The proposed transfer duty act amendments: what is the impact on the taxpayer, what other options are available?
Business
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
Business
Grit divests from Letlole La Rona
Grit Services Limited, a member of the pan African real estate group, London Stock Exchange listed Grit Real Estate Income Group is divesting from Letlole La Rona Limited (LLR), a local real estate company established by government investment arm Botswana Development Corporation over a decade ago.
The Board of Directors of Letlole La Rona Limited this week announced in a statement to Unitholders that Grit Services Limited (‘Grit’) has informed them of its intention to exit its investment in the company.
Grit has been a material shareholder in LLR since 2019. On 07 March 2023, Grit sold 6 421 000 linked units, representing 2.29% of the Company’s total securities in issue, at a market value of BWP 22 537 710.
This trade follows previous sales of 6.79% in December 2022, as communicated to Unitholders on 10 January 2023, as well as a further sale of 4.78% (representing 13 347 068 linked units) on 24 February 2023 to various shareholders.
In aggregate, Grit has sold 13.9% shareholding in the Letlole La Rona between December 2022 and March 2023, resulting in current shareholding of 11.25% in the Company.
Letlole La Rona said in the statement that the exit process will take place in an orderly manner so as to maintain stability of the Company’s share price.
The statement explained that Grit’s sale of its entire shareholding in LLR is in line with its decision to exit investments where it does not have majority control, or where it has significant exposure to currencies other than US dollar, Euro or hard-currency-pegged revenue streams.
“Grit has announced similar decisions pertaining to certain of its hospitality assets in Mauritius recently. The Company would like to advise Unitholders that it remains focused on long-term value delivery to all stakeholders” LLR said
In July last year as part of their Go-to-Africa strategy Letlole La Rona acquired an initial 30% equity stake in Orbit Africa Logistics, with an option to increase this investment to 50%. OAL is a special purpose vehicle incorporated in Mauritius, owning an industrial asset in a prime industrial node in Nairobi, Kenya.
The co-investment was done alongside a wholly owned subsidiary of London listed Grit. The Orbit facility is situated on a prime industrial site on Mombasa Road, the principal route south of Nairobi center, serving the main industrial node, the port of Mombasa and the industrial town of Athi River and is strategically located 11 kilometers south of the international airport and 9.6 kilometers from the Inland Container Depot.
Grit shareholding in Letlole La Rona was seen as strategic for LLR, for the company to leverage on Grit’s already existing continental presence and expand its wings beyond Botswana borders as already delivered by Kenya transaction.
Media reports have however suggested that LLR and Grit have since late last year had fundamental disagreements on how to go about the Go-to-Africa strategy amongst other things, fuelled by alleged Botswana government interference on the affairs of LLR.
Government through LLR founding shareholder – Botswana Development Corporation has a controlling stake of around 40 percent in the company. Government is the sole shareholder of Botswana Development Corporation.
Letlole La Rona recently released their financial results for the six months ended December 2022, revenue increased by 4% to P50.2 million from P48.4 million in the prior comparative six months, whilst operating profit was up 8% to P36.5 million. Profit before tax of P49.7 million was reported, an increase of 8% on the prior comparative six months.
“We are encouraged by the strong results, notwithstanding a challenging economic environment. Our performance was mainly underpinned by annual lease escalations, our quality tenant base and below average market vacancy levels, especially in our warehouse portfolio,” Kamogelo Mowaneng, Letlole La Rona Chief Executive Officer commented.
LLR reported a weighted average lease expiry period of 3.3 years and escalation rates averaging 6.8% per annum for the period ended 31 December 2022.Its investment portfolio value increased by 14% year-on-year to close the period at P1.4 billion, mainly driven by the acquisition of a 30% stake in OAL in July 2022.
The Company also recorded a significant increase in other income, predominantly due to foreign exchange gains on the OAL shareholder loan. “We continue to explore pipeline opportunities locally, and regionally in line with our Go-to-Africa strategy and our interest remains on value-accretive investments,” Mowaneng said.
An interim distribution of 9.11 thebe per linked unit was declared on the 6th of February 2023 for the half-year period to 31 December 2022, comprising of a dividend of 0.05 thebe and debenture interest of 9.06 thebe per linked unit which will be paid to linked unit holders registered in the books of the Company at the close of business on 24 February 2023.
Business
Stargems Group establishes Training Center in BW
Internationally-acclaimed diamond manufacturing company StarGems Group has established the Stargems Diamond Training Center which will be providing specialized training in diamond manufacturing and evaluation.
The Stargems Diamond Training Institute is located at the Stargems Group Botswana Unit in Gaborone.
“In accordance with the National Human Resource Development Strategy (NHRDS) which holds the principle that through education and skills development as well as the strategic alignment between national ambitions and individual capabilities, Botswana will become a prosperous, productive and innovative nation due to the quality and efficacy of its citizenry. The Training Centre will provide a range of modules in theory and in practice; from rough diamond evaluation to diamond grading and polishing for Batswana, at no cost for eight weeks. The internationally- recognized certificate offered in partnership with Harry Oppenheimer Diamond Training School presents invaluable opportunities for Batswana to access in the diamond industry locally and internationally. The initiative is an extension of our Corporate Social Investment to the community in which we operate,” said Vishal Shah, Stargems Group Managing Director, during the launch of the Stargems Diamond Training Center.
In order to participate in this rare opportunity, interested candidates are invited to submit a police clearance certificate and a BGCSE certificate only to the Stargems offices. Students who excel in these programs will have the chance to be onboarded by the Stargems Group. This serves as motivation for them to go through this training with a high level of seriousness.
“Community empowerment is one of our CSR principles. We believe that businesses can only thrive when their communities are well taken of. We are hoping that our presence will be impactful to various communities and economies. In the six countries that we are operating in, we have contributed through dedicating 10% of our revenues during COVID-19 to facilitate education, donating to hospitals and also to NGOs committed to supporting women and children living with HIV. One key issue that we are targeting in Botswana is the rate of unemployment amongst the youth. We are looking forward to working closely with the government and other relevant authorities to curb unemployment,” said Shah.
Currently, Stargems Group has employed 117 Batswana and they are looking forward to growing the numbers to 500 as the company grows. Majority of the employees will be graduates from the Stargems Diamond Training Center. This initiation has been received with open arms by the general public and stakeholders. During the launch, the Minister of Minerals and Energy, Honorable Lefoko Moagi, stated that the ministry fully endorses Stargems Diamond Training and will work closely with the Group to support and grow the initiative.
“As a ministry, we see this as an game changer that is aligned with one of the United Nations’ Six Priority Sustainable Development Goals, which is to Advance Opportunity and Impact for Diversity, Equity, and Inclusion (DEI). What Stargems Group is launching today will have a huge impact on the creation of employment in Botswana. An economy’s productivity rises as the number of educated workers increases as its skilled workmanship increases. It is not a secret that low skills perpetuate poverty and widen the inequality gap, therefore the development of skills has the potential to contribute significantly to structural transformation and economic growth by enhancing employability and helping the country become more competitive. We are grateful to see the emergence of industry players such as Stargems Group who have strived to create such opportunities that mitigate the negative effects of COVID-19 on the economy,” said the Minister of Minerals and Energy.
Business
Food import bill slightly declines
The latest figures released by Statistics Botswana this week shows that food import bill for Botswana slightly declined from around P1.1 billion in November 2022 to around P981 million in December during the same year.
This content is locked
Login To Unlock The Content!