While it has brought considerable relief mostly to citizens, it is thought there is one more aspect that needs to be considered in order to harmonize the Transfer Duty with other major tax Acts.
The new Transfer Duty which was amended and enacted on the 28th of August this year brought with it new developments, notably the exemption of first-time residential property and undeveloped plot-owners from paying the duty.
Transfer duty is a tax payable by the acquirer of the immovable property.
Although it brought welcome developments and improvements, a tax consultant- Jonathan Hore, feels there is a need to synchronize the Transfer Duty Act with other major tax Acts such as the income Tax Act, Vat Act and the Capital Transfer Tax Act.
This is because all these major tax Acts provide an exemption from tax in cases where two or more resident companies engage in some form of reconstruction, re-organization and amalgamation or merger.
In such reconstructions, it is said the ultimate beneficial shareholding may not change and that justifies the tax exemptions.
“The fact that the transfer Duty Act is the only piece of tax legislation which does not have exemptions related to reconstructions makes it the odd one, hence the need to harmonize it with other Acts,” he said when providing clarity on the piece of legislation.
Reconstruction of companies may involve merging two or more companies into one as well as moving the business and assets of one company into another.
This usually results in improved business efficiencies through leaner structures more often leading to increased profitability.
While the mentioned three tax Acts have provisions which minimize or eliminate tax when company reconstructions occur, the Transfer Duty on the other hand has none.
“For example, the Income Tax Act exempts the transfers of immovable property or shares from Capital gains tax in cases where two or more resident companies embark on a reorganization,” he explained.
Similarly, the Capital Transfer Tax which levies tax on donations and inheritances also has a provision for exemption resident companies that engage in reconstructions, given that no shareholder benefits at the expense of the other during the process.
As with the other two tax Acts, the Vat Act allows for business transfers from one or more companies to another with no tax implications.
By bringing the Transfer Duty in line with other major tax Acts by exempting companies involved in reconstructions from tax, Hore feels it will facilitate tax-free business restructures, paving way for businesses to increase their profitability.
This he says will result in improved future tax collections due to increased business profitability.