CHAPTER ONE
1.0
INTRODUCTION
Property Transfer Tax (PTT) was first introduced in Zambia in 1984 through an Act of
Parliament 1 . In 2010, the Zambian Government undertook a series of tax reform
measures with the aim to increase revenue yields through base broadening, rate
changes and increased voluntary compliance by taxpayers. Amongst such measures
Zambia looked at the increase in the property transfer rates from 3% to 5% and
subsequently 10%2. The tax is paid by the seller and the taxable amount is the realised
value on the date of transfer of the property. The realisable value here refers to market
value or the contract price, whichever is greater. However, noting the none-existence of
property evaluators at the Zambia Revenue Authority (ZRA), the basis of the tax is on
the reported contract price, usually submitted through a convincing lawyer who charges
from 1% to 10% of the realised value of the property under contract. The Property
Transfer Tax Act 3 provides for the charge of property transfer on the transfer of
property. Property Transfer Tax is centrally administered by the Zambia Revenue
Authority (ZRA). It is applicable on the transfer of shares (equity); intellectual
propertyand landed property (rear estate and improved land). This creates a need to
study the prevailing situation of Property Transfer Tax in Zambia and asses the possible
areas for improvement. The study will dwell on the growing real estate and improved
land as this is the core of the growth in Zambia’s urban sector. The study also creates a
better understanding of what polices, regulatory and legal framework, tools and
instruments have been applied to the implementation of Property Transfer Tax in
Zambia.
1.1
BACKGROUND TO THE STUDY
No. 12 of the Laws of Zambia.
Samuel S. Jibao (2016), Property taxation, capital gains tax and mining rights tax in Zambia, 1-41201-ZMB-1, p6.
3
Chapter 340 of the Laws of Zambia.
1
2
1
The Property Transfer Tax (PTT) was introduced in Zambia in 1984 to diversity the
Zambia Government tax base. Property Transfer Tax is centrally administered by
Zambia Revenue Authority. It is applicable on the transfer of landed property (real
estate and improved land), intellectual property and shares.
The research will dwell on the growing real estate and improved land as this is the core
of the growth in Zambia’s urban sector. Property transfer tax as provided in section
4(1)4, whenever any property is transferred, there shall be charged upon, and collected
from, the person transferring such property a property transfer tax in accordance with
the provisions of this Act.
(2) The rate of tax shall be two and one-half per centum of the realised value of the
property.
(3) For the purpose of establishing the taxable value of transactions, the CommissionerGeneral may use assessments done by the Government Valuation Department or any
other relevant organisation he considers expedient.
Since its initial implementation, the tax has been assessed relying on the simple
premise that every transaction that grants the right to use or occupy the land, or transfer
interest in a property, is a taxable transaction for which tax is payable on the realised
value at the date of registration of the transfer. The concept of realised value is defined
in the Property Transfer Tax Act5 as being the value, as calculated in accordance with
the provisions of Section 5 of Property Transfer Act 6 , of any property liable to tax.
Simple, realised value is the price that would be paid for a property in the open market,
offered for sale and where anyone interested in purchasing it may make an arms-length
offer.
1.2
THE STATEMENT OF THE PROBLEM
Zambia Revenue Authority (ZRA) is responsible for the implementation of the Property
Transfer Tax in Zambia. In additional, the Property Transfer Act7 provides for the charge
of Property Transfer Tax on the transfer of property. Property in this case will be
4
Chapter 340 of the Laws of Zambia.
Section 2(1) of Chapter 340 of the Laws of Zambia.
6
Chapter 340 of the Laws of Zambia.
7
Chapter 340 of the Laws of Zambia.
5
2
regarded as any land in Zambia including any buildings or additions made to or on the
land at the time the transfer is affected or made 8 . This tax is a percentage of the
realisable value from the property transaction. Realisable value is the free market value
or contract price, whichever is the greater value of the property. It is in this regard that it
is thought and expected the Zambia Revenue Authority (ZRA) should act effectively and
adequately in implementation of the Property Transfer Tax (PTT). However, in spite of
the existence of measures aimed at fostering the Property Transfer Tax (PTT) on real
estate and improved land, the authority has failed to effectively and adequately
implement the Property Transfer Tax.
Most of the land or improved land in urban areas has not been captured for Property
Transfer Tax. There is evidence that, this tax has not performed well because properties
are mostly undervalued which negatively affects tax revenue realised from property
transaction. The lack of well-trained tax inspectors in property evaluation compounds
the problem and such, tax evasion is common. There is noncompliance by citizens
paying Property Transfer Tax, weak coordination of fiscal decentralization process and
no centralised unit to provide information on annual value of property. Also there is
under-utilisation of property tax instruments on immovable property. Hence, currently
the Act9 offers the guidelines and provisions to the Agencies and mandated institution
on the implementation of Property Transfer Tax in the country.
1.3
RESEARCH AIMS AND OBJECTIVES
AIMS
The aim of the study is to undertake an examination of the implementation of Property
Transfer Tax (PTT) in Zambia and identifying the major constraints and opportunities for
improvement. Not only that, based on the analysis, designs an appropriate reform
strategy with focus on the policy and administrative dimensions and develops an
actionable implementation strategy that the Zambia Revenue Authority will use to bring
out the reform needed.
OBJECTIVES
8 Section 1(a) of Chapter 340 of the Laws of Zambia.
9
Chapter 340 of the Laws of Zambia.
3
The General objective of the study is an assessment of challenges in Implementation of
Property Transfer Tax in Zambia by mandated institution (Zambia Revenue Authority).
The assessments will identify major problems and key role players in implementation of
Property Transfer Tax in Zambia. It will also bring out possible areas of improvement.
Specific Objectives

To evaluate the functions of the Zambia Revenue Authority in implementation of
Property Transfer Tax in Zambia.

To establish the weaknesses/problems faced by the Zambia Revenue Authority
in implementation of Property Transfer Tax.

To determine the enforcement methods in implementation of Property Transfer
Tax.

To determine the efficacy of the operation practices of the legal institution or
agencies involved in handling of the tax.

1.4
To find out possible areas for improvement of Property Transfer Tax.
THE RESEARCH QUESTIONS

What are the roles of Zambia Revenue Authority in the implementation of
Property Transfer Tax in Zambia?

What major weaknesses/problems are faced by the Zambia Revenue Authority in
implementationof Property Transfer Tax in Zambia?

What enforcement procedures can be applied in implementation of Property
Transfer Tax in Zambia?

Do the institutions or agencies operate within the confinement of the Property
Transfer Act?

What are the possible areas for improvement in Property Transfer Tax in
Zambia?
1.5
THE SCOPE OF THE STUDY
The primary focus of the study was on the way of implementation of Property Transfer
Tax (PTT). The study took into consideration the laws concerning the law on rear
property transfer? All the aspects related to Zambia Property Taxation System, like
4
administration, transfer, rate of tax, exemptions, and tax revenues, were taken in
consideration. The study was limited to Zambia from 2010 up-to-date.
1.6
THE SIGNIFICANCE OF THE STUDY
The study was concerned with an assessment of the challenges of implementation of
Property Transfer Tax (PTT) in Zambia by mandated legal institution. It has undertaken
an assessment of the prevailing situation on Property Transfer Tax in Zambia. The
study has helped to identify the major constraints and opportunities for improvement.
The assessment has assisted in identification of the major problems and the key role
players in implementation of Property Transfer Tax in Zambia hence bringing out
possible areas of improvement. The study dwelled on the growing real estate and
improved land as this is the core of the growth in Zambia’s urban sector. Further, the
study also created a better understanding of what polices regulatory, legal framework,
tools and instruments to be applied to implement Property Transfer Tax in Zambia.
1.7
THE ORGANISATION OF THE REST OF THE REPORT
The study is organised into five chapters namely: The first chapter is the introduction,
sub-divided into introduction, background, statement of the problem, the aims and
objectives of the study, research questions, significance of the study, scope of the
study, and organisation of the study. The second chapter is literature review. The
themes reviewed are: the concept of tax (PTT), function of tax (PTT), function of the
institution, the general history and evolution of tax (PTT), registration requirements for
the tax (PTT), De-registrations of the tax (PTT), process for processing the tax (PTT)
return, property transfer tax assessment, payment of tax (PTT) in Zambia, attitude
towards property transfer tax-compliance and summary of the literature reviewed. The
third chapter is the methodology used in the study and it includes: research design,
population, sample, data collection, research instruments, and data analysis. In chapter
four, the findings are presented. These include: the roles of the mandated legal
institutions or agencies in implementation of Property Transfer Tax in Zambia, the major
weaknesses/problems faced by mandated legal institution or agencies, the enforcement
procedures applicable towards the tax (PTT), the respondents adherence or attitude
5
toward tax (PTT) compliance, the institution operations towards the tax (PTT) and the
areas for improvement in Property Transfer Tax in Zambia and the summary. In chapter
five includes: the discussion of the findings and the final chapter Six include, conclusion
and recommendations.
CHAPTER TWO
LITERATURE REVIEW
2.0
Introduction
This chapter reviews relevant literature on the challenges in Implementation of Property
Transfer Tax in Zambia. The implementation of Property Transfer Tax is a complex
phenomenon that can best be assessed from a number of factors such as; the concept
of tax, function of tax, function of the institution, the general history and evolution of tax
(PTT), registration requirements for the tax (PTT), De-registrations of the tax (PTT),
process for processing the tax (PTT) return, property transfer tax assessment, payment
of tax (PTT) in Zambia, attitude towards property transfer tax-compliance and the
summary.
2.1
The Concept of Tax
Taxation is the biggest source of public revenue of the government. It may be levied on
the income, property and even in the time of purchasing a commodity. According to
Nerre (2011)10, observes that the concept of tax could best be understood from the
synthesis of ‘tax’ with ‘culture’. In addition, that in defining a country’s tax culture, not
only tax system and the actual tax practice will be under consideration, but also the
relationship between the tax authorities and the taxpayers. Culture, which however is
dynamic, should be taken to mean the collective programming of the mind through an
ongoing modification process that will be influenced by both the external and internal
environment11. Ultimately, the combined synthesis of tax culture specifies to a particular
10
Nerre, B (n.d) Tax culture as a Basic Concept for Tax Policy Advice. Available from: (http://www.nerre.com)
[Accessed 02 February 2011].
11
ibid.
6
country’s tradition of taxation on one hand, and the interaction of the taxpayers and the
cultural values such as honesty, justice and sense of duty.
According to Nerre (2011), tax culture was synonymous to tax mentality which was
represented by two components of tax moral and tax discipline. These were brought in
not by default, but were aimed at harmonizing the relationship of the taxpayer to the
government tax office administrators. Accordingly, the term tax moral was connected
with certain willingness to tax-compliance. Whereas tax discipline reflected the tax
payers’ attitude towards compliance or non-compliance to paying tax as shown by their
behaviours. ‘A country’s specific tax culture is the entirety of all relevant formal and
informal organisations connected with the national tax system and its practical
execution, historically embedded within a country’s culture including the dependences
and ties caused by their own going interactions’12.
According to Simbyakula (1990)13 who wrote on taxation and economic development in
Zambia, conceptualised tax on the ‘cost-benefit principle’. This was embedded in the
rationale that since a nation incurs costs in providing governmental services which are
in fact, financed out of taxes; a government is entitled to levy tax on those who may be
presumed to benefit from the services.
Furthermore, those taxes were levied because it was necessary to compel people to
relinquish their claims on resources and thus, allow the government to use it.
2.2.
The Functions of Tax
According to Djokotoe and Chama, (2007) 14 , tax was a system of compulsory
contributions levied by a government or any other qualified public body on people,
corporations and property in order to fund public expenditure. For this reason, the
12
Nerre, B (n.d) Tax culture as a Basic Concept for Tax Policy Advice. Available from: (http://www.nerre.com)
[Accessed 02 February 2011].
