On 28 August 2019 the parliament of Botswana enacted the Transfer Duty Amendment Act (“the Amendment Act”). The much anticipated Amendment Act has been met with mixed reactions, on one hand it has been hailed as a giant leap in the right direction for citizen property buyers and on the other hand, it has been labelled as a potential hazard for the business sector in Botswana.
The Amendment Act places the responsibility of collecting transfer duty on the Commissioner General (“the Commissioner”) of Botswana Unified Revenue Services (“BURS”) in what appears to be an effort to optimise the country’s tax revenue collection (Rannau: 2018). The Registrar of Deeds is no longer responsible for collecting transfer duty. In this respect, the hope is that BURS will have the infrastructure, frameworks and human capital to facilitate this process effectively.
The Amendment Act defines a citizen owned company as a company with 100% citizen shareholding, as opposed to 51% citizen shareholding that previously constituted 100% citizen owned citizen-owned companies. The Amendment Act increases the transfer duty rates payable on transactions by citizens and entities that are not deemed to be natural persons or companies to 5% and 30% for non-citizens (this is inclusive of both individuals and companies). Under the Amendment Act, transfer duty is chargeable on the sale, exchange or transfer of shares, which the Amendment Act deems to be immovable property for the purpose of payment of transfer duty. The intersection of these three provisions presents a systematic risk to companies previously considered as citizen-owned by virtue of having a 51% shareholding by citizens. These companies, some of which are currently listed on the Botswana Stock Exchange(“BSE”) will be liable to a transfer duty charged at a rate of 30% on every sale, exchange or transfer of shares. This may negatively impact foreign direct investment in our stock exchange due to high rate of transfer duty associated with share transfers.
The Amendment Act provides a number of circumstances under which buyers may be exempt from transfer duty on transactions, these exemptions are as follows:
- a surviving spouse is exempt from payment of transfer duty upon taking over immovable property from the deceased spouse’s estate;
- transfers of immovable property between spouses as a consequence of a divorce settlement agreement are exempt from transfer duty;
- transfers of immovable property between a 100% citizen owned company and the owner of the company are exempt from transfer duty; and
- first time buyers who acquire property or an undeveloped plot to be used as their homes are exempt from transfer duty chargeable on the transaction.
It is important to note that the Amendment Act requires persons who are eligible for exemptions to apply for such exemptions to the Commissioner, who after approval will issue an exemption certificate to the relevant parties.
Transfer duty is now chargeable on tribal land, the rate will be calculated on the basis of the aggregate rental payable for the property or alternatively the value of the leased property, whichever is the greater of the two.
The Amendment Act takes a hard-line with parties that default on payment of transfer duty within the prescribed 60 day period from the date of assessment of duty. Under the Amendment Act, unpaid transfer duty will attract interest at a rate of 1.5% compounded daily until the date of full and final settlement. In addition to that, the Amendment Act empowers the Commissioner to institute proceedings in the High Court for recovery of overdue transfer duty.
The Amendment Act is yet to come into force, however, we are cautiously optimistic about the developments it is set to introduce.