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The proposed transfer duty act amendments: what is the impact on the taxpayer, what other options are available?

Among the promises that Honourable Mathambo has made in the past was to amend the Transfer Duty Act to exempt first-time home owners from Transfer Duty. On the 2nd of November 2018 a bill that proposes to amend the Transfer Duty Act was published in the Government Gazette.

ADMINISTRATIVE ISSUES

Among the proposed amendments includes the Transfer Duty collection being moved from the office of the Registrar of Deeds (Registrar) to the Botswana Unified Revenue Service (BURS). This amendment attempts to optimise tax revenue collection and ensure that the duty is collected by the Revenue Authority. This is a step in the right direction as there has been complaints in the past in relation to levies that are administered by different departments or ministries. BURS should ensure that they have capacity to administer this and that there are measures in place to ensure smooth transition and clients are adequately assisted.

Another administrative issue is the issuance of an exemption certificate to buyers of land where they are involved in a transaction that is exempted from Transfer Duty in terms of the Transfer Duty Act for instance instead of attaching a receipt (indicating proof of payment of the duty to the Commissioner General) to the application for transfer of the immoveable property the exemption certificate shall be attached as indication that the buyer is not subject to payment of the duty. Buyers of immoveable property have encountered difficulties in the past relating to duty exemption on properties that have been subject to Value Added Tax (VAT), especially zero rated transactions, and this provision will now ease transfer of such property.

In efforts to combat the under declaration of property values, a valuation certificate issued by a property valuer registered in accordance with Real Estate Professionals Act is to be submitted to BURS to determine Transfer Duty payable. This is to ensure that buyers do not evade tax by providing the Commissioner General with low values and paying no or less transfer duty.

The Commissioner General will also be empowered to either accept the declaration made by the purchaser or to determine the market value of such property through independent valuers or such information that may be necessary to determine a market value.  The Commissioner General’s declared value may be subject to objection by the taxpayer and the two may settle for an agreed price within the confines of the Transfer Duty Act.

EXEMPTIONS

The exemption list has also been amended to include among others first-time home owners. This exemption though administratively efficient compared to the VAT exemption is inconsequential as the buyers would have still been exempt from transfer duty as they would have paid VAT on purchase of that property. The amendment as it is will only benefit buyers who acquire their immoveable property from individuals/businesses not registered for VAT, which will be an insignificant number of people.

A better alternative to this will be to allow the interest expense from mortgage or secured loans used for building or acquiring homes as a deduction for all first-time home owners when computing their taxable income. This will effectively reduce their income tax payable.
Currently only those in the business of renting out property for accommodation are allowed this as an expense.

It might also be in the interest of BURS and the Deeds Registrar to have a clear definition of first-time home owner and maintain a proper registration system that will ensure that only first-time home owners benefit from this as intended by the Act. Notable inclusions that will be beneficial to buyers is the increase of exempted value from P200, 000 to P500, 000.

This means that for any purchase of property less than P500, 000 a buyer will not be subjected to transfer duty and will only pay duty on the excess of P500, 000 for properties with values of over P500, 000. Divorcees getting property from distribution of their estate where they were married in community of property will also not be subject to Transfer Duty. Exemption of duty for surviving spouses and dependants acquiring property from deceased spouses will now apply across all marriage regimes; currently exemption is only enjoyed by spouses who were married in community of property.

 TAX BASE

Currently sale of tribal land is not subject to Transfer Duty and many have been enjoying the exemption through sale of land in places like Tlokweng and Mmopane. If the bill passes through in parliament, tribal land will also be included among properties that are chargeable to Transfer Duty. This may be among efforts by the government to increase tax revenue base, among other amendments that will increase the tax base is the increase of rate from 5% to 30% for purchase of property by non-citizens. Currently only purchase of agricultural land by non-citizens was subject to 30% duty.

The transfer of shares where the company being sold has significant immoveable property and such transfer will result in change in beneficial ownership of such property; the transaction will be chargeable to Transfer Duty. The Act also seeks to change definition of citizen to include a company with a 100% citizen shareholding instead of just majority shareholding.

