Tuesday, 16 October 2012

And the Winners of the 2013 Budget Are...

The 2013 budget was presented by the Hon. Alexander B. Chikwanda, MP, Minister of Finance on 12 October 2012. Many media houses were claiming that this budget was highly anticipated because it was one that was purely prepared by the Patriotic Front (PF). I really did not have many expectations for this budget to be honest; my only concern was the tax free threshold for Pay As You Earn (PAYE). The reality is that budgets are full of promises and it is only the issues that we can really relate to that matter. So this time around I decided to read the budget and see if there was anything for me other than the PAYE in this budget. Therefore, I have attempted to summarise the budget as best as I could.
The minister stated that the theme for the 2013 budget was, ‘Delivering Inclusive Development and Social Justice’ and the primary focus was on the sectors of agriculture, energy and transport. Therefore, as expected these same sectors received the bulk of the budget expenditure.  Hon. Chikwanda also set the macro-economic objectives for 2013 which included a GDP growth of above 7.0%, inflation no more than 6.0% and create at least 200,000 decent jobs. Can’t wait for those jobs to be created.
The PF government seems to have a clear plan for where the jobs that they promised during their campaigns are going to come from and these are in agriculture, tourism, manufacturing and infrastructure. According to the minister these sectors are supposed to account for 550, 000 jobs in agriculture, 300, 000 in tourism, and 20,000 in infrastructure (road making), these respectively are to be created over a period of five years. In the same vein, the successful issue of the 10 year Eurobond of US$ 750 million which was one of the most successful in Sub-Saharan Africa for the first issue, is being channelled towards the selected sectors.
The budget is estimated to be K32.2 trillion. Of this, general public services receives 26.2%, economic affairs- 27.6%, education- 17.5%, health- 11.3%, defense- 6.3% and the rest split among social protection, housing, and public order and safety. Coming to the budgetary allocation, education received K5.6 trillion an increase of 15.5 % from 2012, health had a 40.7% increase over 2012 (K2.6 trillion to K3.6 trillion), there is also recruitment of 5, 000 and 2, 000 personnel respectively.  Based by these it can be assumed all those individuals who have qualifications for these respective fields should not have a no problem finding employment.
The budget then moved into the most interesting territory, well for me that is. This is the part where we get to know who will be getting the tax breaks or coughing up much more than they desired. The first announcement was that the tax free threshold of PAYE has been proposed to increase by 10% from the current exempt amount of K2 million to K2.2 million. This is slightly above the expected inflationary increase for the year. When I first heard this I threw a fit. I thought the increase was absolutely ridiculous because it was so insignificant. It had to take one of my tax pals to calm me down, when he said that the increase by 64.5% tax deduction for pension contributions to K255, 000 per month would probably make an estimated K300, 000 difference.
Further proposals are to remove tax on interest earned by individuals from savings and deposit accounts as well as medical levy in order to encourage the culture of saving. Well in my opinion, I doubt if the removal of tax on interest will encourage the culture of saving, what might encourage the culture of saving is if banks offered better interest rates to saving with them. Otherwise this will only make a significant difference to individuals who have billions of kwacha in the bank. This is one of those tax breaks that has nothing in it for me.  There is also a proposal to have zero rate on bread and wheat for VAT purposes. This is in an attempt to make bread cheaper. So I can expect cakes and doughnuts to be cheaper. However, despite this measure, I wonder how many bakeries will actually reduce their prices, it could only mean better profit margins for them.
With Zambia facing an energy deficit and the demand projected to increase in the future, the minister has proposed to remove customs duty on wind powered engines, gas stoves and electrical capacitors to counter electrical power. This is a good move though I still think that the best alternative for Zambia's energy deficit will perhaps be solar energy. Save for the winter period, this is generally a sunny country. The one proposal that I found ridiculous was the removal of exercise duty on carbonated drinks and packed water. I can understand the packed water but the carbonated drinks? In the first place carbonated drinks are not healthy and most health practitioners will advise staying clear of them. This incentive would have made much more sense if it was for fruit juices especially the ones that use local products. They are much healthier and are most likely to create more meaningful employment than carbonated drinks would.
There has also been the removal of customs duty on both motor cycles and ambulances. This move is perhaps to encourage the purchase of motor cycles instead of vehicles to decongest the roads. The use of motor cycles is popular in many Asian countries and African countries like Nigeria and Uganda have them in their thousands. The only concern would be ensuring that motor vehicle drivers accord the motor cycles the same respect on the road and convincing people that they are safe. I am shocked that ambulances were paying customs duty; it’s about time that it was scrapped. There has also been a 3-year suspension on equipment used for physical exercise, gymnastics, athletics and other sports. We should brace ourselves for gyms to open up on every corner and buffed up chaps strolling in the streets. This should have included all sporting equipment as well. This would have encouraged the development of other sports other than football.
Arguably one of the most commendable propositions in this budget has been the requirement for tax incentives to be granted only when the investor meets their obligations related to employment creation in Zambia. This is to ensure that we avoid investors who want to come and milk this nation and as soon they are done pack and leave. This proposal has been long overdue. We need investors who will actually come and make a profit but also make a positive difference. Hon. Chikwanda also proposed that in order to strengthen our local heritage and culture and support the growth and marketing of the domestic music and visual arts industry, he proposed to remove customs duty on charcoal drawing sticks, palette knives, mixers, microphones and magnetic tapes. As a writer I felt discriminated against by this proposal. There is nothing in it in this budget for writers. We have been constantly complaining that the cost of publishing in this country is too expensive but once again it seems those calls have fallen on deaf ears. Writers can also preserve culture, it is not only music. I think the minister should have encompassed all art forms and provided some form of tax breaks for materials related to the arts.
I have therefore, come to the conclusion of attempting to summarise a 19-paged budget into something that would not be a drain to read. I still do not know what to make of this budget. It has nothing out of the usual and neither is it a wow budget. It is slightly a more focussed budget with the emphasis on the social sectors and improvement on infrastructure. These are the areas that government believes will create the most employment and if they succeed will be the biggest score. This approach is slightly going back to the socialism days where government was responsible for creating jobs; I fear that this approach may not be sustainable. There is little in this budget to suggest that the enterprising spirit will be given wings to flourish. Apart from the increase in the turnover threshold for small and medium businesses, I failed to see anything else of promise. This budget was tailored towards uplifting living standards. Therefore, this is a good budget whether it turns up to be a great budget, the verdict would have to come in 2014 when we review how much it has accomplished.

