Sunday, 11 October 2015

SMEs and Entrepreneurs Quick Guide to the 2016 Budget

It is no secret that these are difficult times for Zambia, and the budget which was presented by Honourable Alexander Chikwanda, Minister of Finance on 9 October 2015 was supposed to shed some light on the coming year. Different people, look for different things in the 22-page document. Employees want to know if there have been changes to Pay As You Earn or ministries want to know if their funding has been increased or decreased. But what did this budget have for the Small and Medium Enterprises who have been one of the hardest hit or the entrepreneur who is seeking to make an invest that will reap rewards. If you are an SME or entrepreneur the pronouncements below should grab your attention
Budget briefcase

There is nothing significantly new in this year's budget for people interested in agriculture. It is also a roll over from last year's budget. There is still a strong emphasis on fish farming, either the minister likes fish or there is potential there that Zambians should start paying attention to. The minister has gone one step further by setting up the Fisheries Development Fund to provide K5 million credit to small scale fish farmers. Farming bream may just be looking attractive.

Perhaps one of the most disappointing elements of the budget was the energy section. There were elements for long term investments by making the electricity pricing more attractive. The message for the SME is brace yourself the energy crisis will not be solved anytime soon.

The government has scheduled operations for a national airline to commence in 2016 which is meant to attract tourists to the country, but I would not be holding my breath for this. Apart from that there was nothing for the SME or entrepreneur here. For a country that talks of diversifying its economy it is a disappointment there wasn't more here.

This had perhaps the most substance of the other sectors. The minister mentioned the Value Chain Cluster Development Programme to promote local value addition. The areas for this programme are mango juice production, processing fish (fish appears again), rice, dairy, cotton, honey and forestry products. The programme is being implemented in 42 districts and their plans to expand. Further, there are plans to recapitalise the Development Bank of Zambia, and National Savings and Credit Bank to support SMEs. Also as of 1 September 2015, it is now mandatory for all public sector departments to procure locally manufactured goods for all contracts which are valued at K3 million or less. If I was a manufacturing company I would make every public department  know what I manufacture.

Absolutely nothing

Transport and Infrastructure Development
Some road projects have been reserved for companies where Zambians hold 50.1 percent of the shares. These are road projects for the Link Zambia 8000 programme.

Where is the Money?

§  K5 million for Fisheries Development Fund
§  K187.5 million to Citizens Economic Empowerment Fund
§  K150 million to the Action Plan on Youth Employment and Empowerment
§  K35.7 million to Women's Economics Empowerment Funds
§  K49.5 million for youth skills training and development

Taxes Up or Down?

PAYE- No changes

Beer- I tried to understand the rationale for this but could not find one. The minister said it was to promote the manufacturing sector, I do not see how. The minister plans to suspend excise duty on clear beer to 40 percent from 60 percent. I guess beer could be the secret formula to start our manufacturing revolution.

Property- Property transfer tax has been reduced from 10 percent to 5 percent. Hopefully more people will be selling their houses and land soon and paying the tax.

TV and Radio- Lucky are they who plan to set up TV and radio stations. The minister proposes to suspend customs duty on transmission apparatus for television and radio for a period of two years.

Wood- Export duty of 40 percent will be placed on unprocessed wood and 20 percent on semi processed wood. Further, customs duty increases to 40 percent on all wood and wood products.

Edible oils- Customs duty rate on refined edible oils doubles from K2.20 to K4.0 per litre. This is meant to make imported edible oils more expensive and encourage local production.

Motor Vehicles- There is bad news for the vehicle traders and buyers. A surcharge of K2,000 will be placed on motor vehicles older than five years from date of manufacture. This means any vehicle that was made before 2010 will carry this charge on top of the customs and excise duty. The exception is trucks and buses.

The charges to the taxes will take effect on 1 January 2016.

The greatest beneficiaries from the 2016 budget are SMEs and entrepreneurs in the manufacturing sector. A lot of the tax breaks and incentives are given to the sector which is a  positive. There are a few sprinkles here and there for other sectors too such as people interested in fish production. It is not an exciting budget and it is pretty much carried forward from 2015. One big disappointment is that there is nothing extraordinary in the tourism sector pronouncement even though it is a foreign exchange earner and one that we have a relatively competitive advantage to other countries in the region. SMEs and entrepreneurs have a few opportunities that they can exploit and for some of the sectors funding should be readily available. Overall on a score of 1 to 10. I would give this budget a 6.