THE 15% value-added tax (Vat) demanded by the government from companies seeking to list their Real Estate Investment Trusts (REITs) on the bourse is too high especially for the cash-strapped pension funds, businessdigest can report.
Pension funds are failing to list REITs on the local bourse as a result, according to ZSE chief executive officer Justin Bgoni who spoke to businessdigest last week on the sidelines of a Zimplow VFEX listing ceremony in Victoria Falls.
When listing a REIT, companies need to transfer their assets into a trust. According to the current income tax rules, one has to pay value added tax (VAT) on it, which can be claimed later.
"The challenge we are having on ZSE is that of taxation. Pension funds REITs are not liquid enough to pay for the Vat and claim it later on,” he told businessdigest.
“So, that is stopping a lot of REITs listing from pension funds that should be coming from the market. So, we are talking to the government which is now looking at these on a case by case basis. The two REITs that are coming are getting exemptions. We are hoping that the government can give us a general exemption," he said.
Bgoni said the main target on ZSE was the listing of REITs.
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Currently, Zimbabwe has one listed REIT on ZSE, the Tigere REIT.
Listing a REIT on the stock exchange allows pension funds access to long term capital and increased liquidity for existing and new properties.Secondary market trading on stock exchanges further enhances liquidity.
Listed units can be traded in the secondary market with the potential for capital gains and the higher dividend yield (tax benefits) will attract investors.
In 2021, ZSE engaged issuers who had shown interest in REITs listing in an effort to mobilise resources for the infrastructure projects.
"There is one that is coming to the market shortly and we expect another one to come again. We think there is a lot of listing that can happen on the pension fund REITs. So, we are expecting two REITs this year,” he added.
“According to the current income tax rules, you have to pay Vat on it and then you can claim that Vat later on. Unfortunately for our pension funds, they can't afford that 15% or so upfront because it's a lot of money.
“Remember, a property can make hundreds and millions of dollars. So, 15% of that is a significant amount of money," Bgoni said.
He said the reason why pension funds were coming to ZSE was to look for money, hence, having to part with that kind of money was not feasible.
"So that is stopping a lot of them from coming to the market. The two that are coming now got exemption from the government but we think it shouldn't be a case by case basis but a broad exemption," he said.
In terms of liquidity, he said that was the reason why pension funds liked ZSE because most of their illiquidity was on the buildings or properties.
He said a REIT helps because it makes the properties liquid.