13
Simbyakula, R. N. (1990) Taxation and Economic Development in Zambia. Ph. D. Thesis, University of Wisconsin –
Madison.
14
Djokotoe, E. and Chama, P. K. (2007) Show me the Money. Lusaka: Transparent International Zambia.
7
Zambian constitution provided a legal framework for property transfer taxation as a
revenue collection requirement of the government.
According to Berenson (2007)15 and Langmead et. al. (2006)16 says that in order for the
government to function properly and provide for the welfare as well as security of the
state, it must undertake to raise revenue from its citizens through tax. Simbyakula
(1990)17 agrees and adds that the function of tax was applied on the basis that since a
nation incurs cost in providing services, it is entitled to levy tax on those who benefited
from it. Generally, taxes are defined as mandatory payments of the contributors to the
budget and to the extra-budgetary funds in the amount determined by law and within the
stipulated deadlines.
Therefore, the functions of taxes are a manifestation of their essence; they are a means
to represent the characteristics of taxes. The functions of taxation illustrate its social
purpose of the value-based distribution and redistribution of income. Each of the
functions fulfilled by the taxation instrument is a manifestation of an internal feature, an
indicator or trait of this economic category. There are five main functions of taxation:
fiscal, redistributory, regulating, controlling, and promoting.
(1) Fiscal
It is through fiscality that taxes play their role in the formation of the state budget
necessary for the realisation of national and holistic state programmes. The fiscal
function provides for the achievement of the main social goal of taxation, the formation
of the state’s financial resources necessary for executing the role of the latter (defense,
social, environmental protection, etc.)18
15
Berenson, M. P. (2007). Becoming Citizens: Attitudes towards paying tax-compliance in Poland, Russia and
Ukraine.
16
Langmead, et. Al (Eds) (2006) Tax Police Issues in Zambia: Selected papers. Lusaka: Langmead and Baker LimitedFringilla.
17
Simbyakula, R. N. (1990) Taxation and Economic Development in Zambia. Ph. D. Thesis, University of Wisconsin –
Madison.
18
https://www.mbaknol.com/category/business-taxation.
8
(2) Allocation
According to Arnold (1964)19, Taxation expresses their essence as a special centralised
instrument of allocation relations and consists of the social income redistribution among
various groups of citizens: from wealthy to deprived ones, which ultimately provides for
the assurance of the social stability of the population.
(3) Regulatory
Taxation was initiated as soon as the state started to take active part in the economic
set-up of the society. This function is aimed at achieving specific goals of the taxation
policy through the taxation mechanism 20 . Taxation regulation entails three subfunctions:

The stimulating sub-function is aimed at the development of special socioeconomic processes, and is implemented through a system of allowances,
exemptions and preference arrangements. The legislation in force stipulates the
stimulation of a number of taxpayer categories such as the owners of small
enterprises, the agricultural producers, capital investors, or charities.

The destimulating sub-function inhibits some socio-economic processes
through the conscious exaggeration of the taxation burden. As a rule, the effect
of this sub-function is related to the introduction of excessive tax rates. These
are, for example, the protectionist measures of the state, aimed at supporting
local producers through prohibitive import custom duties. It is important to keep in
mind, nevertheless, that taxation relations, as any other relations, must replicate
continuously. Taxes must be collected today, tomorrow and always. This is why
the utilization of the destimulating sub-function should not lead to the weakening
19
Arnold Harberger (1964), Taxation, Resource Allocation, and Welfare: USA, Princeton University Press.
https://www.mbaknol.com/category/business-taxation
20
9
of the taxation basis, to suppression, or even to liquidation of the tax source.
Such an exaggeration may result in a situation where there will be no
income/processes to be taxed.

The replication (regeneration) function is explained as follows: by taxing the
utilization of natural resources, roads, mineral and primary resources, the
state uses these proceeds in order to regenerate the exploited resources.
(4) Controlling
Function of taxation — through taxation, the state controls the financial-economic
activity of juridical and natural persons21. This also contributes to controlling the sources
of income and the directions of spending.
(5) Incentive
Incentive function stipulates special taxation arrangements for a certain group of
citizens, who are social achievers (participants in wars, etc.). This function of taxation
has a social facet22.
2.3.
Functions of Zambia Revenue Authority
The Zambia Revenue Authority was established on 1st April 1994 as a corporate body,
under the Zambia Revenue Authority Act23, enacted in 1993. Pursuant to this Act, the
Authority is charged with the responsibility of collecting revenue on behalf of the
Government of the Republic of Zambia under the supervision of the Minister of Finance.
The role of the Zambia Revenue Authority Governing Board is derived from the Zambia
Revenue Authority Act24. The Act provides the function under section 11 (1),
The functions of the Governing Board shall be(a) to assess, charge, levy and collect all revenue due to the Government under such
laws as the Minister may, by statutory instrument, specify;
21
Ibid.
Ibid.
23
Chapter 321 of the Laws of Zambia.
24
Section 11 (1) (2) and (3) of Chapter 321 of the Laws of Zambia.
22
10
(b) to ensure that all revenue collected is, as soon as reasonably practicable, credited to
the treasury and in this regard sections twenty-four and twenty-five shall apply with
necessary modifications;
(c) subject only to the laws specified under paragraph (a), to perform such other
functions as the Minister may determine.
(2) The Minister may give to the Governing Board such general directives with respect
to the carrying out of its functions under this Act as he considers necessary or expedient
and the Board shall give effect to such directives, but only the Authority shall have
power to give effect to the laws specified under paragraph (a) of subsection (1).
(3) The Governing Board may delegate to the Commissioner or to any member or
committee, the power and authority to carry out, on behalf of the Authority, such
functions of the Board as the Board may determine.
2.4
The General History and Evolution of Property Transfer Tax in Zambia
Property Transfer Tax (PTT) was first introduced in Zambia in 1984 through the
Property Transfer Act, No. 12 of 1984. For the past three decades the tax has been in
place, PTT rate has been revised starting at 2.5 per cent in 1984, it was increased to
7.5 per cent in 1993 but reduced to 3 percent in 2008 thereafter it increased to 5
percent in 2011 and further increased to 10 percent in 2014. The rate was revised
downwards to 5 percent in 2016. Property Transfer Tax in Zambia is comparable to the
weighted maximum average of 7.67 percent for Europe; 7.1 per cent for Asia and 7.4
per cent for SADC countries. There is wide variation in transfer tax rates with some
countries such as South Africa, and Botswana having progressive rates whilst others
like Zambia have flat rates.
Further, Property Transfer Tax applies on the transfer of land and buildings situated in
Zambia and is payable at 5% of the realised value or the open market value. It is
payable at 5% of the open market value or nominal value, whichever is greater. The
Property Transfer Tax liability is generally payable by the vendor.
2.5
Registration Requirements for the Property Transfer Tax
11
Where the property to be valued is land, the realsed value shall be the price at which it
could, at the time of its transfer, reasonably have been sold on the open market as
determine by the Commissioner-General25. The registration for Property Transfer Tax
can be done online or manually.When applicant has to register, the following documents
are required;
(i)
consent from the council or Ministry of lands,
(ii)
Letter of sale,
(iii)
TPIN for the seller and buyer for both individuals and companies,
(iv)
Current valuation report if the transaction is above K500,000.00,
(v)
Contract of sale (between the seller and the buyer),
(vi)
State consent to assign (obtain from the Ministry of Lands or City Council or
Municipal Council),
(vii)
National Registration Card (NRC) or passport for both the seller and buyer,
(viii)
Certificate of Incorporation in the case of a company,
(ix)
Order of appointment of administration in the case of transfer of deceased
person estates and
(x)
2.6
Power of Attorney for persons (vendor) domiciled outside Zambia.
Land Titling and Registration Process in Zambia
According to Samuel(2016) 26 the transfer of property, in particular land in Zambia,
requires the seller and purchaser to employ a lawyer for the transaction. The lawyer
obtains a non–encumbrance certificate. A search is conducted at the Registry of Land
and Deeds to provide more information about the land, owner of the lease and date of
ownership. The seller then applies for the state’s consent to assign. The Commissioner
of Lands will verify that the property can be transferred, by checking if ground rent
(rates) has been paid, and who is buying because the land in Zambia belongs to the
State. This application is lodged with the Commissioner of Lands and if all ground rent
has been settled and all application papers are in order, the Commissioner of Lands will
issue the consent to assign. Whilst the State’s consent to assign application is being
25
26
Process explained by authorities of the Zambia Revenue Authority in-depth interview.
Samuel S. Jibao (2016), Property taxation, capital gains tax and mining rights tax in Zambia, 1-41201-ZMB-1, p17.
12
processed, the buyer and seller can finalise the deed of assignment, but the sale price
stated therein will be subject to the State’s consent for the sale at that price. The
documentations include: the consent application, consent fees, buyer’s details such as
nationality, address, etc. to show he qualifies to purchase property. The seller settles
the Property Transfer Tax with the Zambian Revenue Authority (ZRA). The Zambia
Revenue Authority assesses if the value of the property is correctly stated in the deed of
assignment and then it will produce a clearance certificate which is valid for 6 months.
The tax is payable by the transferor (Seller). Both a receipt for the payment of the
Property Transfer Tax (PTT) and the Tax Clearance Certificate are obtained in this step.
The purchaser lodges the assignment for registration at the Lands and Deeds Registry
to complete the process27.
2.7
De-registrations of the Property Transfer Tax Return
De-registration can be initiated by the Taxpayer either manually by dropping the request
with Zambia Revenue Authority front office or online by accessing the taxpayer profile28.
Some of the reasons the Taxpayer may advance in applying for deregistration include;
(i) Business no longer exists
(ii) Business closed
(iii) Business sold off or merged
(iv) Statutory reasons (for example voluntary VAT if no notice of renewal),
and Taxpayer wishes to register for another tax type (For example, a
Taxpayer on turnover tax who wishes to register for VAT must first deregister from turnover tax and register for Income Tax proper.
To de-register a taxpayer, the taxpayer is required to complete and file a de-registration
notice form citing reasons why they wish to de-register. If a business no longer exists,
closed off, sold off or merged, the taxpayer must show documentary evidence from the
Competent Registration Agency such as PACRA and Registrar of Societies. An account
can only be de-registered when the account has no tax liabilities. The task of ensuring
27
Step by step process explained by authorities of the Zambia Revenue Authority and Registry of Land and Deeds,
Commissioner of Lands during an interview.
28
Zambia Revenue Authority/Taxpayer Service Manual 2018, p14.
13
that this is done resides under Returns and Payments unit who are responsible for
account management. Upon confirmation that there are no liabilities on the account,
R&P will recommend for final deregistration to the front office.
There are also certain circumstances that will make Zambia Revenue Authority initiate
de-registration. Examples of such would be when a registration has been done wrongly
or to facilitate registration of another management and upon confirmation that there are
no liabilities on the account, R&P will recommend for final deregistration to the front
office.
2.8
Process for processing the Property Transfer Tax
In the process for processing the Property Transfer Tax in land transfer there are some
procdures has to be taken into consideration. In accordance to Zambia Revenue
Authority 29 , the first step in processing a request for a Tax Clearance on Property
Transfer Tax is that both the seller and the buyer are required to register for TPIN’s and
the seller will be required to register for a property transfer tax account. The second
step is the filing of the return for PropertyTransfer Tax. Currently the system allows for
capture of returns both manually or online.
