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INCOME TAX AMENDMENT 2018: Property Companies feel the heat

Publishing Date : 20 May, 2019

Author : ALFRED MASOKOLA

The 2018 amendment of the income tax regime which took effect from December  last year has caused a stir in the property industry with some companies crying foul and proposing a re-look into the new dispensation.


PrimeTime Properties, one of the leading property companies in Botswana, also operating in Zambia reported this week that the Income Tax amendment 2018 was hurting its investor take home as a company listed on Botswana Stock Exchange. The company further went on to highlight that the current income tax at play paints a blur picture on their business future outlooks. “We cannot talk about the Group’s future prospects without highlighting the effect on our investors of the recently introduced Income Tax Amendment Act 2018.  


As advised in the recent interest payment announcement made in February 2019, this Act limits the deduction of net interest expense in calculating taxable income and will result in the Company suffering income tax on its profits prior to their distribution as debenture interest,” writes PrimeTime executives in its interim financial results released on Wednesday. The company shared that the Act which was passed in December 2018 retrospectively affects the Group current financial period commencing 1 September 2018 as no transitional provisions for its implementation have been imparted.  


New African Properties another BSE listed group owning assets such as Riverwalk mall shared the same sentiment when reporting for their half year financial performance ended January 2019. The company highlighted that following Income Tax Amendment Act promulgated in late December 2018, it has emerged that the extent to which variable rate Loan Stock (VRLS) companies are able to treat debenture interest declared to unit holders as a deduction in determining taxable income will be limited


New African Property further revealed that it has initiated engagement with regulators to investigate avenues for reinstating the VRLS exemption, which retain the principle of VRLS companies being a conduit for net rentals earned in line with globally accepted norms. “We are seeking to reverse or delay the impact of this amendment on the current financial year, especially when considering that it was promulgated five month into the financial period” said NAP in its report released last month.


The BSE listed retail group says they have successfully assessed and qualified the maximum possible impact for the first half to be a loss of P10.2 million from its distributable dividend  in the event that no favorable solution is reached but, given the ongoing engagements referred to above, no provision has been made in these results for this tax charge. “ Should we be unsuccessful in obtaining any revision to the amendment as currently enacted, the tax charge will be recognized in the year results” said NAP.


NAP says its anticipation is that it will be able to fund payment of the initial tax liability for the current financial year from available cash without impacting the current year’s total distributions. However, such an approach will not be sustained in future periods and the amendment will thus impact on the quantum of the future distributions if it remains in force as promulgated.


This week Prime Time Properties shared that its board of directors was currently assessing what options are available to the Group in order to protect the unitholders interests in this regard, as well as working actively with the listed property sector to find a workable long-term solution.


For Prime time which was reporting for their half year period ended February 2019 estimates of the taxation payable have been made in these interim financials and the provisional tax payable of P4.5m for the period has been provided for. The company communicated that the interest distribution already paid for the 4 months to 31 December 2018 was adjusted for the tax cost.


The 2018 Income Tax amendment Bill was passed parliament late last year after an urgent proposition to legislators by Minister of Finance & Economic Development Kenneth Matambo with a view to clean Botswana and remove the tax haven tag that was painted about the country worldwide.


When presenting the bill then, Minister Matambo told lawmakers that it was critical that the amended Bill be passed to enable Botswana to meet the requirements with the Forum on Harmful Tax Practices, an initiative of Organization for Economic Cooperation and Development (OECD). “Such amendment is mainly to remove the features that have been identified as potentially harmful by the Forum on Harmful Tax Practices. Based on the commitment to amend the Act, Botswana is scheduled for a final review by the Forum on Harmful Tax Practices in January 2019” he said


He convinced Members of Parliament that the passage of the Bill was a move imperative to put Botswana on the right path, so as to be able to pass the January 2019 review by this Forum on Harmful Tax Practices. Matambo emphasized to parliament that it was important for Botswana to amend the act in order to remove what he termed “the ring-fencing in order to comply with the requirements of the Forum on Harmful Tax Practices” and also to revitalize the sector. The amendment‘s effect was that that the process of offshore trade would still be taxed at 15 per cent, while those of domestic trade will be taxed at the normal rate of 22 per cent.


Ever since the amendment  was announced observers have been sharing different views about the act , Tumelo Rannau a local tax expert and commentator observed in his series of opinion publication on this newspaper that though some developments such as restricting trading to related parties is a welcome development  about move as it is aligned to international practice, the new amendment may result in the country being less competitive compared to countries that we have been competing with such as Seychelles and Mauritius.




“This may lead to loss in revenue in terms of directors’ fees, company secretary fees, legal fees, audit fees, and general business expenses to those that provided support services.  Income that would otherwise be earned through spending on transport and accommodation by foreign investors visiting the country is also likely to be lost. Though it is always good to get accolades from organizations such as OECD, it is important to consider the country’s needs and strive towards ensuring that unemployment is reduced” he said.

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