Basis of Taxation
The residence of the taxpayer plays no part in determining whether an amount is taxable or not. The income chargeable to tax is income arising from a source within Botswana or deemed to be within Botswana. Thus, income arising from outside Botswana is generally not taxable although there are some exceptions. Generally, accruals of capital nature escape taxation although there are some exceptions.
Income Tax applies on chargeable income derived after excluding capital gains and exempt income from assessable income which in turn is derived after deducting deductible or allowable expenses from the gross income.
Exempt Gross Income
Income of local authorities, of Bank of Botswana, of approved benefit and pension funds, of religious, charitable and educational institutions provided it is business income used to promote the objects of the institution, of statutory bodies, trade unions etc. - these are exempt gross income based on the nature of the recipient.
Further scholarships, bursaries and school fees, the first P7, 800 per year of interest accruing to resident individuals from banks and financial institutions, value of medical treatment paid by an employer for the employee, benefits for death, injury or sickness received from trade union, benefit fund, insurance policy, etc - these are exempt by their very nature.
Capital Gains Tax
The assets specified as subject to capital gains are movable and immovable assets of a business, company shares, residential property and assets of International Financial Services Centre Company situated in Botswana. In case of a movable property, 75% of capital gain is taxed at 25% in case of resident company and 30% in case of non-resident company. In case of immovable property, purchase costs are indexed to compensate for inflation at rates prescribed by Botswana Unified Revenue Authority (BURS) prior to determining capital gains which is then taxed at rates as above. In case of individuals, capital gains above P 36,000 is taxed at 5%, above P 84,000 at an additional 12.5%, above P 120,000 at an additional 18.75% and above P 156,000 at maximum marginal tax rate of 25%.
Exempt Capital Gains
Exempt capital gains include gains from disposal of assets like plant, equipment, furniture, vehicles, etc. (not land and buildings) qualifying for capital allowance (somewhat akin to depreciation), certain mining properties, principal private residence self-occupied for at least 5 years, units and debentures of a resident public company or units and debentures actually traded on Botswana Stock Exchange, entire stock of equity shares of a company that has released 49% of its equity shares for listing on the BSE. Exemption also applies to disposals as a result of re-structure, merger of two or more resident companies (listed in Botswana Stock Exchange or not) without altering the ownership of shares in the resulting re-structure or merger.
Individuals are taxed on wages, salaries, leave pay, fee, commission, bonus, gratuity, compensation and commutation due under any contract of employment or service, pension, lump sum payment. Two-thirds of severance pay or terminal gratuity is taxed. Pension contribution not more than 15% of remuneration is deductible. An individual may escape tax in Botswana if he is away from Botswana for a period in excess of 183 days in a year.
Housing benefit is taxed on 10% of municipal ratable value. Rural properties are taxed on 8% of value or computed by applying P 250 per square metre. Sometimes where employees are paid low salaries, then housing benefit tax is computed on value derived by multiplying applicable percentage (between 1% and 25%) on salaries. Any rent recouped is deducted and occupation for a portion of the year attracts proportionate housing benefit tax.
Vehicle benefit is taxed at between 5% and 10% for the vehicles valued at or less than P 200,000 and at an additional 15% for values exceeding P 200,000. Free furniture is taxed at 10% of value over P 15,000.
Tax Free Benefits
Employer medical contributions provided to full time employees or director, necessary or customary job-related accommodation, meal vouchers given to all employees and child care facilities given to employees' children are tax free. Further as stated above, a third of severance benefit is tax free.
Gross Income for Business
Gross income includes value of closing stock, subsidies to carry on the business, market value of any benefit obtained, insurance compensation against loss of profit or damage to business property, amount of revenue nature accruing after cessation of business , any outstanding debt released by or waived by a person`s creditor, rent or premium for occupation, management or consultancy fee, bad debts recovered and capital gain from disposal of business property movable or immovable.
Besides, income brought into Botswana by a resident citizen and management and consultancy fees paid to a non-resident with no permanent establishment in Botswana, balancing charge (somewhat similar to profit on sale of assets) and foreign income including foreign interest, dividend or royalties are also part of gross income.