If one has to process of a Property Transfer Tax return applicant needs the following
documents. Such as;
(i)
Letter or Contract of Sale
(ii)
NRC for both Seller and Buyer
(iii)
Valuation Report- for property whose values is over K500, 000 but in the
absence of the valuation report, Zambia Revenue Authority should use inhouse available information to assess the realizable market value. Where the
taxpayer objects value, the taxpayer should be encouraged to have the
property evaluated to assist value the property.
(iv)
29
Valid Consent to transfer and
Zambia Revenue Authority/Taxpayer Service Manual 2018, p 14.
14
(v)
Pictures or sketch map of the property showing measurement and this is
applicable to land and building and it is mandatory.
Where the registration is done manually acknowledged provisional returns, the
acknowledging authority must ensure to face-vet the returns and ensure completeness.
That is to say the receiving authority shall ensure that all the required documents have
been attached to the Property Transfer Tax return. Upon satisfaction that the return is
completed properly, the acknowledging authority should then stamp the return and
issue an acknowledgment slip from the system and issue manually if the system is not
working.
2.9
Property Transfer Tax Assessment
A taxpayer initiates the process by filing a provisional tax return and attaching all the
necessary documents. The assessments are done by authorised officers. The
authorised officers determine realizable value using available data and compare with
declared values. If the value declared is below the realizable value, uplift the value to
the realizable value and inform the client of the new value and if it is objected to, advise
the client of their right to appeal based on the fact or law. The system will compute the
tax due through various approval levels on the system and once an assessment has
been approved, the seller is advised on the amount to pay.
2.10
Payment of Property Transfer Tax in Zambia
Whenever any property is transferred (land or improved land), there shall be charged
upon, and collected from, the person transferring such property a property transfer tax
in accordance with the provisions of the Act30. The Act31 provides for the payments of
Property Transfer Tax in Zambia and the authorized institution to undertake the task is
Zambia Revenue Authority.
30
31
Section4(1) of Property Transfer Act, chapter 340 of the Laws of Zambia.
Chapter 340 of the Laws of Zambia.
15
Section 11(1)32 provides that, the tax shall become due and payable within fourteen
days of the date of issue of the assessment in respect thereof.
(2) Where any amount of tax is not paid within the period specified in subsection (1), a
penalty equal to five per centum of the unpaid amount shall be charged for each month
or part thereof for which the tax remains unpaid; and for the purposes of recovery and
collection such penalty shall be deemed to be part of the tax.
(3) (a) Where any amount of tax or penalty due is not paid within the period specified in
sub-section (1), such an amount shall attract interest at the rate prescribed in paragraph
(b) and shall continue to attract such interest until such date as the payment of the tax
has been remitted; (b) the rate of interest prescribed for the purpose of paragraph (a)
shall be the discount rate published from time to time by the Bank of Zambia plus two
per centum per annum.
Section 6(1)33 provides that, the following shall be exempt from the provisions of the
Act34:
(a) the Government;
(b) any foreign government;
(c) such international organisation, foundation or agency as the Minister may approve
for the purpose;
(d) any charitable organisation or trust registered as such under the Income Tax Act35;
(e) any co-operative society registered under the Co-operative Societies Act36;
(f) the various organisations listed in paragraph 5 (1), 5 (2), 5 (2) (a) and 5 (2) (b) of the
Second Schedule to the Income Tax Act37;
32
Property Transfer Tax Act, chapter 340 of the Laws of Zambia.
Property Transfer Act, Chapter 340 of the Laws of Zambia.
34
Chapter 340 of the Laws of Zambia.
35
Chapter 323 of the Laws of Zambia.
36
Chapter 397 of the Laws of Zambia.
37
Chapter 323 of the Laws of Zambia.
33
16
(g) any transfer of property by a shareholder of a company incorporated under the
Companies Act38, if such transfer is his contribution towards the equity of that company.
(2) Where property held in trust or constructive trust is transferred to another person to
hold in trust or constructive trust for the same beneficiaries, such transfer shall not be
liable to tax.
(3) Where property is settled in trust for the benefit of a member of the immediate family
of the settler, the transfer of such property to the trustees or the transfer by the trustees
to such beneficiary shall not be liable to tax.
(4) Where property devolves upon death, the resulting transfer of such property shall
not be liable to tax if the transferee is a member of the immediate family of the
deceased; nor shall any intermediate transfer to or by an executor, administrator,
personal representative or other person acting in similar capacity be liable to tax if such
intermediate transfer is carried out to give effect to such devolution.
(5) The Minister may, by statutory order, exempt from tax any person, transfer or
property, or any class thereof.
2.11
Attitude towards Property Transfer Tax-Compliance in Zambia
According to Allport (1935) 39 attitude is defined as ‘a mental and neural state of
readiness organised through experience exerting a directive and dynamic influence
upon the individual’s response to all objects and situations with which it is related’. In
short, attitude is one’s thoughts and views regarding anything. Therefore, attitude is
essentially one’s outlook, thoughts and feelings. However, related to attitude is
behaviour, which is what one does as a result of the held attitude. For example, if one’s
attitude towards taxpaying is one of negativity, then one’s behaviour will reflect this.
However, noting the non-existence of property evaluators at the Zambia Revenue
Authority, the basis of the tax is on the reported contract price, usually submitted
through a conveyance lawyer who charges between 1% to 10% of the realised value of
38
Company Act of No. 10 of 2017 of the Laws of Zambia.
Allport, G. W. (1935) ‘Attitudes’, in C. Murchison (ed.) Handbook of Social PsychologyWorcester, Mass: Clark
University Press, p 798.
39
17
the property under contract. According to Samuel (2016)40 in its 34 years of existence,
the Property Transfer Tax rate has been revised starting at 2.5% in 1984, it was
increased to 3% in 2005, 5% in 2008 and was recently increased to 10% of realizable
value. When former Hon. Minister of Finance Dr. Situmbeko Musokwatane announced
the increase from 3% to 5%, there was considerable outcry and subsequent discontent
with the management of the real sector’s growth and contribution to the Zambian
economy.
Whenever land transactions are made the true value is known only by the seller, the
buyer and the conveyance law firm that can agree on submitting low sell prices to the
Zambia Revenue Authority for the sole purpose of reducing the tax liability. According to
Samuel (2016)41 the evaluation roll on which the property rates are based is always out
of date hence subject to exploitation. The accreditation of valuation firms and the
monitoring of their activities too is suspect.
Summary
This chapter reviewed published literature from books, and internet that were relevant to
the topic under discussion. Literature reviewed in this study about an assessment of
challenges in implementation of Property Transfer Tax in Zambia was aimed at
identifying the major constraints and opportunities for improvement in Zambia Revenue
Authority. The study sought to establish the challenges in implementation of Property
Transfer Tax in Zambia. In this area of study, literature was accessed from global view
point as well as locally in Zambia.
The study also reviewed the general history and evolution of Property Transfer Tax. On
this issue the study sought to establish the social-economic and cultural effects in
Zambia regarding Property Transfer Tax. Literature reviewed showed that the tax from
the time it was introduced it has been increasing and it is paid by the vendor on the
realised value in which it is the price at which it could, at the time of its transfer,
40
41
Samuel S. Jibao (2016), Property taxation, capital gains tax and mining rights tax in Zambia, 1-41201-ZMB-1, p15.
Ibid.
18
reasonably have been sold on the open market as determined by the CommissionerGeneral. (CG)
Other literature that was reviewed is the registration requirement of the tax in Zambia.
Registration can be done online or manually upon submitting the required details. The
other issue brought up by the literature were the de-registration of Property Transfer
Tax, process of processing of the tax and property assessment.
The final issue which the study looked at was attitude towards Property Transfer Tax
compliance in Zambia. In considering this matter, literatures showed that the people
have a negative perception towards the tax. It has been viewed as a cost or extra
charge on top of other charges they face when processing the transaction in property
transfer. As the result of the negative attitude towards the tax Zambia Revenue
Authority finds it difficult in the implementation of the tax.
19
CHAPTER THREE
METHODOLOGY
3.0
Introduction
This chapter presents the research design, population, sample, data collection,
research instruments, and data analysis.
3.1
Research Design
The method deployed in this research study was a qualitative method of data collection.
A quantitative method of data collection was also used, to yield practical evidence to
compliment the qualitative data. A survey approach was used in collecting data by
interviewing a sample of people selected to accurately represent population under
study. Interviews and direct observational approaches were conducted from
stakeholders on challenges in implementation of Property Transfer Tax in Zambia. The
people and departments involved were from Ministry of Finance, Local Council officers,
Senior Officers from the Government Valuation Department, Zambia Revenue Authority
and Taxpayers. Journals, structured interviews, unstructured interviews and analysis of
documents were used in finding out the challenges faced by mandated institutions in
implementation of PTT.
3.2
Population
20
The population of the study was comprised of twenty (20) people selected from the key
stakeholders, Ministry of Finance, Local Council officers, Senior Officers from the
Government Valuation Department, Zambia Revenue Authority and Taxpayers. Form
each source 5 individuals were interviewed on different dates and different location,
mainly from Lusaka, Livingstone and Choma district. From the sources of information
two top officials were selected and three officials from the lower management were
selected. On the taxpayer, selected individuals taxpayers were interviewed and selected
organisation which deal in property transaction. The few selected districts were selected
due to limitation of resources the researcher could manage to cover the study.
3.3
Sample Size
During the survey approach of collecting data from the selected districts, Lusaka,
Livingstone and Choma a sample consisted of 20 respondents broken down as follows,
from each key stakeholder two from top management and three from lower
management were interviewed. The purposive approach sampling from the top
management was deployed to select specialist who are reliable to the study and able to
give rich information for in-depth analysis related to the focal issue in the study while
random sampling was used at lower management level. The random sample approach
was used on lower management because it provides each participant in the population
an equal chance to be selected as a study sample while purposive sampling procedure
was deployed on specialist to enable to select participants that are known or considered
to have typical knowledge on the study purpose. From the purposive approach the
study was able to come out with practical evidence on challenges faced by the legal
intuition mandated to implement Property Transfer tax.
3.4
Research Instruments and Data Collection
In this study, both quantitative and qualitative data approaches were deployed. There
were some research instruments used for data collection, namely Journals, structured
interviews, unstructured interviews and analysis of documents were used in finding out
the challenges faced by mandated institutions in implementation of Property Transfer
Tax.
21
It primarily utilises secondary data sources, surveying existing reports on tax
administration in Zambia. In particular, technical reports were surveyed which included
budget speeches, annual reports of the Zambia Revenue Authority, and fiscal policies
and legislations sourced from mainly Ministry of Finance. Interviews with key
stakeholders such as: Local Council Officers, Senior Officers from the Government
Valuation Department, Zambia Revenue Authority and the Ministry of Finance. The
interviews enabled the study to draw lessons regarding key factors influencing
success/failure of property transfer taxes administration, and the challenges on the
implementation of Property Transfer Tax. This source of information also informed the
identification of the major constraints and opportunities for improvement in property and
transfer taxes administration as well as the possible implementation of Property
Transfer Tax. However, there was huge limitation in data collection process as most of
the critical information required for proper fiscal planning was not readily available.
Critical among these include: (1) information about characteristics of the property for
example, sales value, location and physical attributes of the property, (ii) property tax
liabilities, (iii) ownership of asset, etc. This lack of critical data limited the study in the
computation of data for Property Transfer Tax.
3.5
Data Analysis
The data analysis used data from interviews were classified and presented in narrative
form. Data from the interviews was designed as free response questions from which
respondents would answer. The commonly reported issues were used to test
compliance attitude towards tax-compliance.
Qualitative data drawn from interviews held with the Zambia Revenue Authority officials
from Property Transfer Tax Unit and Market Management Committee Members was
coded and classified for easy identification. The classification was done in order to align
the test questions in the guided interview to the themes of the study for ease judgment,
and enable triangulation of information generated by other data collection instruments in
the study.
