During the presentation of the 2021 National Budget on 25th September 2020, ZAM was highly expectant of the Minister of Finance to put in place measures to support sustained growth in the manufacturing sector. Notably, the manufacturing sector had been hard hit by the COVID-19 pandemic and as a result had contracted by 4.3% in the second quarter of 2020.
To get the manufacturing sector back on the path of economic recovery, ZAM expected that the 2021 Budget would address the challenges of the macroeconomic environment and the high cost environment in which manufacturers operate beyond the usual tax and non-tax measure pronouncements. Moreover, the sector anticipated that the specific measures which had been proposed in ZAM’s 2021 Budget submissions to the Ministry of Finance would be adopted in the 2021 Budget Address.
Among the measures expected by the manufacturing sector were reduced company income tax (CIT) from 35% to 25%, complete removal of SI 90, reintroduction of tax incentives in the multi-facility economic zones, priority sector or rural establishment, assured Government procurement of locally produced goods and amendment of the Public Procurement Act.
Additionally, the sector also anticipated that specific measures to address costly inputs would be pronounced, more so that the country had been experiencing a rapid depreciation of the local currency in 2020. ZAM also expected direct measures aimed at supporting exports and export-diversification. while we recognize that some proposed measures could help exporting industries.
The Minister of Finance announced general provisions that include: introduction of a local content allowance for processing of mangoes, pineapples and cassava; setting up of a tomato and fruit processing plan under IDC; procurement support of locally produced goods through repealing and replacing the Public Procurement Act of No.12 of 2008; provision of finances to the National Savings and Credit Bank in support of Small Medium Enterprises; reducing the investment threshold for a Zambian citizen to qualify for tax incentives under the Zambia Development Agency Act No.11 of 2006 from US$500,000 to US$100,000; and the construction of industrial yards.
Worthwhile specific measures celebrated by the manufacturing sector from the Budget relate to the suspension of duty on refrigerated trucks, increase of customs duty on imported processed beef, chicken and fish to 40%, and reduction of customs duty on trimmings such as buttons, zips, ribbons and ruffles from 25% to 5%. Pronounced initiatives are expected to increase mobility on processed items, as well as harness growth in the textiles and garments sector.
Cross cutting Budget pronouncements worth commending are the finalisation of investment projects in energy to increase electricity generation. For the manufacturing sector, the additional 750 megawatts added to the grid will end load shedding and increase security of supply. The sector has struggled to increase its production levels due to challenges associated with power-rationing.
Nonetheless, some other pronouncements made in the 2021 Budget will harm the manufacturing sector. For instance, the introduction of an excise duty on reconstituted milk of K1.5, the introduction of a surtax at the rate of 20% on imported un-denatured ethyl alcohol and the introduction of excise duty on plastic flat bags at the rate of 30%. these measures will serve to directly increase the cost of doing business in these manufacturing sub-sectors. Government should remove these measures and seek audience with affected industries. The plea arises because the manufacturing sector still faces structural issues that require policy interventions to grow.
COVID-19 has exposed delinked value chains in the country that suppress local content growth. But specific measures aimed at promoting economic recovery to boost manufacturing especially the distressed subsectors are missing from the Budget. Factors including the closure of the tourism sector, constrained supply chain movements and slowed down economic activity combined, have impacted negatively on the manufacturing sector.
ZAM recommends that the Government provide more relief to manufacturing, to stimulate a sector that has been significantly affected by the economic woes of the past year 2019 and the current devastating COVID-19 pandemic that has resulted in negative growth for the sector during 2020. Specifically, the Government should incentivise production capabilities and supplier development for the manufacturing sector to grow.
ZAM urges the Government to reduce the manufacturing CIT rate from 35% to 25%. Increase the period requirement for presenting proof of exportation from 3 months to 4 months. Reinstate the implied duty rates under the Duty Draw-Back Scheme. Review and reinstate incentives offered in the MFEZs and priority areas.
Government should specifically exempt duty on raw materials for the local manufacturing of baby diapers. Remove surtux on tissue intermediary input. Reduce the malt-based excise rate from 40% to 30%. Reduce the customs duty rate on sheet steel from 25% to 15%. Increase duty to 40% and surtax to 10% on polyproplene cement bags. Increase duty on flexible bulk containers to 40% and surtax to 10%.
