If you are a resident of Zambia, whether you are an individual or a corporation, or a business, you are required to pay taxes. This is a general requirement for every citizen, individual, or corporation residing in Zambia.
Today, I want to provide a general overview of Zambian taxes and then drill down into the taxes for small businesses, which are referred to as turnover tax.
When it comes to tax in Zambia, you need to be aware of two major types of taxes: direct tax and indirect tax.
Direct tax is a tax that is taxed directly to the person responsible for paying that tax. The person making the income is the one who is taxed and is obligated to submit the returns and pay the tax they are required to pay. Examples of direct tax in Zambia include income taxes. We have different types of income taxes, such as corporate tax, PAYE, and turnover tax, we’ve got mineral royalty tax and several other taxes that fall under direct taxes.
Indirect taxes are taxes whose liability can be shifted to another person. These are usually taxed on goods and services sold or purchased. They are taxes that you can transfer responsibility for, and they are normally paid by end consumers. Taxes such as value-added tax, customs duty, and excise duty are just a few examples of indirect taxes that we are required to pay in Zambia.
What is turnover tax?
Turnover tax is a tax designed for small businesses. These are businesses that sell or turn over less than ZMW800,000 per year, or up to about ZMW66,000 every month. If your business turns over or sells under ZMW 800,000 every year, you are required to register for turnover tax. However, certain businesses are automatically required to register for income tax and not turnover tax, regardless of whether their sales are below ZMW800,000. Consultancy businesses, mining businesses, and partnerships are examples of businesses that are required to register for income tax and not even look at turnover tax.
Generally, any small business selling less than ZMW800,000 per year should register for turnover tax. As a taxpayer, once you register your business with the Zambia Revenue Authority (ZRA), you are automatically required to register for turnover tax, especially if you know that your sales are going to be below ZMW800,000 in that particular year. So, my tip for you is to register for turnover tax as soon as possible.
At what rate is turnover tax taxed?
The rate is a flat rate of four percent. However, you need to be aware that tax rules change frequently and are not written in stone. This is the reason why people pay attention to the National budget. You also need to do that, because just recently, or in the recent past, turnover tax was not a flat rate. It was taxed under different tax brackets. Tax rules change, and you need to be aware of the rule that is affecting your business in this particular tax year or charge year. So, you need to be aware of the changes in terms of tax that are affecting you.
We reverted to a flat rate of four percent for turnover tax. This means that if you sell goods with, let’s say, ZMW100,000, you are required to pay four percent on that 100,000, which is ZMW4,000. So, your net sales will be ZMW96,000. The ZMW4,000 must be paid to the Zambia Revenue Authority, which is the custodian responsible for tax compliance for all taxes in Zambia.
I just mentioned that there are normally tax changes that are announced by the Ministry of Finance every year in the budget address that you need to be aware of. One major change that was ejected on 1st January 2022 was the rental income.
Rental income used to be under the withholding tax regime or used to be accounted for under the withholding tax regime. From 1st January 2022, rental income was brought under turnover tax as well as income tax regimes. This means that if you are in the business of leasing or renting out property and probably also operate another business depending on the requirements you’ve met for the kind of taxes you’re supposed to register for, you are supposed to pay turnover tax on that rental income.
Let me simplify this further. So, if you are a small business that is registered for turnover tax and you run a grocery store that turns over less than ZMW800,000 a year, but you are also an owner of the property you rent out different shops. At the same time, you are required to pay turnover tax on the rental income at four percent if that rental income is below ZMW800,000.
If the rental income exceeds ZMW800,000, even if you are registered for turnover tax and your sales from the shop are less than 800,000, you will be required to pay 12.5 percent of rental income. When you submit the return for your turnover tax every month, an additional schedule will be opened up for you to account for your turnover tax as well as your rental income.
To simplify this further, to determine whether you should register for income tax or turnover tax when managing your rental income, it is not your rental income that matters. It is your income from your normal or general business apart from the rental income, according to the rules. If the sales you make other than the rental income are below 800,000, you are required to register for turnover tax. If they are above ZMW800,000, you are required to register for income tax. However, if your rental income is above ZMW800,000, you will be required to pay 12.5 percent of your rental income. If your rental income is below ZMW800,000, you will be required to pay four percent of the tax on that rental income.
This was a significant change that affected businesses from 1st January 2022. The Minister of Finance announced it in the budget speech of September 2021. You need to always listen to the National budget by the Minister of Finance because there are usually regular changes regarding tax that affect your business. The way you treated turnover tax last year might not be the same as next year, so always be aware of those changes.
Are there any returns that you are required to submit when you register for Turnover Tax?
Yes, indeed. You are required to submit monthly Turnover Tax returns, which are pretty simple. When you log on to ZRA, if you registered for Turnover Tax, you login to your company profile. You can then select “Returns” and submit your Turnover Tax return every month.
Now, Turnover Tax returns are required to be submitted by the 14th of the subsequent month of your turnover or your sales. So, for example, right now, we are in October. If you want to submit your Turnover Tax for October, it is due on the 14th of November. You can also submit manual Turnover Tax returns, which are required to be submitted by the 4th of every month. The payment of the Turnover Tax is due by the 14th of the following month, whether it’s a manual or an online return that you are submitting.
As a taxpayer, it is a requirement that you keep proper records of your business transactions. These are sales, purchases, and any other business records that will help the ZRA to determine whether you’re qualified to be under Turnover Tax or if you are required to go to the Income Tax regime or not. These records need to be kept for at least six years. So, keep proper records of your business transactions.
Should you not follow the requirements as a taxpayer that is registered for Turnover Tax, you will be penalized. If you do not submit a return, whether it’s a nil return because you didn’t have any sales, or you didn’t pay the actual amount of tax that you had declared on your return, you will be penalized.