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B. Incidence and shifting of the transfer tax
Zambian law and practice state that the transfer tax is supposed to be paid by the seller.
However, the estate agents and functionaries interviewed observed that, in practice, the buyer pays
it along with other costs; Zambian real estate has been a seller's market of late, so it appears that
sellers can sufficiently raise their asking prices to cover the transfer tax.
Regardless of what the statutes say, a transfer tax actually affects both parties. To the buyer,
it is part of the amount he or she must pay in order to acquire the property. To the seller, it is an
amount that the buyer is willing to pay but which the seller does not receive. Both share in the tax
burden; how much each "pays" depends on their relative bargaining power, which depends largely
on how many other people are seeking such properties to buy and how many similar properties are
currently for sale. If demand exceeds supply, prices will tend to rise and vice versa.
To analyze the burden of the transfer tax, one must suppose a different world, in which there
is no transfer tax but government obtains the same revenue in a more neutral way, such as a value-
added tax. In that hypothetical world, the actual market price might be higher or lower than the
market prices in the real world (where a transfer tax is charged) depending on the other forces
operating on supply and demand at the moment. Economists simply do not have a reliable way to
determine the actual incidence of this tax, even in developed countries with excellent statistical data
(Musgrave 1960).
C. Revenue yield and tax evasion
According to informal sources, buyer and seller frequently agree to falsely declare the
purchase price to avoid paying an "excessively" high transfer tax (7.5 percent in 1993)2 The honest
buyer and seller are thus penalized, paying much more tax on the transfer than others who buy and
sell property of the same market value, but who understate the price.
The Minister of Finance announced, in the 1994 budget message (p. 14), that the government
intends to reduce the Property Transfer Tax rate to 2.5 percent, to amend the Property Transfer Tax
Act so that the commissioner may use property assessments by the Government Valuation Department,
and to amend the Land Conversion of Titles Act revoking the provision stipulating that land has no
value. This proposed 2.5 percent tax should be reduced further and perhaps even replaced by a capital
gains tax. This will encourage landholders to sell more quickly when their own needs for land
diminish and help the economy adjust faster to economic changes. Even so, Zambia's real estate
market and institutions will still suffer from sluggish titling and registry services. According to the
1994 budget message (p. 10), the government will take an initiative in 1994 to approve terms of
reference for ways of decentralizing to the district-council level and for improving the registration of
land transfers and the collection of fees. (See chapter 2 for an assessment of these proposals).
The transfer tax is not the only cost in real estate transactions in Zambia. There are also user
fees to be paid to the registry and the costs of survey. Attorney fees and a commission charged by an
3 In comparison, the transfer tax in the United States is only 2 per 1,000 (0.2 percent). The amount of the tax is recorded
on the actual record of the transfer, which is open to public inspection. Thus, appraisers, real estate tax assessors, and the
public in general can find out rather easily the price at which properties are actually bought and sold.