Zambis’s Tax Reforms: The Property Transfer Tax Act

The Amendments

1. Definition of Property and Share
   Prior to the Amendment Act, the term ‘property’ was defined to include an interest in a mining right as well as an interest in a mineral processing licence. Following the Amendment Act, the term ‘property’ has been amended by deleting reference to an interest in a mining right and an interest in a mineral processing license. Therefore, an interest in a mining right and an interest in a mineral processing license are no longer defined as ‘property’ in terms of the PTT Act.The term ‘share’ has been amended to include an interest in a mining right and an interest in a mineral processing license.Therefore, an interest in a mining right and an interest in a mineral processing right are now categorised as shares in terms of the PTT Act.Thus, following the Amendment Act, the transfer of an interest in a mining right or a mineral processing licence is now subject to PTT in the same manner as that of the transfer of a share. Section 4(2)(e) of the PTT Act as amended by the Amendment Act sets the rate of PTT of shares at 5% of the realised value in respect of the said shares.Accordingly, the PTT payable on the transfer of an interest in a mining right or a mineral processing licence is now 5% of the realised value in respect of the said interests.The Amendment Act has also amended section 5(3) of the PTT Act which sets out the mode of computing realised value. The section previously provided for realised value in respect of intellectual property, a mining right or an interest in a mining right to be the actual price of the said property, right or interest or as may be determined by the Commissioner-General.

   The section has been amended to delete the reference to an interest in a mining right, with the result being that the realised value of an interest in a mining right or an interest in a mineral processing license cannot be determined by reference to section 5(3) of the PTT Act.

   Despite these amendments, the PTT Act has not provided the mode of determination of the realised value of an interest in a mining right of an interest in a mineral processing license. Although section 2A of the PTT Act as amended by the Amendment Act provides for computation in respect of a share, the section specifically refers to a share in a company and not a share as defined in the PTT Act. It is, therefore, unclear how this will be computed going forward.

2. Realised Value of a Foreclosed Property
   The PTT Act has also been amended by the insertion of section 5(5A) which provides for the determination of the realized value of a foreclosed property transferred by a financial services provider. The PTT Act provides that where a financial services provider transfers a foreclosed property, the realized value of the property shall be the actual price received by the financial service provider if any. The PTT Act adopts the definition of a financial service provider as set out in the Banking and Financial Services Act of 2017.
3. Exemption from PTT
   Section 6(1) of the PTT Act provides a list of persons, entities and transactions that are exempt from PTT. The Amendment Act has amended the PTT Act to insert a new transaction that exempts PTT that is the surrender or forfeiture of shares for no consideration. However, the section provides that a subsequent transfer of the shares to a different person is liable to PTT.
   
   
4. Computation of PTT on Indirect Transfer of Shares
   Prior to the Amendment Act, the realized value, being the value upon which PTT is chargeable, in respect of an indirect transfer of shares in a company incorporated outside Zambia, where such a company directly or indirectly owns at least 10% of the shares of a company incorporated in Zambia was computed based on the effective shareholding or the extent of control or ownership in the company incorporated in Zambia by the Company incorporated outside Zambia.Following the Amendment Act, the computation of the realized value in respect of an indirect transfer of shares in a company incorporated outside Zambia, where such a company directly or indirectly owns at least 10% of the shares of a company incorporated in Zambia is as follows:a) proportion that the value of the company incorporated in the Republic bears to the value of the company whose shares are being transferred multiplied by the value of the transferred shares;b) proportion that the value of the company incorporated in the Republic bears to the value of the company whose shares are being transferred multiplied by the consideration for the transferred shares; andc) proportion that the value of the company incorporated in the Republic bears to the value of the company whose shares are being transferred multiplied by the nominal value of the transferred shares;whichever one is greater.
5. Rates of Taxes
   The Amendment Act has amended section 4(2) of the PTT Act to include and vary the following applicable rates of taxes:a) 10% of the realized value in respect of a mining right for a mining license;b) 5% tax in respect of the realized value in respect of a mining right for an exploration license; andc) 5% in respect of an interest in a mining right or an interest in a mineral processing license, which is now classified as a share.

This legal alert has set out the amendments to the PTT Act brought about by the Amendment Act.

Should you have any questions on this legal alert or need any advice relating to the amendments to the Property Transfer Tax Act, please do not hesitate to reach out to Chanda Musonda.

_____________

Contributors

1. Samuel Muleya – Legal Assistant