Though a welcome development, the provision may not achieve its intended purpose as non-citizens may still benefit from a lower rate of 5% as they may be the ultimate beneficial owners of the company without necessarily being the shareholders of the company. This may be done through the use of quasi equity instruments and contracts that in effect mimic share ownership while no shares are owned.

Therefore it is advisable for the Act to use the phrase beneficial ownership in fact rather than just in appearance (shareholding), this will not only help in achieving the intent of the legislation but will be consistent with provisions of the Income Tax Act where citizens (or residents) of Botswana can only benefit from certain tax concessions if they are the ultimate beneficial owners of the shareholding.

Another amendment of interest is that mere registration of a lease or grant of lease/concession from the Land Board will attract payment of transfer duty; this may be targeting high value lands in the Chobe and Okavango areas reserved for tourism. The provision is less likely to affect individuals granted land for residential purposes as most of their values are likely to be less than P500, 000 exemption amount for citizens.

INTEREST AND PENALTIES

The 12% simple interest will be replaced a by P20, 000 penalty plus additional interest of 1.5% compound interest on unpaid/uncollected duty, this are among efforts by BURS to encourage compliance among acquirers of property.
Tumelo Rannau is Practicing Tax Consultant, he writes on personal capacity
73874566 / HYPERLINK "mailto:rannauot@hotmail.com" h rannauot@hotmail.com

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The  Bulb World CEO selected for Africa’s prestigious award

22nd July 2021

The Bulb World Chief Executive Officer (CEO) and entrepreneur, Ketshephaone Jacob has been selected as a 2021 Top 50 Africa’s Business Hero.

Jacob was chosen from a pool of 12,000 applicants – many of whom are highly-skilled and accomplished entrepreneurs.

Africa’s Business Hero, sponsored by technology entrepreneur, Jack Ma, aims to identify, support and inspire the next generation of African entrepreneurs who are making a difference in their local communities, working to solve the most pressing problems, and building a more sustainable and inclusive economy for the future.

The initiative is as inclusive as possible and applications were open in English and French to entrepreneurs from all African countries, all sectors, and all ages who operate businesses formally registered and headquartered in an African country, and that have a 3 year-track record.

Every year, finalists are selected to compete in the ABH finale pitch competition and participate in a TV Show that will be broadcast online and across the continent.

The finalists will compete for a share of US $1.5 million in grant money.

The Bulb World, is home grown LED light manufacturing company, which was partly funded by Citizen Entrepreneurial Development Agency (CEDA) at the tune of P4 million, to manufacture LED lighting bulbs for both commercial and residential use in 2017.

The Bulb World operate from the Special Economic Zone of Selibe Phikwe. Early this year, The BulB World announced its expansion to South Africa, setting in motion its ambitious Africa expansion plan.

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Mining production down 12 % IN Q1 2021

14th July 2021

During the first quarter of 2021, production in Botswana’s economic nucleus- the mining sector contracted by 12 percent. This is according to Mining Production Index released by Statistics Botswana this week.

The country’s central data body revealed that Index of Mining production stood at 74.4 during the first quarter of 2021, showing a negative year on-year growth of 12.0 percent, from 84.6 registered during the first quarter of 2020.

The main contributor to the decline in mining production came from the Diamonds sector, which contributed negative 11.7 percentage points. Soda Ash was the only positive contributor in the mining production, contributing 0.1 of a percentage point. However Soda Ash’s contribution was insignificant to offset the negative contribution made by Diamonds.

The quarter-on-quarter analysis by Statistics Botswana experts shows an increase of 16.3 percent from the index of 64.0 during the fourth quarter of 2020 to 74.4 observed during the period under review.

Diamond production decreased by 12.1 percent during the first quarter of 2021 compared to the same quarter of the previous year. The decrease was as a result of planned strategy to align production with weaker trading conditions mostly linked to Covid-19 protocols restrictions.

