Big Changes in Botswana Transfer Duty.
On the 28th August 2019, the Transfer Duty Act was amended. Commencement Date will be announced by the Minister.
As a way of background, transfer duty is a tax payable by a buyer of an immovable property. The tax is in terms of the Transfer Duty Act. All along it was at the rate of 5% of the property value or the transaction price. This rate was applicable to all the transactions regardless of the citizenship of the participants.
The big change is that if the buyer is not a citizen of Botswana or a 100% citizen owned company the transfer duty jumps from the usual 5% to 30% of the value of property. A joint venture buyer will thus pay 30% transfer duty. Well, for a non-company (a Trust for example) rate will continue to be 5%.
What is value? The deal price is compared with the professional valuation and duty is payable on higher of the two values.
What is property? Almost any immovable property is covered from tribal leases to state fixed period grants through any land grant for a period of 10 years extendible at the option of the lessee including shares in property holding companies.
Another historic move is landing the assessment, valuation, objection and appeal procedures squarely in the hands of Botswana Unified Revenue Service and in this respect provisions of Botswana Income Tax Act have been borrowed into Transfer Duty Act.
Good news is that transfer duty threshold has been increased from P 500,000 to P 1 million. If you are first time Motswana buyer, you don’t have to pay any transfer duty for that transaction.
From an accounting standpoint, transfer duty paid on purchase of property is part of the cost of property in buyer’s books. Thus, depreciation (or capital allowance in tax books) is charged on the purchase price plus transfer duty.
What can be the economic impact? The intension is that citizens will pay less duty and non-citizens will pay more duty. The duty increases 600% from 5% to 30% for non-citizen property buyers. The total price payable increases by about 24% for a non-citizens. Fair market value is a function of market forces of demand and supply. Some are concerned that if the demand from citizens does not increase and further if demand from non-citizen investors falls because of higher overall price, then fair market values, may come down resulting in property market becoming buyer friendly. This is however only a guess. We will have to watch and see.