22
CHAPTER FOUR
THEORETICAL FRAMEWORK
4.0
Introduction
This chapter presents principles on taxation in general and property transfer tax. It
discusses theories that provide the theoretical framework of this study. These theories
are: the ability to pay theory of taxation, the expediency theory of taxation, the benefit
theory of taxation, the cost of service theory of taxation, and the partnership theory of
taxation. Apart from that it discusses a brief analytical study of Property Transfer Tax in
Zambia from 2010 to 2018.
4.1
Principles of Taxation
Principles of taxation are concepts that provide guidelines towards a good tax system.
Since many view taxation as a necessary evil, it should be administered in such a way
as to create minimum pain to the payer. Economists over time have laid down the
principles that policy makers should take into account in making tax laws; these are
referred to as canons of taxation. According to Adam42 canons of taxation, these are
Canon of Equity, Canon of Certainty, Canon of Convenience or Ease and Canon of
Economy. Therefore, the Zambia Revenue Authority should consider these canons of
taxation when implementing the property transfer tax (PTT).
42
Smith Adam (1776), An Inquiry into the Nations and Causes of the Wealth of Nations (1st edition), London: W.
Strahan and T. Cadell.
23
The following are the four fundamental common canons of taxation according to Adam
Smith:
4.1.1 Canon of Equity:
It implies that tax should be levied on citizens on the basis of equality. The sacrifice of
all citizens must be equal. In the words of Adam Smith43 “The subjects of every state
ought to contribute towards the support of the Government, as nearly as possible, in
proportion to their respective abilities, that is, in proportion to their revenue which they
respectively enjoy under the protection of the State“. In other words, this canon of
taxation maintains that every person should pay to the State as tax according to Liability
to pay. It implies taxing the people on the rate of taxation.
According to Adam(1776)44, there are two types of equitable principles in the taxing
system, horizontal equity and vertical equity. What we mean by horizontal equity is
that those in equal circumstances should pay an equal amount of tax. And when we say
vertical equity, it means that those in unequal circumstances should pay different
amount of tax. The importance of this criterion is to install confidence in the tax payer
who will be more willing to pay their taxes if they believe that the system is fair and
equal.
4.1.2 Canon of Certainty:
This canon of taxation suggests that the tax which an individual has to pay, (for
instance, property transfer tax) should be certain and not arbitrary. It should be certain
to the tax payer how much tax he has to pay, to whom and by what time the tax is to be
paid. The place and other procedural information should also be clear. It would protect
the tax payer from the exploitation of tax authorities in any way. It will enable the tax
payer to manage income and expenditure. The Government (ZRA) will also be
benefited by this principle.
4.1.3 Canon of Convenience or Ease:
43
Smith Adam (1776), An Inquiry into the Nations and Causes of the Wealth of Nations (1st edition), London:
W.Strahan and T.Cadell.
44
Smith Adam (1776), An Inquiry into the Nations and Causes of the Wealth of Nations (1st edition), London: W.
Strahan and T. Cadell.
24
According to this canon of taxation, every tax should be levied in such a manner and at
such a time that it affords to the maximum of convenience to the tax payer. According to
Adam Smith45, a good taxation policy must be convenient for the tax payer. The reason
is that the tax payer for goes purchasing power and makes a sacrifice at the time of
payment of tax hence the Government should see that the tax payer suffers no
inconvenience. For example, in an agricultural country, tax should be collected only
after the harvesting has been done.
4.1.4 Canon of Economy:
This principle suggests that the cost of collecting tax should be the minimum so that a
major part of collections may bring to the Government treasury. If the administration
expenses in the collection of taxes (for instance, PTT) consume a major portion of tax
revenue collected; it cannot be said to be a good tax system. In the words of Adam
Smith46 “Every tax ought to be contrived as both to take out and keep out of pockets of
the people as little as possible over and above what it brings, into the public treasury of
the State”.
4.2.0 Property Transfer Tax
According to UN-Habitat (2011)47, Property transfer tax is a tax applied generally to the
total value of a property transaction and must be paid in order to complete the transfer
of title to another party. It is often charged even if the transfer is not the result of a sale.
Most of the SADC countries levy some form of property transfer tax on the acquisition of
immovable property (also referred to as fixed property).
The property transfer tax in Zambia is levied and collected under the Property transfer
tax Act of 2005 48 . Section 4(1) provides that, whenever any property is transferred,
45
Smith Adam (1776), An Inquiry into the Nations and Causes of the Wealth of Nations (1st edition), London: W.
Strahan and T. Cadell.
46
Smith Adam (1776), An Inquiry into the Nations and Causes of the Wealth of Nations (1st edition), London:
W.Strahan and T.Cadell.
47
UN-Habitat (2011) Land and Prperty Tax, A Policy Guide: 978-1-132375-7
48
Chapter 340 of the laws of Zambia.
25
there shall be charged upon, and collected from, the person transferring such property a
property transfer tax in accordance with the provisions of this Act49.
(2) The rate of tax shall be two and one-half per centum of the realised value of the
property and,
(3) For the purpose of establishing the taxable value of transactions, the CommissionerGeneral may use assessments done by the Government Valuation Department or any
other relevant organisation he considers expedient.
Section 5 50 provides that the realized value share be (1) Where the property to be
valued is land, the realised value shall be the price at which it could, at the time of its
transfer, reasonably have been sold on the open market as determined by the
Commissioner-General.
(2) Where the property to be valued is a share, the realised value shall be the price at
which it could, at the time of its transfer, reasonably have been sold on the open market
as determined by the Commissioner-General or its nominal value, whichever is the
greater.
(3) Where the Commissioner-General determines that there has been unreasonable
delay between the date on which the property is sold and the date on which it is
transferred, and that as a result of such delay the value of the property is different at the
two dates, the realised value of such property shall be the greater of the two values.
(4) Where a person transfers his property to a member of his immediate family, the
realised value of such property shall be the actual price, if any, received therefor by
such person.
(5) Where, within a group of companies, a company transfers property to another
company (other than a company which is not resident in the Republic) within the same
group and the Commissioner-General is satisfied that such transfer was carried out for
49
50
Ibid.
Chapter 340 of the Laws of Zambia.
26
the purpose of effecting internal organisation of that group, he may determine that such
transfer shall have no realised value.
Land is defined as “any building, structure or other improvement.” the person
transferring the property is liable for the tax 51 . According to the Act 52 , the property
transfer tax is payable to the Commissioner General of the Zambia Revenue Authority
(ZRA). The Minister of Finance and National Planning sets the property transfer tax rate
in Zambia.
According to Franzsen, R and McCluskey, W (2017)53, the uniform tax rate has changed
several times. In 2012, the tax rate was increased from 3 percent to 5 percent, and in
2014, it was doubled to 10 percent. However, it was reduced to 5 percent, effective
January 2016.
To determine the realized value of land transactions, the Property transfer tax Act
allows the Commissioner General to use assessments conducted by the Government
Valuation Department (hereinafter; GVD) or any relevant organization considered
expedient54. In practice, the Zambia Revenue Authority relies largely on selected private
valuation companies to provide independent assessments of land-related transactions.
The basis of assessment for the property transfer tax is the market value at the time of
application for state consent to assign or transfer property55. In practice, the Zambia
Revenue Authority keeps a record of transactions to establish trends. If any value
declared by a taxpayer falls outside the zone, the Zambia Revenue Authority will
investigate and may impose its own value based on the established trend. The Zambia
Revenue Authority has established a unit responsible for the property transfer tax, but
the Zambia Revenue Authority officers who are in charge of property and value
verifications are not qualified valuers.
51
Section 2 of Chapter 340 of the Laws of Zambia.
Section 11 of Chapter 340 of the Laws of Zambia.
53
Riel Franzen and William McCluskey (2017), Property Tax in Zambia, Status, challenges, and Prospects, London:
Lincoln Institute of Land Policy, pp 445-447.
54
Section 4(3) of Chapter 340 of the Laws of Zambia.
55
Section 5(1) of Chapter 340 of the Laws of Zambia.
52
27
According to Franzsen, R and McCluskey, W (2017)56, Zambia Revenue Authority does
use its powers to increase under declared values for the property transfer tax, following
a schedule of established market prices for different areas that it compiles in liaison with
the Government Valuation Department (GVD). At the beginning of 2016, the Zambia
Revenue Authority also started carrying out physical inspections, for example, to
confirm whether a property is vacant land, as claimed by the taxpayer. Furthermore,
transactions above ZMK 500,000 (the low-cost residential value threshold) must be
accompanied by a professional valuation. The Zambia Revenue Authority is solely
responsible for billing and collecting the property transfer tax. The revenue performance
of property transfer taxes has been good because it is an easy tax tool and the rate has
been increased regularly. However, the revenue potential of the property transfer tax is
rather low because it is limited to formal transactions. Informal exchanges that are not
accompanied by a change of title at the deeds registry are excluded and may have
been encouraged by the increases in the tax rate. Even at a rate of 5 percent, there are
risks that taxpayers may under declare. However, there is no empirical evidence to
support this argument.
According to Franzsen, R and McCluskey, W (2017)57, this is tax levied on transfer of
land and buildings and is paid by the seller. Where a person transfers property to a
member of immediate family, the transfer will be treated as a gift and transfers will go at
nil value58. Section 2 of the Act59 provides that, Immediate family means a spouse, child
adopted child or stepchild. Section 6(1) of the Act 60 provides exemption of
Organizations from the tax: the following shall be exempt from the provisions of this
Act61:
(a) the Government;
(b) any foreign government;
56
Riel Franzen and William McCluskey (2017), Property Tax in Zambia, Status, challenges, and Prospects, London:
Lincoln Institute of Land Policy, pp 445-447.
57
Riel Franzen and William McCluskey (2017), Property Tax in Zambia, Status, challenges, and Prospects, London:
Lincoln Institute of Land Policy, pp 445-447.
58
Section 5(4) of Chapter 340 of the Laws of Zambia.
59
Chapter 340 of the Laws of Zambia.
60
Ibid.
61
Ibid.
28
(c) such international organisation, foundation or agency as the Minister may approve
for the purpose;
(d) any charitable organisation or trust registered as such under the Income Tax Act;
Chapter 323
(e) any co-operative society registered under the Co-operative Societies Act; Cap. 397
(f) the various organisations listed in paragraph 5 (1), 5 (2), 5 (2) (a) and 5 (2) (b) of the
Second Schedule to the Income Tax Act; Chapter 323
(g) any transfer of property by a shareholder of a company incorporated under the
Companies Act, if such transfer is his contribution towards the equity of that company.
(2) Where property held in trust or constructive trust is transferred to another person to
hold in trust or constructive trust for the same beneficiaries, such transfer shall not be
liable to tax.
(3) Where property is settled in trust for the benefit of a member of the immediate family
of the settler, the transfer of such property to the trustees or the transfer by the trustees
to such beneficiary shall not be liable to tax.
(4) Where property devolves upon death, the resulting transfer of such property shall
not be liable to tax if the transferee is a member of the immediate family of the
deceased; nor shall any intermediate transfer to or by an executor, administrator,
personal representative or other person acting in similar capacity be liable to tax if such
intermediate transfer is carried out to give effect to such devolution.
(5) The Minister may, by statutory order, exempt from tax any person, transfer or
property, or any class thereof. The rate of tax applicable on the transfer of landis 5% of
the realizable value62. Realizable value is price at the time of transfer, at which it could
be reasonably sold on open market.
4.2.1 Property Transfer Tax Administration
According to Samuel (2016)63Administratively property transfer tax is assessed when
the titleto property is transferred to another party. The Commissioner General (CG)
determines the open market price at the time of property transfer.In Zambia, the
administration of Property Transfer Tax is in the hands of the Zambia Revenue Authority
62
63
https://www.zra.org.zm
Samuel S. Jibao (2016), Property taxation, capital gains tax and mining rights tax in Zambia, 1-41201-ZMB-1, p17.