Botswana’s diamond sector is underpinned by Debswana, the country’s flagship rough producer- a 50-50 joint venture between government and global mining giant De Beers Group. The other producer is Canadian based Lucara Diamond Corp through its wholly owned Karowe Mine which is a relatively small but significant production that has made a name for itself worldwide with rare diamond recoveries of unprecedented carat size.

On the other hand, quarter-on quarter analysis shows that production has improved, registering a positive growth of 17.5 percent during the first quarter of 2021 compared to the preceding quarter – 2020 Q4.

Though production was significantly lower in the first quarter, the two producers ended Q2 with rare diamond recoveries. Debswana early last month found the world’s third largest gem diamond – weighing 1098 carat at Jwaneng Mine, its flagship gem quality diamonds producer, also regarded the world’s richest diamond mine.

A week later Lucara  announced its second biggest recovery, the 1174 carat clivage near-gem dug from its Karowe Mine. The diamond is the world third in carat size after the plus-3000 carat Cullinan found in South Africa back in 1905 and the 1758 carat Sewelo unearthed at its Karowe mine in 2019. Debswana and Lucara are investing billions of pulas in underground mining projects to extend the life of its mines, Jwaneng & Karowe respectively.

In terms of Gold which is produced at Mupani mine near Botswana’s second city of Francistown output decreased by 17.9 percent during the first quarter of 2021 compared to the same quarter of the previous year.

Similarly, quarter-on-quarter analysis reflects that production decreased by 21.4 percent during the first quarter of 2021, compared to the preceding quarter. The decrease was as a result of the deteriorating lifespan of the mine as well as the impact of COVID-19 which slowed down the mining activities.

Soda Ash production increased by 11.1 percent during the first quarter of 2021 compared to the same quarter of the previous year. In terms of quarter-on-quarter Soda Ash production also showed an increase, picking up by 2.1 percent during the period under review. The increase in production is attributable to the effectiveness of the plant following refurbishment which occurred in the third quarter of 2020.

Salt production decreased by 34.0 percent during the first quarter of 2021, compared to the same quarter of the previous year. Similarly, the quarter-on-quarter analysis shows that salt production registered a decrease of 32.9 percent during the period under review. Both salt and Sodash are produced by partly government owned Botswana Ash (BotsAsh) operating from Sowa town near Makgadikgadi pans.

Coal production decreased by 11.2 percent during the first quarter of 2021, compared to the corresponding quarter of the previous year. The decrease was attributed to the reduced demand from Morupule B Power Station following the remedial works being undertaken, as one boiler was in operation during the period under review.

Although production fell, Statistics Botswana says there was no shortfall in supply of coal due to stockpiling. On the other hand, the quarter-on-quarter comparison shows that coal production increased by 20.4 percent compared to the preceding quarter.

Botswana’s flagship coal producer is Morupule Coal Mine; a wholly state owned mining company located in Palapye producing primarily for Botswana Power Corporation (BPC)’s power generation plants Morupule A & B.

The other coal producer is Botswana Stock Exchange listed Minergy which operates a 390 MT Coal Resource mine in Masama near Media in the southwestern edge of the Mmamabula Coalfields.

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Gov’t awards mining licence for Gantsi Copper Mine

14th July 2021
Moagi

Department of Mines in the Ministry of Mineral Resources, Green Technology & Energy Security has awarded mining licence to Tshukudu Metals-a subsidiary of Aussie firm Sandfire Resources ,giving the company a green light to start piecing the ground at its Motheo Copper Project near Gantsi.

Lefoko Moagi, minister in charge of mineral resources in Botswana confirmed to weekendpost on Tuesday. Minister Moagi revealed that “the licence has been approved , but Sandfire Resources as a listed company will report to its shareholders and investors then make an official public statement” he said.

Based on a forecast copper price of US$3.16/lb (reflecting current long-term consensus pricing) the Base Case 3.2Mtpa – Ghantsi copper project is forecast to generate US$664 million (over P7 billion) in pre-tax free cash-flow and US$987 million (over P10 billion) in EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation), at a forecast all-in sustaining cost of US$1.76/lb over its first 10 years of operations.

