Minister of Finance Alexander Chikwanda today announced a K32.2 trillion 2013 national budget, about K5 trillion higher than this year’s expenditure.
The new budget has triggered anxiety among stake holders and civil society groups of how the PF government hopes to finance such a leap in expenditure.
But Chikwanda said of the K32.2 trillion, a total of K24.7 trillion will be financed from domestic revenues; a further K1.5 trillion from grants and cooperating partners while the rest would be raised from borrowing.
Income tax has remained the highest contributor to government revenue with Pay As You Earn (PAYE) contributing K5 trillion while company tax will contribute K4.7 trillion.
The PF government has completely ignored the windfall tax revenue from the mining industry leaving the sector with a paltry K1.9 trillion contribution to the treasury.
Other sources of revenue include value added tax that will contribute K6 trillion with customs and excise contributing K4.7 trillion while fuel levy will contribute K659.1 billion.
Under direct taxes, Chikwanda proposed to increase the current exempt amount by 10 per cent from K2 million to K2.2 million, meaning that those earning below K2.2 million will not pay tax.
Chikwanda also assured that proceeds from the US$750 million bond would not be utilised on consumption but on growth promoting infrastructure projects such as energy, transport and human capital.
Under macroeconomic objectives, policies and strategies for 2013 and the medium term, government is targeting to achieve real GDP growth of above seven per cent, attain end year inflation of no more than six per cent, achieve domestic revenue of at least 20 per cent of GDP, limit the overall fiscal deficit to 4.3 per cent of GDP of which domestic borrowing will be 1.5 per cent; maintain gross international reserves of at least four months of import cover and creation of at least 200,000 decent jobs.
On expenditure by functions of government, Chikwanda proposed to spend K8.4 trillion under general public services with the Executive getting K1.020 trillion while grants to local authorities will amount to K498.6 billion with Constituency Development Fund getting K150 billion while the Legislation will get K643.5 billion.
General government services will get K6.064 trillion with domestic debt interest getting K1.5 trillion while external debt will get K1.026 trillion with compensation and awards getting K200 billion. The ZRA will get K405.7 billion for resource mobilisation.
The defence sector will get K2.034 trillion while public order and safety will get K1.34 trillion with the education sector getting K5.62 trillion of which K663.3 billion will be spent on infrastructure development.
Under economic affairs, Chikwanda proposed to spend K8.9 trillion of which K926 billion will go towards general economic, commercial and labour affairs with K103.9 billion being empowerment funds while K255 billion is planned for rehabilitation of Nitrogen Chemicals of Zambia and K57.3 billion will go towards development of multi facility economic zones.
K1.86 trillion is planned for agriculture, forestry and fisheries with the farmer input support programme (FISP) getting K500 billion while Food Reserve Agency (FRA) will get K300 billion.
The fuel and energy sector will get K1.44 trillion with Zesco power generation, transmission and distribution getting K984.3 billion while mining will get K81.2 billion.
The transport sector has been allocated K4.39 trillion with the road sub sector getting K3.43 trillion while the railway infrastructure will get K642.6 billion. The communication sector will get K122.7 billion while tourism will get K63.8 billion.
Environmental protection will get K74.2 billion with housing and community amenities getting K1.007 trillion while water supply and sanitation will get K783.8 billion.
The health sector will get K3.63 trillion with K594.1 billion going towards drugs and medical supplies while K390.1 billion will be spent on infrastructure development.
Chikwanda allocated K616.9 billion for the Public Service Pensions Fund while social welfare including cash transfers will get K83.1 billion.
Presenting the 2013 budget in Lusaka yesterday, Chikwanda said delivering inclusive development and social justice would not be achieved simply by promoting handouts.
“Our fundamental approach is to build a self-reliant people able to sustainably generate money for their own pockets,” he said. “Mr. Speaker, this is the surest way of sustainably defeating poverty and delivering the inalienable rights of liberty and social justice for all people.”
Chikwanda said for Zambia to achieve sustainable and inclusive growth, focus should be on expanding opportunities for all and ensuring equitable distribution of the tangible benefits of development.
“The journey will certainly not be easy or uncontested with difficult challenges requiring tough choices but these challenges are not insurmountable if we work harder to anchor prosperity and build a solid foundation for posterity,” Chikwanda said.
“In this regard, government has formulated a national strategy for industrialisation and job creation, which prioritises four major areas namely: agriculture, tourism, manufacturing and infrastructure development.”
On economic affairs, Chikwanda said there was an increase from the 2012 allocation of K8.1 trillion to K8.9 trillion, with the bulk going to agriculture, energy and transport.
“Sir, as I have already stated, the agriculture sector is expected to contribute over half of the new employment opportunities over the next five years. I have therefore allocated K1.9 trillion to this sector.
Of this amount, K1.1 trillion has been provided for core agriculture programmes including those aimed at promoting the sector’s diversification and cater for livestock, fisheries, crops and irrigation development,” Chikwanda said.
“I have also allocated K500 billion to the reformed FISP, which by mainstreaming the electronic voucher system will also promote crop diversification and I have also set aside funds to recruit 900 additional extension officers and in line with this.”
Chikwanda said government was committed to improving the quality of economic infrastructure including roads and would spend K3.4 trillion in 2013.
“This will facilitate work on at least 1,500 kilometres while ongoing projects will be continued. The focus for new roads will be on roads identified in the link Zambia 8000 project,” Chikwanda said.
“Mr. Speaker, in order to divert heavy traffic from road to rail, and thereby reduce future road maintenance costs and lower the cost of doing business, government will work on improving the efficiency of the railway system and K642.6 billion has been mobilised to be used to recapitalise the rail network.”
He said the challenges in the energy sector were posing grave risks to Zambia’s economic development.