What do you think should have been included in this budget?


  1. Well I do not agree with you when you say ' I have therefore, come to the conclusion of attempting to summarise a 19-paged budget into something that would not be a drain to read'. Simply because you have still left some important issues which are important even though they may not be of benefit to you directly. If your analysis/summary is the only piece someone came across then they would have missed some very important issues. Your analysis is quite selective or may be this indicates your areas of strength or interests for which you cannot be crucified.
    However, I feel that at least the following two issues should be part of every budget analysis especially this year.
    Firstly in this country where copper is everything, no budget has gone without touching on issues in the mining sector. Therefore it should naturally follow that every analysis or summary shouldn't miss this item. Yours has missed it for reasons unknown. Well, government will now introduce a mining rights transfer tax which was not the case in the past. In this case if you have mining rights which you want to transfer to another person to carry on the mining they will be required to pay tax on top of the price of purchasing the rights. This has positives and negatives I will not delve into. There are also issues of transfer pricing rules to interest payments etc. Not an expert in these things.
    There is also a very important issue on Farm Inputs Support Programme (FISP) which may be only those of us who grew up in the village may pay attention to. You should be able to know that GRZ spends huge sums of money subsidizing rural farmers. But the system is marred with corruption, a lot of inefficiencies and in a way it is viewed as a vote buying strategy for those in power. For next year GRZ will change the way inputs are distributed by introducing an Electronic Voucher system which will involve the participation of private sector that were previously crowded out by heavy GRZ dominance. This is envisaged to improve not only distribution but also targeting.

    Well, I end here for now but I think that these are some of the obvious issues that a summary of a national budget should not miss especially this year.

  2. Hi Anonymous, thank you very much for your observation. It is for this very reason that I deliberately used the wording "... attempting to summarise..." instead "... completely summarised...". I did consider the including the points that you have alluded, however, I approached this blog with the mindset of what should the readers of this blog know. In hindsight now that I have read your comment, I should have included in some way. Thanks.