Tax charge dents PrimeTime's rosy figures

Mbongeni Mguni | Friday May 17, 2019 12:09

 

PrimeTime’s rental incomes rose 19% in the interim period to P75.3 million, powered by higher occupancies which saw the vacancy rate across the group falling to three percent from five percent.

PrimeTime owns several landmark commercial and retail properties around Botswana and in Zambia. However, tax charges ate into the anticipated higher returns, with PrimeTime allocating P8 million, up from P3 million in the previous corresponding period.

The result was that profit for the year was P24.5 million, down from P26.7 million in the interims ended February 2018. The group declared distributions of 5.23 thebe per linked unit, from 5.55 thebe the previous corresponding period.

“The charge for taxation comprises deferred taxation in relation to the potential liability for Capital Gains Tax on the acquisition of properties. And deferred taxation on the fair value adjustment for the period/year as well as withholding tax on the rental income of the foreign entities, which is a final tax,” directors explained.

More tax challenges beckon for PrimeTime due to changes ushered in via the Income Tax Amendment Act last December.  The changes have limited the extent to which variable rate loan stock firms such as PrimeTime, RDC Properties and Letlole la Rona, are able to pass on tax benefits to investors. PrimeTime directors said the higher tax charge for the six months to February 2019 included a P4.5 million provisional to incorporate the new amendments. “In the bigger picture, we cannot talk about the group’s future prospects without highlighting the effect on our investors of the recently introduced Income Tax Amendment Act,” directors said. 

“As advised in the recent interest payment announcement made in February 2019, this Act limits the deduction of net interest expense in calculating taxable income and will result in the company suffering income tax on its profits prior to their distribution as debenture interest.” Another variable rate loan stock group, New African Properties (NAP), whose portfolio was valued at P1.5 billion in January 2019, recently expressed concern about the tax changes, in a directors’ commentary accompanying its interims. NAP expects to suffer a P10.2 million tax hit when it reports its full year in July, due to the new amendments.

Prior to the amendments, property groups established on the variable loan stock structure were able to reduce their tax liabilities by paying interest to their investors whose stakes were characterised as loans. The new amendments limit the extent to which the property firms can do this. NAP directors said they were investigating avenues to reverse or delay the impact of the amendment and negotiations with “relevant stakeholders” were ongoing. PrimeTime’s board, meanwhile, it was assessing the options available to to protect investors’ interests.

“The board is working actively with the listed property sector to find a workable long-term solution,” directors said.