The general rule is that it should pass the test of being wholly, necessarily and exclusively incurred in the production of income. Specifically deductions for purchases, wages, salaries, rates, rent, interest, repairs, subscriptions to trade unions, etc. are allowed. Employers' contribution to pension fund is allowed upto 20% of remuneration. Cost of listing shares in Botswana stock exchange is allowed as a deduction. Legal fee incurred during the course of conducting business is allowed. Bad trade debt is allowed after reasonable collection efforts have been taken. Annuity paid to a former employee is allowed. Depreciation is not allowed but instead capital allowance is allowed at 10% for furniture, fixtures, fittings, 15% for plant and equipment, 25% for vehicles and 2.5% for commercial and industrial buildings. Industrial buildings attract an initial allowance of 25%, too. Any balancing charge (akin to profit on sale of assets) can be rolled over meaning deducted from the cost of the assets that replaces the assets sold.
Deductions not allowable
Expenditure on hospitality not wholly, exclusively and necessarily incurred in the production of assessable income, expenditure or loss recoverable under an insurance contract, donations not made to specific persons, capital allowances on expenditure in excess of P175,000 of a motor car acquisition cost, general provisions of bad and doubtful debts, gratuities, leave pay and other provisions, tax payments and penalties and interest thereon, cost of travel between home and place of business, domestic expenses incurred by an individual and expenses involving crime such as bribes and pre-production expenses - these are not allowed.
Rental Income accruing to an individual is considered business income. Expenses such as mortgage interest, rates, and repairs to property are deductible. Expenses such as mortgage repayment and improvements to property are not deductible as they are capital in nature.
Where an individual is in receipt of interest on loans by directors/ shareholders to companies or on savings bonds, certificates of deposits etc., he or she is subject to a final charge of 10% withholding tax on interest in excess of P1950 per year. Non- Resident tax on gross (no threshold P1950 applies) interest is also withheld but it is a final charge and it shall not be subject to tax by assessment. Income from foreign investment made by a resident who is a citizen is included in his individual`s return for each tax year.
Assessed loss in one accounting period may be carried forward for 5 years. Farming loss can be carried forward indefinitely and also carried backward for years.
Self Assessment Tax (SAT)
A person who estimates his annual tax liability to be more than P50, 000 is required to calculate the tax applicable, divide the tax by five and pay quarterly tax at the end of each quarter during the accounting year and the 5th installment upon filing the tax return. SAT is mandatory for companies but is optional for individuals.
Any shortfall on quarterly installments is charged interest at the rate of 2% compounded per month or part of the month if the installment is less than 20% of the tax due on the tax return for the tax year.
Tax returns should be submitted within 4 months of the accounting year-end for companies and within 3 months for individuals. The Commissioner General can call for a tax return by a special notice if he thinks a person is likely to leave the country permanently. Such return is to be furnished within a period of not less than 7 days of the special notice. If a person is unable to submit a return for genuine reasons, he may apply for extension of time to submit the return. A provisional tax return is required when an extension of time is granted.
Assessment is a charge to tax and is made on the basis of a tax return. Commissioner General may make an assessment without a tax return where he believes tax is owed and the person chargeable to tax may leave the country without settling his tax liability. Where the return is not satisfactory or has not been submitted, the Commissioner General may make an assessment to best judgment. Late submission of return may also lead to penalty assessment.
The assessment can be time-barred if it not revised within 4 years after the date of issue of the assessment. For estates of deceased persons, assessment should be made within 3 years from the date of death. An assessment is final when it is time- barred, or when no objection or appeal has been lodged or when there is no further right of appeal. For reasons to do with fraud and misrepresentation, Commissioner General may re-open the assessment going back upto 8 years.
Records need to be kept for 8 years.
Objection and Appeals
Any person who may be aggrieved by an assessment made on him by the Commissioner General may object to that assessment within 60 days of the date of issue of the assessment provided he has submitted a return for the relevant tax year. If the Commissioner General disallows an objection in part or in whole the aggrieved person may appeal to the Board of Adjudicators within 60 days of receipt of the Commissioner General`s decision on the objection. The appellant is required to confine his appeal to matters specified in the objection to the Commissioner. If the appellant is still not satisfied he has the right to appeal to the High Court. A decision of the High Court is final. The payment of tax is not suspended by the lodging of a valid objection or appeal nor is the Commissioner General restrained from using his powers to recover the tax.
When tax is payable
Tax is due when the assessment is made and should be paid within 30 days of the date of assessment. Belated payments attract 2% interest per month or part thereof compounded.
