Global Daily Tax News, Zambia Preparing Frugal 2026 Budget, (Sep 2, 2025)

The Zambian Government has indicated that the nation's upcoming Budget will focus on cuts to expenditure, with final budget hearings being concluded presently on potential reductions to government spending.

During a hearing on the preparation of the 2026 Budget, the Secretary to the Cabinet, Patrick Kangwa, noted that, over the period 2022 to 2025, the country successfully completed a review, involving funding, from the International Monetary Fund and has more than 90 percent completed a debt restructuring exercise.

He said: "While these achievements are commendable, much more remains to be done, within the persistent resource constraints. The significant progress made on the debt restructuring front entails higher debt service, further constraining the resource envelop in the 2026 Budget and the 2026-2028 Medium Term. It is, therefore, imperative that we intensify our domestic resource mobilization efforts now more than ever."

"As you are aware, fiscal space can be increased by either enhancing revenue mobilization or cutting down expenditure on non-critical items or areas. Therefore, the clarion call to all controlling officers, as you prepare for the 2026 Institutional Budget, is very clear: 'Achieve more with less'", he said.

The Budget is due to be presented in parliament on September 26, 2025.

The IMF released its Article IV consultation report for Zambia on August 5, 2025, alongside the fifth review of the extended credit facility (ECF) arrangement.

Reviewing the arrangement, the IMF said: "Performance under the program has been broadly satisfactory. All end-December 2024 quantitative targets were met. However, three end-March 2025 indicative targets – on non-mining tax revenues, arrears clearance, and reserve accumulation – were missed."

According to the IMF, discussions with Zambian authorities focused on "sustaining fiscal consolidation to preserve space for investment and social spending, strengthening public financial management, and mobilizing durable revenues through tax policy and administration reforms."

The IMF noted the Government released its first-ever report reviewing the cost of tax expenditures at the end of December 2024. It has committed to publishing regular reports, alongside revenue and expenditure performance reports.

The first report found that estimated foregone revenues in 2023 amounted to 1.5 percent of GDP, including from CIT reduced rates (0.7 percent of GDP) and custom duties exemptions (0.6 percent of GDP).

The IMF recommended: "Eliminating exemptions and tax incentives will provide additional resources to finance social spending and investment needs, while enhancing the level-playing field for the private sector. Other measures include unifying the corporate income tax rate, improving the progressivity of personal income tax by adding a new bracket for high earners and expanding the base by including fringe benefits; and increasing excises on diesel."

In the area of tax administration, it additionally noted: "ZRA has also increased the pace of VAT refunds, including by offsetting with tax payments, and will adopt risk-based audits by end-2025. Broadening the tax base remains critical to mobilizing revenues that can generate fiscal space to address development needs. Ensuring collection of the revenues associated with the transportation differential from the oil pipeline and their remit to the Treasury will also help generate additional fiscal space."

Despite the latest push for spending efficiencies by the Zambian Government, the IMF has said, "over the medium term, additional revenue measures are essential to sustain fiscal consolidation while preserving space for critical investment and long-term debt sustainability."

"Additional revenue will help keep the debt-service-to-revenue ratio at an average of 13.8 percent over 2026-31, below the 14 percent threshold. Over 2025-31, average tax revenues are projected to increase to 22.7 percent of GDP – 1.5 percentage points higher compared to the 2021- 24 average – driven by a recovery in the mining sector, stronger VAT and excises revenues boosted by the elimination of fuel exemptions, and other base-expanding measures undertaken during the ECF program as well as improved collection," the Fund said.