Presumptive taxes are designed to relieve small businesses from the burden of the cost of maintaining all the records that are mandatory for taxpayers that are registered for Income Tax, preparing financial statements and completing complicated tax returns.
Turnover Tax (TOT), is one of the three presumptive taxes that are administered in Zambia. The other two are . It is the most important of the three in terms of contribution to the Treasury.
Taxpayers that fall in the category for TOT eligibility in Zambia must meet the following criteria.
- Their monthly turnover must be below K800,000
- They must not be registered for VAT
- They must not be a partnership
- They must not be engaged in consultancy business
- Their income must not be solely from operation of passenger transport, or rentals
- Must not be in mining business
- There business earnings must not be subject to withholding tax as a final tax such as bank and treasury bills interest, dividends, management consultancy fees; and
Until 2016, turnover tax used to be calculated as a flat rate on gross earnings of a business. This disadvantaged the self-employed individuals whose income would be taxed more under the TOT regime, while those with the same level of income who were earning employment income would be taxed less under the progressive PAYE regime.
In 2016, reforms were made to make TOT progressive. The formula for the calculation of TOT was revised to include an exempt bracket and a progressive presumptive amount for each income bracket, plus 3% of the part of the gross turnover that is above the lower thresholds of each income bracket. The table below shows the current tax computations formulas for each income bracket.
|Monthly Turnover||Tax Computation Formula|
|1||K0 – K 4,200||3% of monthly turnover above K3,000|
|2||K4,200.01 – K8,300||K225 per month + 3% of monthly turnover above K4,200|
|3||K8,300.01 – K 12,500||K400 per month + 3% of monthly turnover above K8,300|
|4||K12,500.01 – K16,500||K575 per month + 3% of monthly turnover above K12,500|
|5||K16,500.01 – K20,800||K800 per month + 3% of monthly turnover above K16,500|
|6||Above K20,800||K1,025 per month + 3% of monthly turnover above K20,800|
If for example one earns K3,800 (falling in the 0 – 4,200 income bracket) the tax payable for the month will be calculated as follows:
|Tax payable||= 3% X (3,800-3,000)|
|= 3% X 800|
If one earns K12,000 (falling in the 8,301 – 12,500 bracket) the tax payable for the month will be calculated as follows:
|Tax payable||= 400 + 3% X (12,000-8,300)|
|= 400 + 3% X 3,700|
|= 400 + 111|
The accounting period for turnover tax is a calendar month. The due date for the filing of TOT returns and paying the tax due is the fifth day of the month following the accounting period. If the fifth day falls on a Sunday, or a public holiday, the next working day becomes the due date.