Introduction of Special Capital Gains Tax In Zimbabwe

Section 26(3) of the Finance Act No. 13 of 2023 provides, inter alia that:

(3) There is hereby chargeable a special capital gains tax on the transfer of a mining title, being a tax on the value of any transaction concluded within or outside Zimbabwe whereby any mining title:

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

(4) In amplification of subsection (3):

1. the liability to pay the special capital gains tax on the transfer of a mining title of any entity referred to in subsection (3)(a):
   1. is not affected by the fact that since the 1^st January, 2024, the mining title that was the subject of the transfer has ceased to subsist due to its cancellation, forfeiture, surrender or extinction for any other reason;
   2. is payable on the latest transaction by which the mining title was transferred to last entity holding it before the 1^st January, 2024, and if such entity transfers it again at any time after that date, it shall become liable to the special capital gains tax on the transfer of a mining title under subsection (3)(b);
2. referred to in subsection (3)(b) is not affected by the fact that at any time between the transfer of the mining title that was the subject of the transfer, and the date when payment of the tax became due, the mining title concerned has ceased to subsist due to its cancellation, forfeiture, surrender or extinction for any other reason.

The tax is payable in United States Dollars or the equivalent in any other foreign currency at the international cross rate of exchange prevailing at the time of transfer. The rate is 20% of the value of the transaction concerned. The tax is payable by the transferee and in the event of default by the transferee, it is payable by the owner of the mining title immediately before the title was transferred. 

Where the transfer will have been approved by the Minister of Mines or any person or authority specified in the law, the special capital gains tax on the transfer of the mining title is payable at the rate of 5% of the value of the transaction concerned. 

If the mining title will have ceased to subsist because of cancellation, forfeiture, surrender or extinction for any other reason, the special capital gains tax will not be applicable where an affidavit will have been produced to the Commissioner General to the effect that such extinction was not procured for the purpose of avoiding liability for special capital gains tax. 

The special capital gains tax is payable not later than 1^st of April 2024 in the case of a transfer occurring before 1^st of January 2024. Where the transfer will have occurred after 1^st January 2024 the special capital gains tax is payable not later than 30 days after conclusion of the transaction.

The Commissioner General has the power to extend the period for payment.

The special capital gains tax is a very strange and worrisome tax particularly in that contrary to all the principles relating to capital gains tax, the tax is not levied on any gain. It is levied as a percentage of the purchase price. Furthermore, it is not payable by the recipient of the purchase price, the party standing to gain from such a transaction in the event of gain. It is payable by the transferee, the party paying for both the original value of the asset and whatever gain will have been achieved. To make matters worse, the liability for this so called capital gains tax operates retrospectively for a period of ten years. As a matter of general principles of the law, a law cannot operate retrospectively if to do so will have an effect of extinguishing accrued or vested rights. This law has exactly that effect.

It is very likely that the constitutionality of this strange form of capital gains tax will be challenged.

Author: Sternford Moyo, Chairman and Senior Partner of Scanlen & Holderness