“I have thus allocated K1.4 trillion to this sector out of which K984.3 trillion has been provided for electricity generation, transmission and distribution infrastructure with K336.3 billion being set aside for rural electrification programmes,” Chikwanda said.
He said K32.3 billion will be spent on tourism marketing and promotion with particular focus on the United Nations World Tourism Organization conference that would be held in Livingstone in August 2013.
On education, Chikwanda said a total of K5.6 trillion would be spent in 2013 for the purpose of providing quality education and skills training.
“Sir, it is this government’s intention to revamp secondary and tertiary education so as to significantly improve the progression rate of pupils that are being produced from our primary schools. I have therefore allocated K393.3 billion in 2013 for the development of school infrastructure across the country,” Chikwanda said.
“A further K475.1 billion has been earmarked for operations and expansion of infrastructure in universities, colleges and trades training institutes and I have also allocated sufficient resources to facilitate the net recruitment of not fewer than 5,000 teachers.”
On health, Chikwanda proposed to spend K3.6 trillion.
“Sir, a notable, allocation in the sector is K594.1 billion for drugs and medical supplies. In addition, K110.8 billion has been provided for the procurement of varied medical equipment,” he said.
“Mr. Speaker, in addition to the K186.1 billion that has been set aside for infrastructure development in the health sector, a further K204 billion has been provided for the University Teaching Hospital and the Central Hospitals in Kitwe and Ndola and I have also allocated sufficient resources to facilitate the net recruitment of not fewer than 2,000 front line medical personnel.”
On general public services, Chikwanda proposed K8.4 trillion of which K2.5 trillion would go towards servicing domestic and external debts.
“Sir, in order to fiscally empower local government ahead of sector devolution, grants to councils has been introduced. In this regard, the allocation for council grants has increased to K498.6 billion in 2013 from K257.1 billion in 2012.
An increased proportion of the grants to councils has been allocated to the restructuring grant to assist councils dismantle their debts and outstanding statutory and contractual obligations and a further K204 billion has been set aside to commence construction of infrastructure for other government departments in the newly created districts and provincial capitals.”
On public order and safety, Chikwanda proposed to spend K1.3 trillion and to support the fight against corruption, allocations to the Anti-Corruption Commission and Drug Enforcement by 11.2 per cent to over K100 billion.
“The government will also continue to strengthen the Zambia Police Service by recruiting and modernising their operations. In addition to the K30 billion allocated for the modernisation of the service, I have also made sufficient provisions for the net recruitment of 800 police officers,” he said.
“Further, K76.3 billion has been allocated for infrastructure development for the Judiciary, Ministry of Home Affairs and the Drug Enforcement Commission and these amounts will primarily go towards the construction of court buildings, prisons and border infrastructure.”
On direct taxes, Chikwanda proposed that those earning below K2.2 million be exempted from PAYE.
“This 10 per cent adjustment is at a rate higher than the expected inflation target of six per cent for 2013.
He also proposed to remove tax on interest earned by individuals from savings and deposits in order to restore a culture of savings and investment.
“In the same spirit, I further propose to abolish the medical levy which is currently charged on interest earned on savings and deposit accounts, treasury bills, government bonds and other similar financial instruments. These measures will result in a loss of K40.6 billion,” Chikwanda said.
“Mr. Speaker, in order to compensate for the revenue loss arising from the above measures, I propose to introduce property transfer tax at the rate of 10 per cent on the sale of transfer of a mining right.
I also propose to reduce 25 per cent from 100 per cent the capital expenditure deduction rate, applicable in the mining sector and further provide that capital expenditure will only be claimed for deduction from the year the capital asset is brought into use in the business.”
He also proposed to zero rate bread and wheat for value added tax purposes.
“This is in order to reduce the cost of living for families as well as to promote domestic production of wheat and wheat products and enhance competitiveness,” Chikwanda said.
On customs and excise, Chikwanda said the cost of doing business in Zambia was prohibitively high.
“This holds back the entrepreneurial potential of our people and is counterproductive to investment, employment creation and poverty reduction. So in order to reduce the cost of doing business and make capital equipment more affordable, I propose to remove customs duty on a wide range of mechanical and electrical machines and machine tools,” Chikwanda said.
“These include, among others, engines of all types, cranes of all types, conveyor belts, and machines for cutting, grinding, polishing, drilling and welding, vacuum and liquid pumps and sprayers of all types.”
He proposed removal of customs duty on automatic data processing machines, magnetic or optical readers and machines for transcribing and processing data aimed at promoting information and communications technology.
Chikwanda also proposed to remove customs duty on wind powered engines, gas stoves and electrical capacitors in order to mitigate challenges faced in the supply of power.
He further proposed to remove duty on locomotives and carriages and rail traffic equipment in order to promote investment in rail transport.
Chikwanda also proposed removal of duty on motor cycles, ambulances, refrigerated fishing vessels and pontoons.
He also proposed to remove duty on various medical equipment aimed at enhancing quality health and veterinary care.
Chikwanda also proposed suspension of duty for three years on sporting equipment in order to encourage private sector participation in sports development.
He said the Zambian current tax incentive regime was one of most generous in the region.
“But this generosity has not translated into creation of decent employment opportunities. So tax incentives will be granted only when investors meet their obligations related to employment creation for Zambians,” Chikwanda said.
He said that to promote local value addition, customs duty on finished products of iron or non-alloy steel used in the manufacture of roofing sheets would be increased.
“Mr. Speaker, in order to further promotes value addition, I propose that where exemption from customs duty is granted as an incentive, it will only apply on goods that are not locally produced,” Chikwanda said.
He also proposed suspension of duty for one year on new motor vehicles for tourism enterprises that offer transport services and new equipment needed to furnish accommodation and catering facilities for businesses licences as tourism enterprises