29
and it is the institution which is mandated to implement the tax. However, owing to
limited capacity in Zambia Revenue Authority, in terms of lack of availability of valuers,
the Commissioner General relies on information on values provided by expertise from
some other departments in the administration of the Property Transfer Tax.
In practice the continued imposition of property transfer taxes and the property tax
administration is also under developed, and the continuous increase in the flat rate for
Property Transfer Tax is not advisable as it may only succeed in impeding the proper
functioning of the property market64.
It is also submitted that, Zambia Revenue Authority should ensure that buyers, sellers,
and functionaries know that the government is more serious about enforcement of tax
collection and accurate reporting of the sale price. One possible way of doing this is to
institute robust data matching process with third parties involved in property transaction.
For instance, Zambia Revenue Authority could match value of property declared for tax
purposes with declared purchase price when the property is mortgaged to the bank in
order to guarantee payment.
Secondly, severe fines and penalties should be instituted for defaulters. Moreover, legal
requirement linking value declared for tax purposes to compensation in the event of
expropriation could be another option to minimise underreporting of actual sales value
of property.
There are several exemptions to the payment of the property transfer tax provided in
section 6 of the Property Transfer Tax Act65, 2012. The section exempts the following
from property transfer tax;
(i)
Government of the republic of Zambia and any foreign government
represented in Zambia; any charitable organisation or trust registered
as such under tax act, any cooperative society registered under the cooperative societies act. Any transfer of property a shareholder of a
64
65
Ibid.
Chapter 340 of the Laws of Zambia.
30
company incorporated under the company act, if such transfer is his
contribution towards the equity of that company,
(ii)
Where property held in trust or constructive trust is transferred to
another person to hold in trust or constructive trust for the same
beneficiaries, such transfer shall not be liable to tax,
(iii)
Where property is settled in trust for the benefit of a member of the
immediate family of the settler, the transfer of such property to the
trustees or the transfer by the trustee to such beneficiary shall not be
liable to tax,
(iv)
Where property devolves upon death, the resulting transfer of such
property shall not be liable to tax if the transferee is a member of the
immediate family of the deceased, nor shall any intermediate transfer
to or by an executor, administrator, personal representative or other
person acting in similar capacity be liable to tax if such intermediate
transfer is carried out to give effect to such devolution and
(v)
The minister may, by statutory order exempt from tax any person,
transfer or property, or any class thereof.
4.2.2 Valuation and assessment of properties in Zambia
Globally, transfer taxes are assessed when the statutory title to property is transferred
to another party66. In Zambia the law mandates the Commissioner General to determine
the open market price at the time of property transfer 67 . However, owing to limited
capacity of Zambia Revenue Authority, in terms of lack of availability of valuers, the CG
relies on information on values provided by the Government Valuation Department or an
external valuer, in particular the contract price usually submitted through a conveyance
prepared by a lawyer, to assess the property tax due.
In practice, parties involved in the property transfer market have been falsely under
declaring the actual price at which leaseholds or interests are changing hands. In
addition, the valuation roll prepared by Government Valuation Department which
66
67
Samuel S. Jibao (2016), Property taxation, capital gains tax and mining rights tax in Zambia, 1-41201-ZMB-1, p15
Section 5(1) of Chapter 340 of the Laws of Zambia.
31
informs the valuation process is often out-of-date and is subject to exploitation.
Moreover, the accreditation of valuation firms and monitoring of their activities has not
been robust and therefore prone to corruption.
4.2.3 Property Transfer Tax rate
According to UN-Habitat (2011)68 to arrive at the appropriate rate of Property Transfer
Tax, policy makers should consider carefully the incentives created by the rates
selected. High transfer tax rates may discourage business investment and high transfer
tax rates are likely to encourage misrepresentation of sales prices by buyers and
sellers, which undermines other aspects of the tax system. Perhaps most detrimental, if
taxpayers perceive the transfer tax to be too high, they are less likely to register the
property transfer at all.
In 1984 through the Property Transfer Act69, No. 12 of 1984, property transfer tax was
introduced in Zambia. For the past three decades the tax has been in place and
property transfer tax rate has been revised starting at 2.5 per cent in 1984, it was
increased to 7.5 per cent in 1993 but reduced to 3 percent in 2008 thereafter it
increased to 5 percent in 2011 and further increased to 10 percent in 2014 making it the
highest in the SADC region. The rate was revised downwards to 5 percent in 2016.
The current rate of 5 percent, Property Transfer Tax in Zambia is comparable to the
weighted maximum average of 7.67 percent for Europe; 7.1 per cent for Asia and 7.4
per cent for SADC countries.
4.2.4 Property Transfer Tax base determination
Property transfer tax in Zambia is currently administered under the Property Transfer
Act70and is levied on the realised value of any land including buildings in the republic.
68
UN-Habitant (2011), Land and Property Tax, A Policy Guide:9782-1-132375-7
Chapter 340 of the Laws of Zambia.
70
Ibid.
69
32
The realised value is the price at which the land could, at the time of transfer,
reasonably have been sold on the open market. Section 4 of the Property Transfer Tax
Act mandates the transferee (or seller) to pay the tax and Section 9(1) furthers require
the said transferee to render a provisional return of tax in such form and giving therein
such details of the property and the transaction as may be prescribed by the
Commissioner-General71.
In practice however, anecdotal evidence shows that the burden of the tax in Zambia is
borne by the buyer due to tax shifting resulting mostly from the informal nature of
property transfer tax in the country. Buyers pay the tax along with other costs. Zambian
real estate has been a seller’s market so it seems that sellers can sufficiently raise their
asking price to cover the transfer tax.
4.3.0 THEORIES
4.3.1 The Ability to Pay Theory of Taxation
According to Adam (1776)72 this theory, tax liability in its true form is a compulsory and
an unconditional payment to the state. The theory posits that there is no commercial or
semi-commercial relationship between the state and the citizens. A citizen is to pay
taxes just because he or she can and his or her relative share in the total tax burden is
to be determined by the relative paying capacity. This doctrine has been in vogue for at
least as long as the benefits theory. The basic tenet of this theory is that the burden of
taxation should be shared by the members of society on the principles of justice and
equity and that these principles necessitate that the tax burden is apportioned according
to their relative ability to pay. This theory suggests that the taxpayers of PTT should pay
unconditionally and according to paying capacity.
4.3.2 The Expediency Theory of Taxation
71
Chapter 340 of the Laws of Zambia.
Smith Adam (1776), An Inquiry into the Nations and Causes of the Wealth of Nations (1st edition), London:
W.Strahan and T.Cadell.
72
33
Adam Smith (1776)73 states that, the expediency theory asserts that every tax proposal
must pass the test of practicability. It must be the only consideration when the
authorities are choosing a tax proposal. Economic and social objectives of the state
should be treated as irrelevant. This proposition has a truth in it, since it is useless to
have a tax which cannot be levied and collected efficiently. There are pressures from
economic, social and political groups. Every group tries to protect and promote its own
interests and authorities are often forced to reshape tax structure to accommodate
these pressures. In addition, the administrative set up may not be efficient to collect the
tax at a reasonable cost of collection. Taxation provides a powerful set of policy tools to
the authorities and should be effectively used for remedying economic and social ills of
the society such as income inequalities, regional disparities, unemployment, cyclical
fluctuations and so on. Property Transfer Tax should result from a balance of the forces.
4.3.3 The Benefit Theory of Taxation
According to Adam Smith (1776) 74 Benefit Theory, the state should levy taxes on
individuals according to the benefit conferred on them. The more benefits a person
reaps from the activities of the state, the more the tax the person should pay to the
government. This principle has been criticized because, first, if the state maintains a
certain connection between the benefits conferred and the benefits derived, it will be
against the basic principle of the tax. A tax is basically a compulsory contribution made
to the public authorities to meet the expenses of the government and the provisions of
general benefit to all citizens. Secondly, most of the expenditure incurred by the state is
for the general benefit of its citizens, it is not possible to estimate the benefit enjoyed by
a particular individual every year for it to be decided how much tax this individual should
be charged. Further, if we apply this principle in practice, then the poor will have to pay
the heaviest taxes, because they benefit more from the services of the state. If we get
more from the poor by way of taxes, it will be against the principle of justice.
4.3.4 The Cost of Service Theory of Taxation
73
Smith Adam (1776), An Inquiry into the Nations and Causes of the Wealth of Nations (1st edition), London: W.
Strahan and T. Cadell.
74
Smith Adam (1776), An Inquiry into the Nations and Causes of the Wealth of Nations (1st edition), London: W.
Strahan and T. Cadell.
34
As noted by Adam Smith (1776)75 this theory is based on the opinion that if the state
charges the actual cost of a service from the people, it will satisfy the idea of equity or
justice in taxation. The cost of service principle can no doubt be applied to some extent
in those cases where the services are rendered out of prices and are a bit easy to
determine. However, most of the expenditure incurred by the state cannot be fixed for
each individual because it cannot be exactly determined. For instance, it is not easy to
measure the cost of service of the police, armed forces, judiciary, etc., to different
individuals. This theory implies that Property Transfer Tax should be charged basing on
the cost of the services to be tendered to the payers. This may be difficult to achieve.
4.3.5 The Partnership Theory of Taxation
According to Adam Smith (1776) 76 the partnership theory of taxation posits that
government should share in the profits of economic enterprise by way of an income tax.
One might call the partnership theory the economic version of the Benefit theory, and
the latter as the moral entitlement version of the former. The partnership theory is based
on the notion that government should share in national income (or, more technically,
gross national product, or GNP), because government, by supplying infrastructure in the
broad sense (physical infrastructure, national and domestic security, a capitalismenabling legal system and regulatory structure), earns a share of the GNP. This theory
is especially appealing to at least some income tax advocates, because it seems to
normatively prescribe an income tax in preference to a consumption tax. The
government should therefore collect Property Transfer Tax given that it contributes to
the general environment enabling business to be conducted.
4.4.
An analytical study of Property Transfer Tax in Zambia from 2010 to 2018.
Property Transfer Tax was first introduced in Zambia in 1984 through the Property
Transfer Act, Number 12 of 1984. For the past three decades the tax has been in place,
Property Transfer Tax rate has been revised starting at 2.5 per cent in 1984, it was
75
Smith Adam (1776), An Inquiry into the Nations and Causes of the Wealth of Nations (1st edition), London:
W.Strahan and T.Cadell.
76
Smith Adam (1776), An Inquiry into the Nations and Causes of the Wealth of Nations (1st edition), London:
W.Strahan and T.Cadell.
35
increased to 7.5 per cent in 1993 but reduced to 3 percent in 2008 thereafter it
increased to 5 percent in 2011 and further increased to 10 percent in 2014 making it the
highest in the Southern African Development Countries (hereinafter: SADC) region. The
rate was revised downwards to 5 percent in 2016. The study shows that with the current
rate of 5 percent, Property Transfer Tax in Zambia is comparable to the weighted
maximum average of 7.67 percent for Europe; 7.1 per cent for Asia and 7.4 per cent for
SADC countries. It is also clear from the study that there is wide variation in transfer tax
rates with some countries such as South Africa, and Botswana having progressive rates
whilst others like Zambia have flat rates.
