Over the years, the Government has been looking at ways of broadening its tax base. One of the avenues used in 2018 was a property transfer tax (PTT) on the value attributable to a Zambian company (Realized Value) where there is an indirect transfer of shares in a Zambian company. After nearly three years of implementation, the problems associated with calculating the value attributable to a Zambian company persist.

In announcing the Budget, the Minister stated that Government intends to resolve this issue and make it less complex. Currently, there is no capital gains tax in Zambia and PTT is payable on the transfer of property. Property includes land, intellectual property, mining rights and shares.

Indirect transfer of shares

From January 2018, the Government imposed PTT where there is an indirect transfer of shares in a Zambian company. Nevertheless, creating a balance between taxing the transfer of shares and taxing only the value of the shares applicable to a Zambian company has proved to be a challenge. Consequently, what has followed since then are several amendments to the Property Transfer Act (Act) in the hopes of providing clarity.

In a further move to resolve this, the Minister has proposed yet another amendment to the Act to update, strengthen and remove ambiguities as well as to make tax administration more effective. Specifically, the Minister has proposed amending the Act to clarify that the realised value in respect of the computation of PTT on the indirect transfer of shares should be limited to the proportion of the value of the Zambian company.

Mining rights

The Minister proposes to amend the Act to clarify that a mining sector share includes ‘an interest in a mining right’ and ‘an interest in a mineral processing license’. This measure stems from the ambiguity in the current definitions of a share and a mining right, which resulted in the Supreme Court holding that an indirect transfer of shares amounted to an indirect transfer of an interest in a mining right, and was therefore subject to the payment of PTT in Teal Minerals Barbados Incorporated v Zambia Revenue Authority.

Following this, an interest in a mining right and in a mineral processing licence will not be taxed separately when a transfer involves a shareholding change in a holder of a mining right.

Surrender and forfeiture of shares exempt

Under the Act, PTT should only be paid on the transfer of shares in a company. However, in practice, the Patents and Companies Registration Agency (PACRA) requires a company to obtain PTT clearance before registering a surrender or forfeiture of shares to a company. It is proposed that the Act be amended to clarify that the surrender and forfeiture of shares to a company does not amount to a transfer and therefore must be exempt from the payment of PTT.

This is a welcome move as the concepts of surrender and transfer of shares are clearly outlined under the Companies Act. Once shares are surrendered or forfeited, the shares revert to the company and no value accrues to the company by virtue of the surrender or forfeiture.

Prescribed rate

The Minister proposes to increase the rate of PTT from 5% to 7.5% on the transfer of land, shares and intellectual property. On the other hand, to encourage mineral exploration and support the development of new mines to increase mineral production, the Minister proposes to reduce the PTT rate on the transfer of mining rights held by exploration companies from 10% to 7.5%.

It should be noted that these proposed measures are subject to parliamentary approval and will only be implemented after the necessary approvals are obtained and the proposed amendments to the Act are enacted and come into effect.