Marvelous Tapera 
PROCEEDINGS in the National Assembly pertaining to the debate on the Finance Bill have displayed the House’s displeasure at the prescribed rate on the sale of listed marketable securities, which some have termed a punitive measure.
The Budget brought forward a proposal and alluded to the fact that where a marketable security listed on the stock exchange is held for less than 270 days, a 40 percent capital gains tax will be charged on the date of its sale.
The House however, has managed to convince the minister of Finance to reduce the period to 180 days (this is what we quote in the rest of the document). This seems like a win, but a number of questions and doubts still hang over that particular provision and rate of tax.
One thing to note is that this will only apply when a listed security is sold and there is gain, that particular gain is the one on which the 40 percent will apply and not on the proceeds.
The capital gain is the amount remaining after subtracting from proceeds of sale or disposal exemptions and deductions. Deductions include the cost of share acquisition, cost of additions, inflation cost and selling cost among other costs.
The clouding question at this point could be: “Is there really smoke behind the new capital gain tax law on listed marketable securities?”
Listed marketable securities are generally exempt from capital gains tax, but subject to final capital gains withholding tax.
However, the capital gains tax exemption ceased to apply with effect from May 13, 2022 on listed marketable securities, which are sold in less 180 days from the date of their acquisition as contemplated in the Finance Bill.
The same marketable securities were subject to capital gains withholding tax of four percent of proceeds in terms of Statutory Instrument (SI) 96 of 2022.
The Finance Bill seeks to ratify SI 96 of 2022 with effect from May 13, 2022 but revises the rate of withholding tax from four to 40 percent of proceeds if the listed marketable securities are disposed of or sold in less than 180 days from the date of their acquisition.
The Finance Bill has therefore, increased the rate to curb the impact that those with the listed securities have on the stock exchange. This withholding tax is not a final tax, upon assessment however, the final capital tax liability of 40 percent of the capital gain will apply.
Meanwhile, 1.5 percent of the price at which a listed marketable security is sold would apply for marketable securities which are held for at least 180 days before the sale date. This is a final tax and has been reduced from two percent by SI 96 of 2022 with effect from May 13 this year.
The 40 percent capital gain tax and capital gains withholding tax were meant to be a cure for speculative behaviour in the market and was also meant to deal with a short-term problem.
However, this has become a permanent short-term solution given that this is the foundation of the prescribed rule in the current mid-term Bill.
What could possibly be the effect is that the 40 percent is charged on the gains. Gains are the component that the seller remains with after having subtracted costs from the proceeds, while the 1.5 percent is charged on the proceeds, which might be of much bearing to the seller given the fact that the proceeds might be more than the gain.
There really is not much smoke that is thundering behind this prescription by Treasury. This has not much bearing on the activities that are done on the stock exchange.
There is a high chance that the 40 percent on the capital gain could be less than the 1.5 percent that is charged on the proceeds.
Considering also the fact the sale would have taken place within a short space of time after acquiring the shares, the gain may be small after all.
In our view, activities on the stock exchange should not be affected by the new proposed law. The new tax may not necessarily hinder short-term disposals or sale of listed marketable securities. Albeit, if closely inspected it cannot be so mischievous so as to threaten trading on the stock market.
The barrier is not sufficient enough to prevent short-term sales or disposals. Rather what may be frightening would be a possible dip in share prices, which could otherwise result in traders picking up capital losses upon disposal.
Taxpayers, nevertheless, should keep records in support of deductions to minimise the impact of capital gains tax.
In terms of the law, a taxpayer who wishes to claim a deduction, exemption or rebate may be called upon by the Commissioner to support such a claim.
Meanwhile, Matrix Tax School invites you to take part in the upcoming Summer School from October 20-22 in Troutbeck, Nyanga. Tapera is the founder of Tax Matrix (Pvt) Ltd and the chief executive of Matrix Tax School. He writes in his personal capacity.