36
CHAPTER FIVE
FINDINGS
5.0
Introduction
Zambia like any other country worldwide in particular third world countries, has for too
long suffered the problem of Tax system hence measures have been put forth to cater
for the property transfer tax. The legal institution and agencies involved in the
administration of property transfer tax in Zambia has been perceived to have some
discrepancy in the way their handle property transfer tax. Therefore, this chapter
presents and discusses the findings of the study about the assessment of challenges in
implementations of property transfer tax in Zambia by the mandated legal institution
(ZRA). The objectives of the study were: to evaluate the functions of the institution in
Zambia, to establish the weaknesses/problems faced by the institution, to determine the
enforcement methods in implementation of property transfer tax, to determine the
efficacy of the operation practices of the legal institution or agencies involved in
handling of property transfer tax and to find out possible areas for improvement of the
tax. The chapter discusses the findings of the dissertation which serves to answer the
research questions and the objectives of the study.
FINDINGS
The following are the findings highlighted in the dissertation:
5.1
The roles of the legal institution mandated to implement Property Transfer
Tax (ZRA).
37
The competent authority for the administration of property transfer tax in Zambia is the
Zambia Revenue Authority (hereinafter "ZRA"). This institution was established on
March 1st 1994 pursuant to provisions of the Zambia Revenue Authority Act, chapter
321 of the Laws of Zambia. The Zambia Revenue Authority is a statutory body that
includes a seal of authority. Section 977 provides as follows: there is hereby established
the Zambia Revenue Authority which shall be a body corporate with perpetual
succession and a common seal, capable of suing and of being sued in its corporate
name, and with power, subject to the provisions of this Act, to do all such acts and
things as a body corporate may by law do or perform.
Pursuant to Zambia Revenue Authority Act 78 , the authority is charged with the
responsibility of collecting revenue on behalf of the Government of the Republic of
Zambia under the supervision of the Minister of Finance. The operations of Zambia
Revenue Authority are overseen by the Governing Board. The membership of this
Board as provided for in the Act79 includes;
(i)
the Secretary to the Treasury in the Ministry responsible for finance;
(ii)
the Permanent Secretary in the Ministry responsible for legal affairs;
(iii)
the Governor of the Bank of Zambia;
(iv)
representatives of the Law Association of Zambia;
(v)
three persons, each representing the Zambia Confederation of Chambers of
Commerce and Industry, the Zambia Institute of Chartered Accountants; and
the Bankers’ Association of Zambia; and
(vi)
Two other members appointed by the Minister of Finance.
The Chairman of the Board is elected from amongst its members. The Chief Executive
of the Zambia Revenue Authority is the Commissioner General who is appointed by the
President of the Republic of Zambia without parliament having a say in it 80. Section 11
(1)(2) and (3) 81 provides the functions of the Governing Board which include; (a) to
77
Zambia Revenue Authority Act Chapter 321of the Laws of Zambia
Chapter 321 of the Laws of Zambia.
79
Chapter 321 of the Laws of Zambia.
80
Zambia Revenue Authority (ZRA) April 25, 2015 from https//www.zra.org.zm’HomePage.htm.viewName=History.
81
Chapter 321 of the Laws of Zambia.
78
38
assess, charge, levy and collect all revenue due to the Government under such laws as
the Minister may, by statutory instrument, specify; (b) to ensure that all revenue
collected is, as soon as reasonably practicable, credited to the Treasury; The Minister
may give to the Governing Board such general directives with respect to the carrying
out of its functions under this Act as he considers necessary or expedient and the Board
shall give effect to such directives, but only the Authority shall have power to give effect
to the laws specified under paragraph (a) of subsection (1). The Governing Board may
delegate to the Commissioner or to any member or committee, the power and authority
to carry out, on behalf of the Authority, such functions of the Board as the Board may
determine. The Commissioner General of the Zambia Revenue Authority (ZRA) is
responsible for the day to day running of the authority’s business. In executing his
mandate, the Commissioner General is assisted by the Senior Management Members.
Zambia Revenue Authority has two divisions that are mandated to collect tax revenue
which are Custom Service Division and Domestic Taxes Division. The Domestic Taxes
Division is responsible for the administration and collection of all domestic taxes apart
from domestic excise duty that is collected by Customs Services Division. The Domestic
Taxes Division administers the Property Transfer Tax Act, Chapter 340 of the Laws of
Zambia.
In practice however, the administration of Property Transfer Tax is owing to limited
capacity in Zambia Revenue Authority, in which the authority relies on the expertise
from other departments in the administration of the property transfer tax. For example,
in terms of lack of availability of valuers, the Commissioner General relies on
information on values provided by the Government Valuation Department (GVD) or an
external valuer, in particular the contract price usually submitted through a conveyance
prepared by a lawyer, to assess the property tax due 82. Clearly, however, the informal
trading sector in Zambia has not been captured by the policy objectives specified. There
82
Information collected during an interview with the officers from Zambia Revenue Authority, Legal institutions
and Government Valuation Department.
39
are many traders and entrepreneurs in Zambia that continue to operate in informal
business sector of the economy and are hardly taxed83.
5.2
Major weaknesses/problems faced by the Zambia Revenue Authority
The researcher has revealed that the major problems faced by legal institution in
implementation of Property Transfer Tax in Zambia are follows.
5.2.1 Property Transfer Tax Rate
According to Lawrence, W (2011)84 to arrive at the appropriate rate of Property Transfer
Tax, policy makers should consider carefully the incentives created by the rates
selected. High transfer tax rate may discourage business investment. Also high transfer
tax rates are likely to encourage misrepresentation of sales prices by buyers and
sellers, which undermines other aspects of the tax system. Perhaps most detrimental, if
taxpayers perceive the transfer tax to be high, they are less likely to register the
property transfer at all.
5.2.2 Property Transfer Tax base determination
In Zambia, property transfer tax is currently administered under the Property Transfer
Act85 and is levied on the realised value of any land including buildings in the republic.
Adequate and updated information on the tax base is critical for the administration of
property transfer tax, on any land including buildings, thus tracking all new
improvements to properties, as well as changes in ownership and sub-division of
properties is very necessary for property tax administration. The realised value is the
price at which the land could, at the time of transfer, reasonably have been sold on the
open market. Section 4 of the Property Transfer Tax Act 86 mandates the transferee (or
83
Ibid.
Lawrence Walters (2011), ‘Land and Property Tax—A Policy Guide’, Nairobi: United Nations Human Settlement
Programme.
84
85
86
Chapter 340 of the Laws of Zambia.
Chapter 340 of the Laws of Zambia.
40
seller) to pay the tax and Section 9(1)87 furthers requires the said transferee to render a
provisional return of tax in such form and giving therein such details of the property and
the transaction as may be prescribed by the Commissioner-General.
In practice however, shows that the burden of the tax in Zambia is borne by the buyer
due to tax shifting resulting mostly from the informal nature of property transfer tax in
the country. Buyers pay the tax along with other costs. Zambian real estate has been a
seller’s market so it seems that sellers can sufficiently raise their asking price to cover
the transfer tax88.
5.2.3 Valuation and assessment of properties in Zambia
In Zambia the law mandates the Commissioner General to determine the open market
price at the time of property transfer89. However, owing to limited capacity of Zambia
Revenue Authority, in terms of lack of availability of valuers, the Commissioner General
(CG) relies on information on values provided by the Government Valuation Department
(GVD) or an external valuer, in particular the contract price usually submitted through a
conveyance prepared by a lawyer, to assess the property tax due.
According to Samuel (2016) 90 data collected from Zambia Revenue Authority shows
that an increasing trend in the growth of declared property transfer tax value from 2008
to 2010 thereafter the trend reversed to a declining development since 2011 when there
was an increase in the property transfer tax rate from 3 per cent prior to 2011 to 5 per
cent in 2011. Anecdotal evidence suggests that parties involved in the property transfer
market have been falsely under declaring the actual price at which leaseholds or
interests are changing hands. In addition, the valuation roll prepared by Government
Valuation Department which informs the valuation process is often out-of-date and is
subject to exploitation. Moreover, the accreditation of valuation firms and monitoring of
their activities has not been robust and therefore prone to corruption.
87
Chapter 340 of the Laws of Zambia.
Information collected during an interview with taxpayers.
89
Section 5(1) of Chapter 340 of the Laws of Zambia.
90
Samuel S. Jibao (2016), Property taxation, capital gains tax and mining rights tax in Zambia, 1-41201-ZMB-1, p18.
88
41
5.2.3 Shortage of Qualified and Skilled Professional
In Zambia, the Zambia Revenue Authority has special officers to implement property
transfer tax and a unit has been created specially to implement the tax. This creates
professionalism in the system, thus the employee will be able to have vast knowledge in
the implementation of the tax. However, in practice, there is shortage of qualified and
skilled professional to assess properties and prepare proper valuation rolls, to do interim
valuation, to do regular general re-valuation, all of which are usually prerequisite for
legitimate and efficient tax system. General lack appropriate practical training
programmes for values and property tax administrators.
5.2.4 Appointment of Chairman of the Board
The Zambia Revenue Authority Act clearly stipulates that the Chairman and Vice
Chairman of the Governing Board are to be elected by Board members themselves91. In
practice, experience has shown that the Minister is the one who appoints the Chairman
of the Governing Board. Only the Vice-Chairman is elected by members of the
Governing Board. It is not easy to comprehend why the Minister has amassed so much
power. Indeed, although the Zambia Revenue Authority Act 92 does not expressly
provide for regulations to govern the election of the Chairman and Vice-Chairman of the
Governing Board, Section 15 (1)93 of the statute spells out the power of the Governing
Board to regulate its own procedure. Election procedures can, therefore, be prepared
pursuant to Section 15(1) of the Zambia Revenue Authority Act 1993.
Throughout, Zambia Revenue Authority's entire existence, the Governing Board has
passed through the hands of more than one Chairman. Public perception, so far, is that
the holder of the position of Chairman of the Governing Board can only remain in office
if he or she does not dissent or disagree with "the powers that be." Thus, the Chairman
of the Governing Board often ends up towing the political line and forgetting about
91
Section 10 (3) Chapter 321 of the Laws of Zambia.
Chapter 321 of the Laws of Zambia.
93
Chapter 321 of the Laws of Zambia.
92
42
professionalism. As a result, it is almost unimaginable to think of the Chairman of the
Governing Board as one who is politically independent in the performance or discharge
of his official duties.
5.2.5 Immunity
To promote the independence of members of the Governing Board and members of
committees of Zambia Revenue Authority in their performance of official duty, the
Zambia Revenue Authority Act 1993 provides as follows: No action or other
proceedings shall lie or be instituted against any member [of the Governing Board] or
member of a committee for or in respect of any act or thing done or omitted to be done
in good faith in the exercise or purported exercise of his functions under this Act.94
The omission or act must have been made in good faith and in the course of business
to seek the protection of the law under Section 1895. Arguably, however, the statutory
provision does not exempt an individual from liability where he or she engages in an act
or omission that involves gross negligence since, by its very nature, gross negligence
militates against the concept of "good faith." For instance any member of Zambia
Revenue Authority in due course of implementing the property transfer tax, if his action
involves gross negligence he/she will not be exempted from liability. Hence, this does
not promote independence in the execution of work. Indeed, a statutory provision, such
as Section 1896 above, can help to boost the morale and confidence of both the staff of
Zambia Revenue Authority and members of the Governing Board or members of
Zambia Revenue Authority committees.
5.2.6 Property Transfer Tax Administration
The administration of property transfer tax in Zambia is been administered by the
Zambia Revenue Authority. The property transfer tax in Zambia is levied and collected
under the Property Transfer Tax Act of 2005 (Chapter 340 of the Laws of Zambia). The
property transfer tax is based on the realized (open-market) value of all land. Land is
94
Section 18 of Zambia Revenue Act, Chapter 321 of the Laws of Zambia.
Chapter 321 of the Laws of Zambia.
96
Chapter 321 of the Laws of Zambia.
