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On 29 October 2021, Zambia’s Honourable Minister of Finance and National Planning, Dr Situmbeko Musokotwane, MP presented Zambia’s national budget for the 2022 fiscal year to the National Assembly. In doing so, the Minister proposed to widen the tax base by introducing property transfer tax (PTT) on the transfer of “mineral processing licenses” (i.e. a license which enables the holder to process minerals and cut, polish and manufacture jewellery) or “an interest in a mineral processing license”.
Accordingly, on 1 January 2022, the Minister’s proposed reforms to the PTT regime were enacted into law with the promulgation of the Property Transfer Tax (Amendment) Act No 46 of 2021 (the PTT Amendment Act) which amended the Property Transfer Tax Act, chapter 340 of the Laws of Zambia (the PTT Act). This legal alert accordingly focuses on the introduction of PTT on the transfer of a “mineral processing license” or “an interest in a mineral processing license”.
The Position Prior to the Enactment of the PTT Amendment Act
Prior to the enactment of the PTT Amendment Act, PTT was payable at varying rates (i.e. 5% or 10%) on the transfer of “property” which the PTT Act defined to include, inter alia, (i) shares issued by companies incorporated in Zambia or shares issued by companies incorporated outside Zambia that directly or indirectly own at least 10% of the shares in a company incorporated in Zambia; and (ii) land held under statutory tenure in Zambia.
In addition, with particular focus on the mining industry, the definition of “property” was defined to include a “mining right (i.e. a mining license or an exploration license) issued under the Mines and Minerals Development Act No 11 of 2015 (the Mines Act)” or “an interest in a mining right”, the transfer of which attracted the payment of PTT at the rate of 10% of the value of the mining license/ exploration license.
PTT on the Transfer of a Mineral Processing License or an Interest therein
With the enactment of the PTT Amendment Act, from 1 January 2022, PTT is now payable on the transfer of a “mineral processing license issued under the Mines Act” or “an interest in a mineral processing license”.
Accordingly, if a person wishes to transfer a mineral processing license or an interest in a mineral processing license, PTT of 10% of the “realized value” of the said license/ interest therein would need to be paid to the Zambia Revenue Authority (the ZRA) prior to completing the transfer.
Practical Considerations of the PTT Amendment Act
The PTT payable on the transfer of a mineral processing license or an interest therein is indicated to be 10% of the “realized value” of the mineral processing license/ the interest therein. However, the PTT Amendment Act does not enact a new section that provides guidance on what will be considered to be the “realised value” of a mineral processing license for purposes of the PTT Act and neither does the PTT Act provide guidance on the manner in which an interest in a mineral processing license may be computed.
The PTT Act however indicates that the “realized value” of a “mining right” or an interest therein” is to be determined at the discretion of the Commissioner-General of the ZRA. However, despite this, a “mineral processing license” is not a “mining right” and as such, following the enactment of the PTT Amendment Act, clarity would need to be provided by the ZRA (through the issuance of a detailed Practice Note on the same) or by the Minister (through a subsequent amendment to the PTT Act), on the manner in which the value of a mineral processing license or an interest therein will be computed for PTT purposes. In the absence of providing such clarity, it will be interesting to note the manner in which the ZRA will compute the value of the mineral processing license/ interest therein for PTT purposes, whenever a mineral processing license/ interest is transferred.
The enactment of the PTT Amendment Act has extended the payment of PTT to the transfer of a mineral processing license or an interest therein. Accordingly, despite the lack of clarity on the manner in which PTT is to be computed on the transfer of an interest in a mineral processing license or an interest therein, parties must apprise themselves with this change to the PTT Act to ensure that they structure their transactions accordingly.
Should you have any questions on this legal alert or need any advice relating to the PTT Amendment Act, please do not hesitate to reach out to Chanda Musonda Chiluba at [email protected] and Emmanuel Manda at [email protected].