In December 2020, the Board of Sandfire Resources approved the commercial development of the Motheo Copper Mine located in the Kalahari Copper Belt in Botswana, marking a key step in its transformation into a global, diversified, and sustainable mining company.

Tshukudu Metals Botswana (Pty) Limited (Tshukudu) a 100% owned subsidiary will be the owner and operator of the Motheo Copper Mine which is scheduled to produce up to 30,000 tonnes per annum of copper in concentrate over a 12 year mine life.TMB is targeting development of its Motheo Copper Mine in 2021 and 2022, with its first production in 2023.

GOVERNMENT NOT TAKING UP 15 % STAKE ON OFFER

Beginning of this year presentations were made to the Department of Mines as part of the Mining Licence approval process and to the Ghanzi Regional Council, additional information was requested by Department of Mines in April and was duly supplied by the company.

As part of the Mining Licence approval process, the Government of Botswana has a right to acquire up to a 15% fully contributing interest in all mining projects locally. Quizzed on whether government through Mineral Development Corporation Botswana (MDCB) would be taking up stake in the project Minister Moagi said, “No consideration is being made on that regard”.

“Government is not considering taking up a stake in the Ghantsi Copper Mine project, every opportunity is assessed on all risks, but Government makes money all the while from leases, taxes and royalties, remember if you take stake you are liable for liabilities of the project as well,” Moagi said.

MINING CONTRACT

Last month Sandfire announced that it has awarded over P5 billion worth mining contract to African Mining Services (AMS), a subsidiary of Perenti, to deliver the open cast operation.

The contract, which has an estimated value of US$496 million (over 5 billion), is the largest single operational contract for the new Motheo Project covering a period of 7 years and 3 months, with provision for a one-year extension.

The contract according to Sandfire Resources was awarded following a competitive 3-stage tender process which saw a number of key factors taken into consideration when selecting the preferred contractor.

These included Citizen Economic Empowerment, safety culture, equipment suitability and availability, commercial terms and identified improvement opportunities. Under the terms of the contract, AMS has agreed to form a 70:30 Joint Venture with a suitable local Botswana partner or partners.

The JV is expected to be finalized ahead of commencement of mining in early 2022. African Mining Services has been operating in Africa for over 30 years. AMS’ parent company, ASX listed diversified mining services group Perenti, already has a presence in Botswana through Barminco, their underground mining division, at the large-scale Khoemacau Copper Mine located 200km north-east of Motheo.

Last month Sandfire executives said the award of the open pit mining contract represents another key milestone in advancing the Motheo Project towards production, with all components of the contract in line with the key parameters outlined in the December 2020 Definitive Feasibility Study (DFS).

The company said full-scale construction of the US$279 million (over P 3 billion ) mine development is expected to commence immediately upon receipt of the Mining Licence, with mining scheduled to commence in early 2022 ahead of first production in early 2023. This week Sandfire Resources advertised over 10 positions in calling on applications from geologists, mining engineers and geotechnical engineers.

The Motheo mine has an initial mine life of 12.5 years based on production from the T3 pit. The initial development is expected to generate approximately 1,000 jobs during the construction phase and 600 direct full-time jobs during operations, with at least 95% of the total mine workforce expected to be made of up of Botswana citizens.

Later in the week Sandfire Resources announced in the company website that it has received the licence. Sandfire’s Managing Director and CEO, Mr Karl Simich, said the award of the Mining Licence represented a major milestone that would see a significant increase in construction and development activities on site.

“We are absolutely delighted to now be in a position to move to full-scale construction at Motheo, with our construction crews expected to mobilise to site over the next few days. I would like to thank the Government of Botswana for their support throughout the approvals process, which will see Motheo come on-stream in 2023 as one of very few new copper mines commencing production globally.”

Simich said the project is expected to generate approximately 1,000 jobs during construction and 600 full-time jobs during operations, and represents the foundation for Sandfire’s long-term growth plans in Botswana.

“Our vision is that Motheo will form the centre of a new, long-life copper production hub in in the central portion of the world-class Kalahari Copper Belt, where we hold an extensive ground-holding spanning Botswana and Namibia,” he said.

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