95
43
defined as “any building, structure or other improvement.” the person transferring the
property is liable for the tax. According to the Act97, the property transfer tax is payable
to the Commissioner General of the Zambia Revenue Authority (ZRA). The Minister of
Finance and National Planning sets the property transfer tax rate in Zambia.
In practice, there is no uniform tax rate and it has changed several times. In 2012, the
tax rate was increased from 3 percent to 5 percent, and in 2014, it was doubled to 10
percent. However, it was reduced to 5 percent, effective January 2016. This has an
effect on the taxpayer. It is also clearly that, owing to limited capacity in Zambia
Revenue Authority, the authority relies on the expertise of some other departments in
the administration of the property transfer tax. This also has an effect to both Zambia
Revenue Authority and Taxpayer because monitoring of the activities of these firms are
not effectively and therefore prone to corruption and under declare of property. Not only
that, adequate and updated information on the tax base is critical for the administration
of property transfer tax, thus tracking all new improvements to properties, as well as
changes in ownership and sub-division of properties is very necessary for property tax
administration. However, information generation could be expensive.
5.3
What enforcement procedures can be applied in implementation of
Property Transfer Tax in Zambia?
In Zambia the Property Transfer Act98 provides for the charging and collection of a tax
based on the value realised from the transfer of certain property in the republic and to
provide for matters connected with or incidental to the forgoing. The Zambia Revenue
Authority is the competent authority for the administration of Property Transfer Tax in
Zambia. The researcher has highlighted the following as enforcement measures which
can be enhanced to implement property transfer tax.
5.3.1 Sanctions
If land and property rights are viewed as economic commodities, then the ultimate
sanction that Zambia Revenue Authority can impose for nonpayment of the Property
Transfer Tax is to seize the property in transaction. And if land is seen as fundamental
97
98
Chapter 340 of the Laws of Zambia.
Property Transfer Act, Chapter 340 of the laws of Zamia.
44
to human rights, seizing land is not a viable alternative. In such cases, other sanctions
must be available, such as public exposure (which often creates peer pressure) and the
ability to seize other assets.
Imposing sanctions for nonpayment of Property Transfer Tax is often politically difficult.
A community’s most influential members often own or control large amounts of land,
very valuable land, or both. But even if the sanction must be imposed on those not so
influential, the political pressure can be extreme if the local press is reporting on families
of limited means at risk of losing what little they have for non-payment of Property
Transfer Tax.
The pressure to provide exemptions, rebates and other escape routes for taxpayers is
very high. But such escape routes undermine both the fairness of Property Transfer Tax
and its revenue potential. Systems can be put in place to assure that taxpayers are
treated fairly.Taxpayers should be able to understand how their tax was calculated, to
have their questions answered and to appeal when they feel an error has occurred. But
they must also come to accept that the tax must be paid, and that will only happen if
political leaders and the judicial system support Property Transfer Tax. Support in this
case means that community leaders should see that Property Transfer Tax is
administered fairly and efficient that there is a clear link between taxes collected and the
services, and that tax collection is fairly, uniformly and rigorously enforced.
In Zambia, the law 99 requires that the vendor (seller) pays property transfer tax.
Property transfer tax is payable within 14 days from the date of assessment of the
realizable value. The realizable value is assessed before property can be transferred
based on declaration from the vendor in the property transfer tax provisional return.
Zambia Revenue Authority should ensure that buyers, sellers, and functionaries know
that the government is more serious about enforcement of tax collection and accurate
reporting of the sale price. One possible way of doing this is to institute robust data
matching process with third parties involved in property transaction. For instance,
Zambia Revenue Authority could match value of property declared for tax purposes with
99
Chapter 340 of the Laws of Zambia.
45
declared purchase price when the property is mortgaged to the bank in order to
guarantee payment. Where one does not give accurate details, severe fines and
penalties should be applied on defaulters.
Legal requirement linking value declared for tax purposes to compensation in the event
of expropriation could be another option to minimise underreporting of actual sales
value of property.
5.3.2 Mobile Compliance Enforcement
Mobile compliance enforcement activities should be instituted. The authority should
recruit more temporal valuers given with GPS to monitor new developers. The property
transfer unit should conduct mobile compliance enforcement activities such mobile
inspection of the informal business that are not registered. This will assist in bring out
related cases on under-valuation or under declaration on property transfer.
5.3.3 Investigations Department
The Zambia Revenue Authority has an investigation wing which is responsible to carry
out investigation on malpractice conducted on internal or external activities. The
investigation department, which is responsible for investigations and prosecutions,
should be enhanced to continue to partner with other law enforcement agencies, for
instance the Anti-Corruption Commission. In a bid to curb illegal cases of under
valuation or under declaration of property transfer, Zambia Revenue Authority, through
the investigation department, has to scale up under-valuation or under declaration of
property transfer activities through its mobile compliance unit. The authority has to
enhance collaborative relationship with other agencies or organisation within the country
in order to undertake joint efforts for the purpose of data sharing and strategic
information to assist tax enforcement. The department should employ intelligence leads
and random and risk based enforcement operations.
5.3.4 Internal Affairs Unit
The Zambia Revenue Authority should enhance its internal affairs unit to investigate
cases of corruption in nature, fraud, and other malpractices involving Zambia Revenue
Authority staffs, for instance false declaration property, under valuation of property etc.
This preserves the corporation integrity in implementation of property transfer
transactions. The unit should work with other corporate government entities, such as the
46
Zambia Police Service, and the Anti-Corruption Commission. This will encourage
transparent, integrity, honesty, fairness, in the implementation of the property tax.
5.3.5 Litigation
A court resolves the dispute by adjudicating the priorities of the interests. The term
transfer of property generally means an act by which a living person conveys property,
in present or in future, to one or more other living persons, or to himself and one or
more other living persons. The act100 provides the area of law that governs the various
forms of ownership and tenancy in real property. Therefore, civil and criminal litigation
should be pleasing to the eyes of the clients who are defaulters in property transfer
transactions. This is an important tool of compliance and dispute resolution.
5.4
Do the institution or agencies operate within the confinement of the
Property Transfer Act?
The Zambia Revenue Authority was established on 1st April 1994 as a corporate body,
under the Zambia Revenue Authority Act101, enacted in 1993. Pursuant to this Act102,
the Zambia Revenue Authority is charged with the responsibility of collecting revenue
on behalf of the Government of the Republic of Zambia under the supervision of the
Minister of Finance.
The institution in dealing with Property Transfer Tax does not fully operate within the
confinement of the property transfer tax act 103 . The ZambiaRevenue Authority must
continuously engage with the taxpayers in terms of taxpayer education, information
dissemination and service provision. Tax payers must increasingly comply on their own
by finding it easier and efficient to deal with Zambia RevenueAuthority. This involves
creating an environment that allows the taxpayers to comply with their obligations
without necessarily going to Zambia Revenue Authority offices. The government must
ensure that all other departments that deal with taxpayers share this information with
Zambia Revenue Authority and vice versa so as to avoid taxpayers providing different
information to ZRA and other government wings.
100
Chapter 340 of the laws of Zambia.
Chapter 321 of the Laws of Zambia.
102
Ibid.
103
Chapter 340 of the Laws of Zambia.
101
47
The goal of the Zambia Revenue Authority is to maximize tax compliance and increase
domestic revenue yield in Zambia by instituting a fair, efficient and effective tax regime.
The informal trading sector in Zambia has not been captured by the policy objective.
There are many investors or traders and entrepreneurs in Zambia that continue to
operate in the informal business sector who are hardly taxed. Also there is high
incentive to under-declare the value of property transaction owning to the relatively high
property transfer rate and weak monitoring of property transfer transaction in Zambia.
Further, the studies also show that there is weak coordination of fiscal decentralization
process; and no centralised unit to provide information on annual value of property,
collection ratios, and annual property expenditure.
5.5
What are the possible areas for improvement in Property Transfer Tax
inZambia?
The researcher also has highlighted the following as possible areas for improvement in
property transfer tax.
5.5.1 Enhance Robust Data Matching
Zambia Revenue Authority as a competent authority in implementation of property
transfer tax should Institute robust data matching process with third parties involved in
property transaction. For instance, Zambia Revenue Authority could match value of
property declared for tax purposes with declared purchase price when the property is
mortgaged to the bank in order to guarantee payment.
The Zambia Revenue Authority has to formalize the informal sector through the use of
the Taxpayer Identification Numbers (TPIN); all traders or investors involved in property
transfer transaction have to use Taxpayer Identification Numbers for all tax transactions.
Taxpayers have to register for a Taxpayer Identification Number that allows them to
access information about the property transfer tax, make queries, and track the status of
those queries.The purpose of the TPIN is to make sure tax payer compliance levels
increase and the TPIN makes it easy for ZRA to identify individuals that are in receipt of
undeclared tax.
48
Therefore, other initiatives that could be used in place are, simplifying the tax system,
organizing business functions with a focus on taxpayer type below an agreed income
threshold, simplifying business registration procedures and the tax codes applicable,
undertaking research aimed at understanding the business climate to inform
administration and tax policy formulation to reduce the cost of compliance, increasing
taxpayer education and outreach such as the introduction of a call center, and finally,
establishing collaborative relationships with other government agencies for the purpose
of data sharing to assist tax enforcement.
5.5.2 Encourage Tax Online Registration
Tax online is a program designed for the use by citizens and businesses so that
taxpayers are able to fulfill most, if not all, their obligations online via e-registration, efiling of monthly or annual returns, e-declarations or making electronic payments.The
Zambia Revenue Authority should improve the website and explain various tax and
processes of filing returns clearly. ZRA tax online programme, should be aimed at
reducing the cost of tax administration and increasing taxpayer compliance through eregistrations, e-returns and e-payments. However the website needs continuous
redesigning if taxpayers are to fully benefit from this innovation. The website should
educate the general public about the tax in Zambia in simple and attractive terms. A
well-designed and information packed website aimed at increasing tax literacy levels
has to be encouraged,
The Zambia Revenue Authority should encourage Taxpayers always to use online
services which are more efficient for both the taxpayer and Zambia Revenue Authority.
The authority should bring out programmes on how to use the service for example
educating the taxpayers how to go online whene-declarations or making electronic
payments on property transfer transaction. The program will assist Zambia Revenue
Authority to improve on audits and assessment of taxpayers, debt collection, objections
and appeals, investigations and refunds104.
104
Zambia Revenue Authority 2015, p. 15
49
The process on tax online for property transfer can be done as follows; a taxpayer has
to acknowledge through online at Zambia Revenue Authority website. While on the
system the return is received on the system and an acknowledgement with a reference
number is generated which must be printed and given to the taxpayer. At this stage the
system assigns the case to an authorized officer for detailed data entry.
Then a detailed data entry is done by an authorized officer who captures the details as
per return detail, that is the seller and buyer’s details, the value declared as per return,
are, and size and property description. A task is then created for an authorized
assessing officer. The assessing officer checks the details captured as per return and
does the assessment on the system and validates it. An assessment is then created for
approval. There are three approval levels depending on the assessed value. The
assessment passes through all the three relevant levels. After approval an assessment
order is generated and payment is made. This is made after the assessment order has
been generated. Then a tax clearance is expected to come out 24 hours after payment
approval is done105.
5.5.3 Enhance Tax Education
According to Nalishebo & Halwampa (2014)106 Tax literacy is low: The survey revealed
that the respondents interviewed had limited knowledge of tax and the tax system in
Zambia. The majority of respondents have not received any training in tax literacy
indicating that Zambia Revenue Authority has limited programmes on increasing tax
literacy among taxpayers. This is despite putting in place the Taxpayers Education and
Advisory Services programme and a Taxpayer Charter. This gap provides the Zambia
Revenue Authority with the opportunity to develop training and dissemination strategies
in order to increase tax literacy.
