Special Capital Gains Tax

On 1 January 2024, the Finance Act, 2023 (No.13 of 2023) (the “Finance Act”) came into operation implementing various measures including the introduction of a special capital gains tax (“special CGT”). The Finance Act amended the Capital Gains Tax Act [Chapter 23:01] (the “CGT Act”) and introduced section 30B (3) of the CGT Act reads as follows:

“(3) 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:

has, within the period of ten years before the 1st January, 2024, been transferred to an entity which still held it on the 1st January, 2024;

is at any time on or after the 1st January 2024, transferred to an entity:

The term “entity” is a defined term that appears to target foreign companies and individuals due to the exclusion of companies registered under the Companies and Other Business Entities Act [Chapter 24:31]

In accordance with subsection (4) the liability to pay the tax is not affected by any cancellation, forfeiture surrender or extinction of the mining title since the 1st January 2024 and is payable on the latest transaction by which the mining title was transferred to the last entity holding it before and still doing so on the 1st January 2024, as well as any subsequent transfers.

In terms of subsection (5) the tax is payable in United States Dollars or any other foreign currency at the rate of 20% of the total value of the transaction by the transferee (ie purchaser or recipient) or in default thereof by the transferor (ie former owner or seller), unless the transfer is subject to special approvals by the Minister, in which case the rate is decreased to 5% of the value of the transaction concerned and in certain specified circumstances may be exempt from the special CGT.

The tax was to be paid no later than 1st April 2024 for mining titles which were acquired prior to the 1st January 2024. Mining titles acquired on or after 1st January 2024 must pay it within 30 days of the conclusion of the transaction unless the Commissioner General extends that period.

In terms of section 30B (6) of the CGT Act, no transfer of a mining title shall be registered unless the special CGT has been paid and if a mining title has been registered without a certificate showing payment of the tax (including transactions within the 10-year period up to 1st January 2024), the transfer is deemed void and shall be cancelled upon request in writing of the Commissioner General to that effect. (Strangely this applies “whether or not the transaction is one referred to in subsection (3) (a) or (b)”.)

CAPITAL GAIN, WITH NO GAIN

CGT is an amount levied on the capital gain arising from the disposal of a specified asset in terms of the CGT Act. Section 8(1)(c) of the CGT Act defines capital gain as the amount remaining, after deducting from the capital amount, all the amounts allowed to be deducted under the CGT Act. Where a specified asset being disposed of/sold was acquired after the 1st February 2009, CGT is chargeable at the rate of 20% of the capital gain. For specified assets acquired before 1st February 2009, CGT is chargeable at 5% of the proceeds from the sale. CGT is payable by the seller or transferor as the individual or entity who has realized a gain.

In this case, the special CGT is misleading in its’ name as it is not levied on any gain but is levied on the value of the transaction. Additionally, unlike CGT, the special CGT is payable by the transferee/purchaser rather than the transferor/ seller.

The special CGT significantly burdens the purchaser as they are paying the tax not based on any capital gain or profit accrued from the transaction. Additionally, the special CGT is significantly more than any tax payable by the seller for example, where a mining title is sold for US$1 million having been purchased for US$500 000 after 1st February 2009, the CGT payable by the seller would be 20% of the gain being US$100 000. In the same transaction, the purchaser would be required to pay the special CGT of US$200 000. It is unclear whether, in terms of the CGT Act, both CGT by the seller and special CGT by the purchaser would be payable or if the special CGT has replaced the payment of CGT.

CONSTITUTIONALITY

In statutory interpretation, there is a presumption that statutes are not to be construed retrospectively unless otherwise stated, as can be seen from s 20(1) of the Interpretation Act [Chapter 1:01] which states:

“Every statutory instrument shall be published in or with or as a supplement to the Gazette and shall come into operation on the date of its publication unless some other date is fixed by or under the statutory instrument for the coming into operation thereof.”

This rule of construction also applies to all enactments, eg Acts and statutes. In the leading case of Curtis v Johannesburg Municipality 1906 TS 308 Innes CJ said: –

“The general rule is that, in the absence of express provision to the contrary, statutes should be considered as affecting future matters only; and more especially that they should if possible be so interpreted as not to take away rights actually vested at the time of their promulgation.”

This position was echoed in this jurisdiction in various cases. See Lonrho Logistic (Pvt) Ltd v Ram Petroleum (Pvt) Ltd 22-SC-050 and Greatermans Stores (1979) (Pvt) Lid & Anor v Minister of Public Service, Labour and Social Welfare & Anor 18-CC-002.

Notably, there is no provision in the Constitution of Zimbabwe Amendment (No.20) Act, 2013 that prohibits the enactment of retrospective civil legislation. Section 70(1)(k) of the Constitution only prohibits the enactment of retrospective criminal law by making an act or omission which was not an offence when it was committed, an offence.

In terms of Curtis v Johannesburg Municipality supra, by virtue of the operative date being expressly provided for in the statute, section 30B of the CGT falls within the ambit of the exemption to the general rule, however its legality and constitutionality may be questioned on the grounds of its effect on pre-existing mining rights for transactions that were concluded between 1st January 2014 and 1st January 2024. According to Greatermans Store supra the only constitutional limitation to the exercise of retrospective lawmaking is where it infringes the fundamental human rights and freedoms enshrined in Chapter IV of the Constitution.

Included in Chapter IV of the Constitution is section s 71(2) of the Constitution which confers the right to property. In terms of section 71(2):

“…every person has the right, in any part of Zimbabwe, to acquire, hold, occupy, use, transfer, hypothecate, lease of dispose of all forms of property, either individually or in association with others.”

In addition to the above, one of the principals of good governance which must be respected in terms of section 3(2)(k) of the Constitution is “due respect for vested rights” which binds the State and all institutions and agencies of government. In Greatermans Store supra it was stated that section 3(2)(k) of the constitution does not confer a fundamental right in itself. Malaba CJ stated the following:

“Section 3(2)(k) of the Constitution is of interpretative value. It provides the context in which the other constitutional provisions are to be interpreted. The use of the word “due” to qualify the kind of respect for vested rights suggests an approach that has regard to the requirements of legality and of the acceptable limitation to a fundamental human right prescribed under s 86(2) of the Constitution. By way of example, the basic right to property is conferred under s 71(2) of the Constitution. This section relates to a specific area of protection. The principle under s 3(2)(k) of the Constitution would have to be considered when ss 71(2) and 71(3) of the Constitution are interpreted, as required by s 46 of the Constitution. That means that the application of the principle behind s 3(2)(k) of the Constitution would have to take into account the limitation to the right to property provided for under s 71(3) of the Constitution.”

Mining titles constitute property and transactions concluded between 1st January 2014 and 1st January 2024 arguably created vested rights. In terms of section 30B(5)(b) the special CGT is respect of those transactions was to be paid by 1st April 2024. Section 30B (6) goes on to render the transactions for which the special CGT has not been paid, void and cancellable upon request in writing of the Commissioner-General to that effect. This is unconstitutional in its application as it retrospectively imposes a new obligation for purchasers in concluded transactions and if they fail to pay the special CGT, they are deprived of their vested property rights.

It could further be argued that the special CGT’s retrospective application violates section 68 (1) of the Constitution which gives every person a “right to administrative conduct that is lawful, prompt, efficient, reasonable, proportionate, impartial and both substantively and procedurally fair”.

Whilst some analysts claim the introduction of the special CGT might deter speculative purchases of mining claims and encourage more productive utilisation of resources, it can be persuasively argued that not only does the special CGT act as a barrier to entry for those intending to purchase mining rights, it may also stifle investment in mining in Zimbabwe and should be reversed.