15% WITHHOLDING TAX ON REMITTENCES ABOVE $2,000
I have tried to consult a number of experts on this tax measure announced in the 2025 budget, which takes effect in January 2025. Most of them seem confused about what it exactly means. The questions paused are twofold:
1. Is this a revenue mobilisation measure?
2. Is it to curb illicit flows out of the country due to the FIC report of $3 billion exposed remittences?
Firstly, it is unclear whether this is a blanket tax on all remittances leaving the country, regardless, or is it for selected transaction types.
Addressing 1, above, we can discount that it’s not a revenue mobilisation measure because we understand that it’s refundable or exempted if you have a tax clearance certificate.
Addressing 2 is a complex issue. Why would you introduce a tax to curb illicit transactions because that’s a crime? FIC has exact details of which transactions they are reporting and who is responsible? So why not just prosecute the perpetrators of such transactions instead of inconveniencing innocent citizens?
If we turn this around, are we then saying that illicit transactions will be permitted as long as you pay 15% tax? Would people involved in money laundering bother to pay 15% tax to cleanse their illegitimate money? The answer is that it’s music to their ears.
So the big question is, what is the rationale behind this policy measure?
Let’s explore this further, what will be defined as remittences above $2,000?
If I travel outside the country and use my Kwacha debit or credit card, will my expenses paid outside Zambia be deemed as remittences? I say so because the settlement for my foreign expenses paid using my Kwacha card will have to be settled in $ by my Zambian bank, which issued the card.
If I pay college fees for my son or daughter overseas, then do I have to pay 15% tax?
What if I purchase goods using online platforms using my Kwacha debit or credit card exceeding $2,000? Will that be deemed as remittences, or is it only direct bank to bank transfers that will be deemed as remittences? Currently, BoZ sets $5,000 for Bureaux and $10,000 for commercial banks as daily limits for purchasing dollars. Note that these are daily limits.
Now, we are introducing another limit at another level. Why not synchronise these limits to avert creating confusion.
Is this policy not going to create an informal international payment system? I say so because I can withdraw $10,000 from a commercial bank and send offshore using individuals? Are we aware that the biggest money transmission channel for our cross-border transactions is truck and bus drivers?
Another expert commented that could the recent sharp rise of the Kwacha rate at K27.56 per $ be as a result of this policy announcement? Could those with excess Kwacha balances be externalising money now to avoid this tax, which comes into effect in January 2025, thereby putting pressure on the dollar demand side?
All in all can the MoF provide a comprehensive guidance on how this tax measure will work rather than creating anxiety and speculation in the market.
Fred M’membe