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Godknows Hofisi

Introduction

Due to the importance of mining in Zimbabwe in this article I look at the special capital gains tax (special CGT) on the transfer of mining title that was introduced through the Finance Act No. 13 of 2023 which amended the Capital Gains Tax Act (Chapter 23:01) effective  January 1, 2024.

Capital Gains Tax

In Zimbabwe capital gains tax (CGT) is regulated by the Capital Gains Tax Act (Chapter 23:01), hereinafter the Capital Gains Tax Act, CGT Act or the Act.

According to section 6 of the CGT Act”

“There shall be charged, levied and collected throughout Zimbabwe for the benefit of the Consolidated Revenue Fund a capital gains tax, as defined in the Part (III), received by or accrued to  or in favour of any person during any year of assessment….”

Section 8(1) of the CGT Act defines a capital gain which in summary equals Gross Capital amount less exemptions less allowable deductions such as the cost of acquiring the specified asset. It is taxable on specified assets being immovable property and securities.

New special capital gains tax

The Finance Act No. 13 of 2023, through its section 26, amended and introduced a new section, 30B (Special capital gains tax on entities acquiring mining title or any interest therein) to the Capital Gains Tax Act.

According to section 30B(3) of the amended CGT Act:

“There is hereby chargeable a special capital gains tax on the transfer of a mining title, being a tax on the value of any transaction concluded within or outside Zimbabwe whereby any mining title-

(a)    Has, within the period of ten years before January 1, 2024 been transferred to an entity which still held it on January 1, 2024,

(b)    Is, at any time on or after January 1, 2024 transferred to an entity.

The key points to note from the above provision are that:

The special CGT is charged on the transfer of a mining title.

It is based on the value of the transaction.

The transaction may have been concluded inside or outside Zimbabwe.

The tax is applied retrospectively or backdated to 10 years before January 1, 2024, in other words applies from 1st January 2014.

Mining title

In terms of section 30B(1)(a) and (b), mining title:

Means a claim, block of claims, mining lease or special grant and (depending on the context) includes any document evidencing a mining right that is precedent to obtaining any of the foregoing titles, such as an exclusive prospecting licence or exclusive exploration licence.

Includes a share, stake or interest in any mining title referred above.

Retrospective or backdated application

According to section 30B(3)(a) the special CGT applies even to transactions that took place ten (10) years before January 1, 2024. In other words its effective January 1, 2014.

Currency of payment of special CGT

According to section 30B(5)(a):

“The special capital gains tax on the transfer of mining title shall be payable:

1. a) In United States dollars (or the equivalent in any other foreign currency at the international cross rate of exchange prevailing on the time of the transfer) at the rate of twenty per centum of the value of the transaction concerned by the transferee entity (or, in default of the transferee entity, by the owner of the mining title immediately before the mining title was transferred”.

Rate of special CGT

According to my interpretation of section 30B(5) the special CGT rates shall be as follows:

20 percent on the value of the transaction.

Five percent if there is express provision in the mining law for the approval of the Minister responsible for administering the mining law (or by any other person or authority specified in that law) of the transfer of the mining title,

No special CGT if the mining title transferred has ceased to exist due to cancellation, forfeiture, surrender or extinction.

Calculation of special capital gains tax

According to section 30B(3) and (5) the special CGT is based on the value of the transaction at the rates explained above. It is not based on a capital gain.

Purchaser is liable for special CGT

Unlike in other situations where the seller who has a capital gain, my interpretation is that for the special CGT it is the purchaser who pays the tax. It is more like a Value Added Tax (VAT) situation. According to section 30B(5)(a):

“It is the transferee entity (or, in default of the transferee entity, by the owner of the mining title immediately before the mining title was transferred”.

The term “transferee entity” is not defined. However, entity is defined under section 30B(1) to include entities domiciled inside or outside Zimbabwe. Most importantly it includes what is considered to be a nominee of a beneficial owner.

Implications of beneficial owner and nominee relationship

In the case of transactions concluded outside Zimbabwe by foreign domiciled entities, including group or holding companies, the application of beneficial owner — nominee relationship is likely to be tested or contested.

Disclaimer

This simplified article is for general information purposes only and does not constitute the writer’s professional advice.

 

Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, registered tax accountant and advises on deal and transactions.

 

He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit.  He writes in his personal capacity. He can be contacted on +263 772 246 900 or [email protected] or [email protected]