will allow duty free importation of vessels for transportation of goods or people under the CPC for the tourism industry.
For Excise Tax Measures to align with excise tax rates on opaque beer and malt beer as applicable within the region, Government is reducing excise tax on opaque beer to 10 percent from 30 percent while excise tax on malt beer will be reduced to 40 percent from 60 percent. The measure is expected to make local products more competitive.
Government is also reviewing the base for calculating excise tax in the gaming and betting industries from amount wagered or staked to Gross Gaming Revenue (GGR). The excise tax rate is however being increased to 15 percent from 10 percent. In addition, Government is introducing a threshold of K100,000 for application of withholding tax on winnings from betting and gambling activities including lotteries. This initiative will reduce compliance costs.
The Finance Minister noted that smuggling is rampant in this country and affecting producers of various products including alcohol (spirits, whiskey, malt beer, opaque beer), energy drinks, flavoured water, carbonated soft drinks, sugar, and opaque non-alcoholic drinks.
“Government is, therefore, introducing the requirement for affixing or printing of electronic tax stamps on these products to curb smuggling and the influx of counterfeit products on the market. Madam Speaker, our Super Markets are flooded with imported food products that are locally produced. In order to encourage local production, Government will review the surcharge rates on various products including vegetables and blankets,” Honourable Mlusu said.
Among new VAT measures, in order to enhance management of the tax and align with VAT thresholds prevailing in countries within the SADC region, Government has increased VAT registration threshold to K25 million from K10 million.
To read the full Budget Statement by Minister of Finance Honourable Felix Mlusu follow the link below:
BY HENRY MCHAZIME & SYMON MAGURU