Republic of Zambia

Zambia’s income tax structure is built around a progressive system applied to employment income. The country primarily follows a source-based taxation approach, under which individuals are taxed on income earned within Zambia, although certain foreign income may be taxable depending on the circumstances and residency status. Tax is applied according to a progressive rate structure based on individual earnings, with exemptions applicable to certain income thresholds. Pay As You Earn (PAYE) tax is applied to salaries, wages, overtime or leave pay, commission, fees, bonuses, allowances and other employment-related benefits. Benefits-in-kind convertible into money or money’s worth are generally taxable, although they may be assessed under specific rules separate from standard cash earnings. Non-convertible benefits are generally not taxable on the employee, although their cost is ordinarily non-deductible for the employer. Taxpayers may benefit from allowable deductions and exemptions, such as certain business-related expenses. Employee pension contributions are no longer tax deductible when calculating PAYE. Employers are responsible for withholding and remitting PAYE income tax on behalf of their employees. Social security contributions are also part of the broader payroll obligations. The Zambia Revenue Authority (ZRA) is responsible for the assessment, collection and enforcement of tax laws in the country.

Employers are responsible for withholding PAYE each month and remitting it to the ZRA. Only employees contribute to PAYE; employers do not make any matching contributions. In addition to PAYE, both employers and employees are required to contribute to the National Pension Scheme Authority (NAPSA). Each party contributes 5% of the employee’s gross monthly earnings, up to the monthly insurable earnings ceiling prescribed by NAPSA. Employers must also pay a Skills Development Levy (SDL) to support vocational training and skills development initiatives across the country, which is calculated at 0.5% of the gross chargeable remunerations paid to employees. Additionally, contributions to fund Zambia’s national health insurance system are made to the National Health Insurance Management Authority (NHIMA) and are calculated at 2% of basic pay, equally split between the employer and employee at 1% each, with no contribution ceiling.

Tax reporting and payment deadlines are structured to follow both monthly and annual schedules, depending on the tax type. Employers are required to remit monthly payroll deductions, with PAYE and SDL remitted to the ZRA, NAPSA contributions to NAPSA, and NHIMA contributions to NHIMA, generally by the 10th of the month following the salary payment. Individuals required to file annual income tax returns must submit them and settle any outstanding tax liabilities by 21 June of the following year. Individuals whose income consists entirely of employment emoluments taxed through PAYE are generally exempt from the annual return requirement. For those subject to provisional tax, payments are made in four equal instalments due on 31 March, 30 June, 30 September and 31 December, with each instalment payable by the 10th of the following month. As part of their obligations, employers must request Part 2 of Form ITF/P13 from any new employee (excluding casual workers) who has been employed within the same tax year. This certificate provides details of the employee’s previous earnings and tax paid, enabling the employer to apply the cumulative PAYE method correctly. The employer must complete the form with the employee’s name, address and start date, and submit a copy to the ZRA. Similarly, when an employee leaves, the old employer handles both parts – Part 1 must be sent to the ZRA within five days after employment ceases and Part 2 must be given to the employee. The employee must give Part 2 to their new employer, who uses it to continue tax deductions correctly.

Employers are required to comply with both tax and labour regulations by maintaining accurate and up-to-date employment and payroll records. Payroll documentation and record-keeping are governed by the Income Tax Act, the National Pension Scheme Act, the National Health Insurance Act and the Skills Development Levy Act. The Employment Code Act also governs employment records, policies, procedures and codes. Employers are required to maintain accurate and up-to-date records of employee earnings, statutory deductions and contributions, including monthly PAYE returns (Form ITF/P16), NAPSA monthly returns, NHIMA monthly returns and SDL declarations. SDL is reported through the PAYE return and does not have a separate return. These records must be submitted electronically and retained for audit purposes for a minimum of six years. Employers must also ensure that their statutory employment records, required employment policies, procedures and codes, and payroll systems are properly maintained and compliant with local labour laws. Failure to meet payroll obligations can result in penalties and interest. Late submission of PAYE returns may attract fixed penalties based on penalty units, while late payment of tax liabilities may result in surcharges and interest calculated in accordance with applicable rates set by the authorities. Similar compliance expectations apply to NAPSA, NHIMA and SDL contributions.