Broadening of the tax base Property transfer tax on a mineral processing license – Property taxes

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On October 29, 2021, the Honorable Zambian Minister of Finance and National Planning, Dr. Situmbeko Musokotwane, MP, presented Zambia’s National Budget for the financial year 2022 to the National Assembly. In doing so, the Minister proposed to broaden the tax base by introducing real estate transfer duties (PTT) on the transfer of “mineral processing permits” (i.e. a permit which allows its holder to process minerals and to cut, polish and make jewellery) or “an interest in a license to process minerals”.

Accordingly, on 1 January 2022, the reforms proposed by the Minister to the PTT regime were enacted with the enactment of the Property Transfer Tax (Amendment) Act No. 46 of 2021 (the PTT Amendment Act ) which amended the Property Transfer Tax Act, Cap 340 of the Laws of Zambia (the PTT Act). This legal alert thus relates to the introduction of the PTT on the transfer of a “mining exploitation permit” or “of an interest in a mining exploitation permit”.

The situation before the promulgation of the amending law on the PTT

Prior to the enactment of the PTT Amendment Act, PTT was payable at varying rates (i.e. 5% or 10%) on the transfer of “ownership” which the PTT Act defined as including, among others, (i) shares issued by companies incorporated in Zambia or shares issued by companies incorporated outside Zambia which directly or indirectly hold at least 10% of the shares of a company incorporated in Zambia; and (ii) land held under legal tenure in Zambia.

Further, with particular emphasis on the mining industry, the definition of “property” has been defined to include a “mining right (i.e. mining license or exploration permit) issued under the Mines and Minerals Development Act No. 11 of 2015 (the Mining Act)” or “an interest in a mining right”, the assignment of which gave rise to the payment of PTT at the rate of 10% of the value of the mining permit/research permit.

PTT on the transfer of a mineral processing license or interest therein

With the enactment of the PTT Amendment Act, effective 1 January 2022, PTT is now payable on the transfer of a “mineral processing license issued under the mining law” or “a interest in a mineral processing permit”.

Accordingly, if a person wishes to transfer a mineral processing license or an interest in a mineral processing license, a PTT of 10% of the “realized value” of such license/interest therein will have to be paid to the ‘Zambia Revenue Authority (the ZRA) before completing the transfer.

Practical considerations of the PTT amending law

The PTT payable on the transfer of a mineral processing license or interest therein is shown as 10% of the “realized value” of the mineral processing licence/interest therein. -this. However, the PTT Amendment Act does not enact a new article providing guidance on what will be considered the “realized value” of a mineral processing license for the purposes of the PTT Act, and the nor does the PTT provide guidance on how an interest in a mineral processing license may be calculated.

The PTT Act, however, states that the “realized value” of a “mineral right” or interest therein “shall be determined at the discretion of the Commissioner General of the ZRA. However, despite this, a” mineral processing licence” is not a “mining right” and as such, following the enactment of the PTT Amendment Act, clarity should be provided by the ZRA (through the publication of a practice note detailed on the same) or by the Minister (by subsequent amendment to the PTT Act), on how the value of a mineral processing license or interest therein will be calculated for the purposes of PTT In the absence of clarification, it will be of interest to note how the ZRA calculates the value of the mineral processing license/interest for PTT purposes, whenever a mineral processing license/interest of minerals is transferred.

Conclusion

The enactment of the PTT Amendment Act extended the payment of PTT to the transfer of a mineral processing license or interest therein. Thus, despite the lack of clarity on how PTT should be calculated when transferring an interest in or interest in a Mineral Processing License, parties should be aware of this amendment to the PTT Act to ensure they structure their transactions accordingly.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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