Pursuant to Article 43 of the Constitution of Zambia1, it is a duty of every person to pay tax.

Among the many taxes that an individual or corporation pays is income tax. Income in section 17
of the Income Tax Act2 is said to include the following among other items:

(a) gains or profits from any business for whatever period of time carried on;
(b) emoluments;
(c) annuities;
(d) dividends;
(e) interest, charges and discounts;
(f) royalties, premiums or any like consideration for the use or occupation of any property;
(g) income from the letting of property; and
(h) the income as further classified in the First Schedule of the Income Tax Act.

Section 2 of the Income Tax Act defines emoluments as comprising inter alia, commissions,
bonus, gratuity, allowance and inducement allowance. With this in mind, the following seeks to
calculate how much Linda will have to pay on the K4,000 commission that was advanced to her
on the 14 of July 2018, using the tax rates applicable for the charge year 2018. The case of Dingley
v McNulty sheds some light regarding the expense reimbursement. The principle that this case
established is that

Where the employer reimburse a genuine expense incurred on the employer’s behalf during
the course of his work, the employee will not be taxed on “expenses payment” received if
expended fully3.

It is for this reason that the K600.00 Linda received as an expense reimbursement will not be
assessable for tax purposes.

a) (i) Calculation of taxable pay:

Gross salary: K20,000
Utility bills allowance: 400
Talk time allowance: 700
Housing allowance: 3,000
Taxable pay: 24,100

1
The Constitution of Zambia (Amendment) Act No. 2 of 2016.
2
The Income Tax Act Chapter 323 of the Laws of Zambia.
3
TC 152.
 (ii) Calculation of tax using the tax rates:
Rate of tax (K) Tax due
Taxable income K24,100.00
@ 0% first 3,300.00 0.00
20,800.00
@25% next 800.00 200.00
20,000.00
@30% next 2,100.00 630.00
@37.5% balance17,900.00 6,712.50
Tax due will be 7,542.50

If the commission of K4,000.00 was paid at the end of July, the tax to be deducted would be:

(iii) Calculation of taxable pay:

Gross salary: K20,000
Utility bills allowance: 400
Talk time allowance: 700
Housing allowance: 3,000
Commission: 4,000
Taxable pay: 28,100

Calculation of tax using the tax rates:

Rate of tax (K) Tax due

Taxable income K28,100.00
@ 0% first 3,300.00 0.00
24,800.00
@25% next 800.00 200.00
24,000.00
@30% next 2,100.00 630.00
@37.5% balance21,900.00 8,212.50
Tax due will be 9,042.50

Therefore, the tax to be deducted on the commission payment made on 14th July to Linda is:

K9,042.50 – K7,542.50 = K1,500.00

b) Expenditure of a business will be deductible in arriving at taxable income as is brought
out in section 29(1)(a) of the Income Tax Act only if:
[I]t is a revenue and not capital expenditure.
Chichi and Associates spent K800,000.00 on salaries and sundries, which are part of
revenue expenses, pursuant to section 29, this expenditure is deductible for purposes of
arriving at the taxable income.

Section 41(1) provides that any amount paid to a public benefit organisation during a
charge year shall be deducted from the income of that person if it fulfils any of the
provisions enumerated. Chichi did make a donation of K50,000 to Cheshire Homes
Society of Zambia, which is an approved public benefit organisation. This is in
consonant with some of the provisos listed in subsection (1) of section 41, namely (a),
(b) and (c). The K50,000 is not available for assessment in arriving at Chichi and
Associates taxable income.

In section 38(a) and (b) of the Income Tax Act there are provisos that frown upon any
expenses made on behalf of individuals who are related by blood or marriage to the
person making such payments. It would have been different if was a party to this firm,
Chichi and Associates. Therefore, the K30,000 spent on a business class air ticket for
Chichi’s son Rex, is not a deductible expense in regards to taxable income.

Any expenditure incurred … in the provision of entertainment, hospitality or gifts shall

have no deduction made as is provided for in section 44 (h) of the Income Tax Act.
Chichi and Associates spent K25,000 on a cocktail event hosted for the entertainment
of the firm’s client. In applying the provision of section 44 (h), the expenditure was
incurred in the provision of entertainment and therefore here this is not a deductible
expense in arriving at the taxable income.
 Bibliography

Statutes

The Constitution of Zambia (Amendment) Act No. 2 of 2016 Chapter 1 of the Laws of Zambia.

The Income Tax Act Chapter 323 of the Laws of Zambia.

Case Law

Dingley v McNulty TC 152.