A newly introduced bill to amend the law governing tax on purchases and transfer of property and land is expected to enhance opportunities for female spouses and divorcees to benefit equally upon eventual assets dissolution.
First time citizen home buyers will be exempted from the transfer duty – the bill proposes. This is expected to make it easier for them to start a new chapter in life without exposing them to unnecessary debt.
The move has been hailed as a welcome development as it accords first time citizen home owners the opportunity to own property without suffering transfer duty. It effectively makes the cost of owning a home much lower and if one is obtaining financing from a bank, they only have to worry about the actual cost of the home.
Jonathan Hore, A Tax Specialist, however observed, “The challenge with the bill is that it accords the exemption from duty to first time citizen home owners and not first time citizen home owners who are individuals. The bill also includes wholly citizen owned companies”.
This noble initiative, according to Hore, is thus open to abuse as one person may form different companies and own incalculable number of pieces of land through those companies.
As such if only it clearly stipulated that the said first time home owners should be individuals, it would remove those who own property through companies, thereby cutting on chances of abuse of the contemplated exemption
This also means that BURS now has to beef up its intelligence in keeping track of who owned a property before and whether such property was a home or not.
Moreover, the responsibility of consideration or determination of values of properties as well as the collection of the tax is proposed to be transferred from the Registrar of Deeds to the Commissioner of Botswana Unified Revenue Services (BURS).
Kenneth Matambo, the Minister of Finance and Economic Development (MFED), pointed this out on Tuesday when presenting the Transfer Duty (Amendment) 2018 Bill, in Parliament for its second reading.
“This Bill seeks to address existing loopholes in the Act and to make improvements necessary due to growth in the economy, and to provide relief for deserving cases,” explained Matambo.
Elaborating on deserving cases, he indicated that first time home buyers will be exempted from any transfer duty. There will also be an increase of the threshold before payment of transfer duty by citizens of Botswana from P200 000 to P500 000.
The requirement for spouses to be married in community of property for transfers of immovable property between them to be exempt from transfer duty is proposed to be removed.
As such people previously married in community of property will be exempted from any transfer duty, where property has to be transferred between them following their divorce.
The salient aspects of the Bill included Clause 3 which seeks to amend section 2 of the Act. It extends the rate of duty of 30% to be payable by persons that are not citizens of Botswana. This will relate to transactions involving the transfer of land other than agricultural land.
Currently, non citizens are only charged the same percentage but for transactions involving agricultural land.
Business or the Private sector as is commonly referred to have since November 2018 when the bill was published queried that the increase in the duty to 30% could scare foreign investors, as the duty makes it very costly for them to own land for business.
An example is cited of those who intended or would want to operate custom designed factories or manufacturing plants will be the most affected.
Hore added, “Further, the cost of the investments will significantly increase and this may dampen investment by international investors. If the 30% was applied to residential properties only, it would not affect Foreign Direct Investment (FDI) that much.”
It is intended to achieve through amending the definition of the phrase “citizen of Botswana” to include a company incorporated in Botswana of which the whole of its shareholding is owned by citizens of Botswana.
Another of the concerns raised by Business according to Hore, is that this may affect joint ventures, which are very instrumental in the transfer of skills from non-citizen investors to citizens.
Moreover it will consequently be necessary to make it clear whether companies listed on the stock exchange will now pay transfer duty at 30% as the sale of their shares to one citizen makes them non-citizen.
There are fears that trading on the Botswana Stock Exchange may become a bit complicated.
Clause 4 of the Bill realigns section 3 of the Act by extending payment of transfer duty in transactions whereby transfer of shares in company’s results in beneficial ownership of any immovable property being transferred. As at now the Act makes provision for payment of transfer duty only to transactions where transfer of shares in companies results in beneficial ownership of agricultural land being passed from one person to another.
The Tax erudite Specialist and Consultant also alluded to concerns by Business about the possibility of complications in the trading of shares listed on the BSE. The effect of the proposed move they, is that every sale of shares on the BSE in a property which holds property will be subject to transfer duty. But this will be problematic come implementation, except if BSE shares are exempted.
Matambo’s envisaged provision is also scheduled to make transfer duty to be payable within 60 days of the assessment of the duty due.
The current state of things is that transfer duty is payable at the time of entering into an agreement for the purchase of the property.
The virtual chief treasurer of the State contended that this arrangement tended to be problematic where actual transfer of property may be deferred for reasons beyond the control of the person acquiring the property. One case example cited was where the Tenant Purchase Scheme would have been used to acquire property.
The newly amended law provides for payment of duty and further that there shall be penalties for failure to pay the duty within the stipulated time frame. It aims as well to empower the Commissioner General of BURS to wave the penalties where BURS would be responsible for any apparent delay or default.
In the same vein, it is emphasized that the Registrar of Deeds would not agree to the registration of any transfer in respect of any immovable property liable for duty, where there is no proof of payment. Alternatively where there is no declaration of sale between the seller and the purchaser.
A further mention is made of the need for submission of valuation certificates or any records relating to the sale and exchange of transfer by a beneficiary or their representative to the Commissioner General of BURS.
Where the Commissioner General for any reason doubts the authenticity of the declared value, he is granted the latitude by the new law to apply what is described in the Bill as a fair market value. That is especially in instances where it appears the declared value is less than the just and fair value or is not acceptable to BURS.
In fact, where necessary he is also vested with the power to re-value any immovable property where valuation was not truthfully declared, erroneous in assessment whether flowing from error in law or fact.
The Bill was supposed to have been presented last year November but could not because comments and observations by the private sector had to be incorporated into the earlier draft Bill.