KPMG recently released its annual survey of worldwide tax rates. The key finding is that corporation tax rates have continued to fall in 2008. The average corporation tax rate in the 109 countries surveyed was 26 percent. Zambia's corporation tax is one of the highest in the world at 35% -
High corporate income tax is generally regarded as bad for business - see In praise of larger and larger firms... , where the cited paper argues : "there is growing evidence that corporate income taxation deters investment and formal entrepreneurship. Using a new data set of corporate income taxes in a large number of countries, Djankov et al. (2008) find strong evidence that those taxes reduce investment, foreign direct investment, and entrepreneurial activity." Zambia of course is a low tax economy (see the blogs here and here). The real question therefore is whether Zambia's tax system is optimal i.e. are the taxes in the correct order or in the right places?
The corporate income tax rate is 35 percent. However, income earned by banking institutions is subject to 40 percent tax on profits in excess of ZMK 250 million. Profits from farming, chemical fertilizer production, and export of non-traditional items are taxed at a rate of 15 percent. Companies with a turnover of ZMK 200 million or less pay a turnover tax of 3 percent. Tax on foreign exchange earned by sun hotel is subject to tax at 15 percent. Windfall tax has been introduced on companies producing base metals of copper and cobalt which will be calculated on the basis of the price obtaining on the London metal exchange. Where there is no windfall tax, there will be variable tax. The variable tax rates will vary between 1 percent and 15 percent. The windfall tax rates will be 25 percent, 50 percent, and 75 percent.