Therefore, Zambia Revenue Authority has a duty to go in the field and educate the
taxpayer on property transfer tax. The role and impact of property transfer tax in the
lives of Zambian makes basic tax education an imperative for all Zambians. Not only will
105
Zambia Revenue Authority/ Manual 2018, p. 14-18
Nalishebo, S., & Halwampa, A. (2014). Uncovering the Unknown: An Analysis of Tax Evasion in Zambia.
106
Lusaka: Zambia Institute for Policy Analysis & Research.
50
that knowledge be valuable to the taxpayer, it will also be valuable to the Government
that imposes a variety of taxes. Specifically, it is the position of the study that lack of
basic understanding of property transfer tax is unwarranted, long overdue and
importantly could be costing the taxpayers hundreds of millions of kwacha.
A well-structured programme by the Zambia Revenue Authority through its created
property transfer unit, on tax education on property transfer tax initiated or adopted by
taxpayers, from private to public organizations, to the community will be of useful. This
basic tax education can be implemented along. Not only will the benefits be life-long,
they will certainly be a win-win for all affected parties. Taxpayers will grow with a better
knowledge of tax and the importance of tax planning, but also with a better
understanding and appreciation of their constitutional obligations with regard to taxes.
They will grow in understanding the role of taxes, why governments levy and collect
taxes, the services provided to them by government, how to legally minimize their tax
burden, and importantly, the futility of tax evasion.
Without much doubt, the researcher believe that tax enlightened taxpayers will become
better taxpayers, engage in better tax planning, minimize the tendency to avoid or
evade taxes, and, by so doing, reduce the huge cost spent by the Zambia Revenue
Authority in tax enforcement and compliance.
5.5.4 Enhance Data Collection
The Zambia Revenue Authority with its property transfer unit should collect adequate
and updated information on the tax for the administration of the tax, thus tracking all
new improvements to properties, as well as changes in ownership and sub-division of
properties is very necessary for property tax administration. However, information
generation could be expensive. To overcome the tendency of such efforts to be both
very costly and difficult to sustain over time, there is need for a local recruitment of
valuation officers in all the districts who would be trained to perform the identification
and assessment of properties, including the assignment of street names, house
numbers and land parcels. Portable Global Positioning System (GPS) devices could be
used to identify the location of different properties, with the potential to then transform
these Global Positioning System coordinates into comprehensive local property maps
as part of a broader Geographic Information System (GIS) and tax mapping.
51
Meanwhile, all of the relevant information can be recorded using relatively straight
forward database software that could tabulate the physical description of the property,
assessment, tax liabilities, track tax compliance, and tenure and ownership information.
Furthermore, there is need to link all systems for identifying land values and tax
payment. The introduction of a unique parcel identification number could be a starting
point.
5.5.5 Enhance Call Center System
The Zambia Revenue Authority Call Centre is a customer service centre that provides a
means of interaction between customers (Taxpayers) and the Zambia Revenue
Authority107. You can call the Call Centre for information and assistance on any product
or service provided by the Zambia Revenue Authority. The Zambia Revenue Authority
should increase the number of Call Centres as way of decentralizing remitting of the tax.
However Call Centres should also be used for conducting free workshops to the general
public interested in learning about the tax system and taxes in all the provinces. These
could also take the form of trade visits to large taxpayers whose operations are highly
complicated.
The call centre should provide enhanced customer service delivery by being a one stop
shop where customer can make enquiries on Zambia Revenue Authority products and
services as well as communicate their queries and complaints to Zambia Revenue
Authority without physically going to the branch. Thus, when the Call Centre system is
enhanced, it will assist taxpayers with queries and complaints relating to property
transfer tax; how to access various product and services that is, requirements,
procedures, charges, contact details, providing assistance and solutions to taxpayers to
queries on the tax.
Conclusion
The study looked at the roles of the legal institutions; secondly the weaknesses faced
by the institution, thirdly the enforcement procedures, fourthly efficacy and lastly, the
possible areas of improvement of property transfer tax in Zambia. Thereafter, we
examined and discussed the property transfer tax implementation. That is how, the legal
107
Zambia Revenue Authority/Taxpayer Service Manual 2018, p 14-18.
52
institutions and agencies implement the property transfer tax. To understand this, we
looked at how the property transfer tax is implemented and the establishing
collaborative relationship with other government agencies.
CHAPTER SIX
CONCLUSION AND RECOMMENDATIONS
6.0
Introduction
The discussion of the findings in this study focused on the objectives and the generated
research questions. This chapter provides a conclusion of the findings of this study and
the drawn conclusions. The chapter discusses, in conclusion form the challenges
experienced in implementation of the property transfer tax and suggested mechanisms
to mitigate against the effect of the challenges. The chapter makes suggestions for
further research and recommendations for quality and practice.
6.1
CONCLUSION
This dissertation sought to assess the challenges in implementation of property transfer
tax in Zambia. The study evaluates whether the legal institution or agents mandated
with the administration of property transfer tax actually act in line with the provisions of
the Property Transfer Act108.
The study concludes that the challenges facing the legal institution or agents in
implementing property transfer tax in Zambia includes the limited capacity in the Zambia
Revenue Authority. It is also conducted that the lack of availability of valuers, the
informal investors or the sector trading in real property has not been captured by the
108
Chapter 340 of the Laws of Zambia.
53
policy objectives. Not only that, the high rate of the tax created the situation that
discourages business investors or the sector trading in real property, likely to encourage
misrepresentation of prices by buyers and sellers. For instance, parties involved in
property transaction make false valuation and under-declaration of the property.
Besides that, the tax base determination poses a challenge on the institution. The study
shows that the burden of the property transfer tax in Zambia is borne on the buyer due
to tax shifting resulting mostly from the informal nature. Further, owning to limited
capacity of the Zambia Revenue Authority, in terms of lack of availability of valuers, the
Commissioner General relies on information on value provided by the Government
Valuation Department, or external valuers. Furthermore, the chairmanship of the board
is politically appointed which enunciate that the Zambia Revenue Authority is politically
driven and cannot work independently.
To mitigate against these challenges the suggested remedies that could improve
property transfer tax implementation included: frequent taxpayer education and
sensitization, putting in place mechanisms to address public misconceptions or
inaccuracies and providing information in a customer-focused way to reduce errors. Not
only that, the Zambia Revenue Authority could employ other initiatives such as,
simplifying the tax system, organizing business functions with a focus on taxpayer type
below an agreed income threshold, simplifying business registration procedures and the
tax codes applicable, undertaking research aimed at understanding the business
climate to inform administration and tax policy formulation to reduce the cost of
compliance, increasing taxpayer education and outreach such as the introduction of a
call center, and finally, establishing collaborative relationships with other government
agencies for the purpose of data sharing to assist tax enforcement.
6.2
RECOMMENDATIONS
These recommendations are generated from the findings of the dissertation. They are
nurtured by the sensitive concern for the general welfare of the government, taxpayers,
institutions and agencies or organizations in whom the future of this country’s vest as
well as to help improve on institutional effectiveness and efficiency.
54
The study recommends that there should be rigorous education programs targeting the
taxpayers to enable them understand their obligations and provides opportunity to
provide feedback about the way the tax system operates.
The study recommends that the Zambia Revenue Authority should employ qualified
valuers and thus develop land-developers capacity to undertake their own main and
supplementary valuation rolls. The Government Valuation Department can then provide
more strategic oversight to Zambia Revenue Authority while giving additional support to
smaller districts and new districts. In developing land-developers capacity, rating
authorities in Zambia should endeavor to address the frequency with which general and
supplementary valuations are undertaken. Capacity could also be increased or
realigned if Zambia Revenue Authority would consider and implement simplified mass
appraisal approaches in their valuation processes. More regular supplementary
valuations will at least capture new property developments.
The study recommends that the Zambia Revenue Authority need to develop the landdeveloper’s capacity to adequately administer revenues from all revenue sources, but
especially the property tax. Their finance departments need to be adequately staffed
and resourced to undertake the billing and collection of the property transfer tax, and
the necessary political and managerial support must be provided to enforce against
defaulters. Implementation of alternative payment options should be a priority. This will
reduce administration and compliance costs and should positively affect revenue
collection.
The study recommends that there is need for more training of tax administration staff to
assist in keeping abreast of legal developments and enhance use of latest information
technology within the Zambia Revenue Authority. However, there is need to enhance
utilization of informatics. The Zambia Revenue Authority staff needed more training in
latest Information Communication Technology (ICTs.)
The study recommends that there is need to Institute robust data matching process with
third parties involved in property transaction. For instance, Zambia Revenue Authority
55
(ZRA) could match value of property declared for tax purposes with declared purchase
price when the property is mortgaged to the bank in order to guarantee payment.
The study recommends that the Zambia Revenue Authority through the government
impose severe fines and penalties should be instituted for defaulters.
The study recommends that there should be put in place tough laws to check evaders,
putting in place mechanisms to address public misconceptions or inaccuracies and
providing information in a customer focused way to reduce errors.
The study recommends that legal requirement linking value declared for tax purposes to
compensation in the event of expropriation could be another option to minimise
underreporting of actual sales value of property.
The study recommends that the Government Valuation Department in consultation with
Zambia Revenue Authority can institute a system of accreditation for valuers. Annual
license can be issued to qualified valuers, and valuers can be deregistered if their
performance is unsatisfactory.
Adequate and updated information on the tax base is critical for the administration of
property transfer tax, thus tracking all new improvements to properties, as well as
changes in ownership and sub-division of properties is very necessary for property tax
administration. However, information generation could be expensive. To overcome the
tendency of such efforts to be both very costly and difficult to sustain over time, the
study recommends that there is need for a local recruitment of valuation officers in all
district Zambia Revenue Authority stations who would be trained to perform the
identification and assessment of properties, including the assignment of street names,
house numbers and land parcels. Portable Global Positioning System (GPS) devices
could be used to identify the location of different properties, with the potential to then
transform these GPS coordinates into comprehensive local property maps as part of a
broader Geographic Information System (GIS) and tax mapping. Meanwhile, all of the
relevant information can be recorded using relatively straight forward database software
that could tabulate the physical description of the property, assessment, tax liabilities,
track tax compliance, and tenure and ownership information. Furthermore, there is need
56
to link all systems for identifying land values and tax payment. The introduction of a
unique parcel identification number could be a starting point.
The study recommends that, all expenditure assignment should have a corresponding
revenue assignment. Thus there is need to build the revenue generating capacity at
every district to ensure efficient service delivery which is critical for voluntary tax
compliance.
The study recommends that there is need to capacitate the Government Valuation
Department to regularly update valuation rolls and Zambia Revenue Authority to
institute independent appraisal system for all high end sales, and for a sample of all
other sales.
The study recommends that the government should involve taxpayers when formulating
tax policies to enhance a buy in by the taxpayers.
The study recommends that, plans to institute a fiscal decentralisation commission that
will be responsible for facilitating reform measures at local levels should be
implemented, but particularly the commission should be charged with the responsibility
of knowledge generation which is critical for property transfer tax administration. This
will include carry out studies on annual sales ratio, collection rate, annual tax
expenditure for the property transfer tax to track the cost of exemptions, do an annual
breakdown of revenue collection by district offices and by sub-categories, and prepare
an annual delinquent list classified by status (collectible or bad debts). The said
Commission should be capacitated to monitor activities devolved to district levels and
be in position to rank these districts into performing and non-performing districts based
on agreed indicators.
57
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Statutes
Companies Act of N0. 10 of 2017 of the Laws of Zambia
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Zambia Revenue Authority Act, Chapter 321 of the Laws of Zambia
Web Site
http://www.nerre.com
https//www.zra.org.zm
https://www.mbaknol.com/category/business-taxation
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