Withholding Taxes and Final Tax Rates
|Type of Income||Resident||Non Resident|
|Dividends (7.5% until 30th June 2021)||10%||10%|
|Management, Technical or Consulting Fees or software customization fee||0%||15%|
|Construction Operations Payments||3%||3%|
|Commission & brokerage fee||10%||-|
|Value Added Tax||12%||12%|
|Capital Gains Corporate||25%||25%|
|Income Tax- Corporate||22%||25%|
|Unapproved Pension & provident investment income||7.5%||-|
|Taxable Income not covered above||22%||30%|
|Dividends accruing from outside Botswana (7.5% until 30th June 2021)||10%||-|
|Late Payment interest (monthly compounded)||1.5%||1.5%|
|Manufacturing and International Financial Services Centre Companies||15%||-|
Double Taxation Agreements [DTA]
The following are indicative withholding or final tax rates. For more detailed information please email [email protected]
|France||5% if beneficial owner owns 25% shareholding in Botswana or 12%||10%||7.5%||10%|
|Seychelles||5% if beneficial owner owns 25% shareholding in Botswana or 7.5%||7.5%||10%||10%|
|Barbados||5% if beneficial owner owns 25% shareholding in Botswana or 7.5%||10%||10%||10%|
|United Kingdom||5% if beneficial owner owns 25% shareholding in Botswana or 7.5%||10%||7.5%||10%|
|Zimbabwe||5% if beneficial owner owns 25% shareholding in Botswana or 7.5%||10%||10%||10%|
|Russia||5% if beneficial owner owns 25% shareholding in Botswana or 7.5%||10%||10%||10%|
Other countries on board are: Mozambique, Malawi, Zambia and Tanzania (signed and ratified); Serbia and Montenegro ( to be renegotiated); Belgium (negations concluded) Kenya , Angola, Nigeria, Uganda, DRC, Germany, The Netherlands ,Luxembourg, Japan, Malaysia and Canada, Libya[ feeling way towards negotiations], India, Mauritius and Sweden are in force.
Personal Tax Rates
|CAPITAL TRANSFER||CAPITAL GAINS||INCOME TAX (RESIDENT)|
Threshold of P 48,000 for income tax is not available for non-residents.
A permanent establishment of a non – resident foreign company is taxed on all income derived from a source or deemed source in Botswana. In determining profits of the permanent establishment located in Botswana, deductions of interest, royalties, foreign exchange loss in respect of assets and liabilities established between the permanent establishment and its head office, management & professional fees paid or to be paid by the permanent establishment to its head office may not be deducted.
Tax Agreement is between the Minister and some large companies or conglomerate which are subject to tax in Botswana. It must be ratified by an Act of Parliament. The essence of the agreement is to charge tax at a lower or higher rate or it may give a tax holiday as an incentive thus creating a tax regime outside the provisions of the Income Tax Act. These agreements for companies that would benefit the economy of Botswana very significantly.
Development Approval Orders [DAO]
The effect a DAO is to vary the Income Tax Act to give tax incentives in the form of deductions in ascertaining chargeable income which are over and above the normal deductions allowable under the Act. DAO is granted in respect of any business engaged in a project to promote development of the economy of Botswana, but on application by the tax payer. The Minister will grant DAO to a company if he is satisfied that:
- There will be a number of Batswana employed in certain empowering capacities.
- The applicant has adequate facilities for training and acquisition of skills.
- There is provision for localization.
- The Applicant has adequate capital investment in Botswana.
- The project is carried out to develop remote and undeveloped areas in Botswana.
- The project will influence reduction of consumer prices and
- The project will have spread effects to other economic, commercial or industrial activities.
Capital Transfer Tax Rates
CTT (akin to gift tax) applies in case of gratuitous disposals made by a donor to a donee in any tax year. Companies pay 12.5% company transfer tax. Donees are liable to pay CTT. Individual tax rates are given separately. In case of deceased estate (assets less liabilities) P 100,000 of distributable assets is not subject to CTT.
TAXATION OF PUBLIC BENENFIT ORGANIZATIONS IN BOTSWANA
|Type of OrganizationType of Organization||Business Income AND Disposal Gain||Any other income|
|Applied towards the objectives||Not so Applied||Applied Towards the objectives||Not so Applied|
|Public Trust or Religious, Educational and charitable institution||NOT TAXED||TAXED||NOT TAXED||NOT TAXED|
|Social and Sporting Association||NOT TAXED||TAXED||NOT TAXED||TAXED|
Taxation of Close Companies or participator taxation
Any person having 5% of shares in a company including a loan creditor is called a participator. A payment to a participator is treated as a distribution and taxed in his hands with no deduction available in the hands of the close company. The following benefits enjoyed by a participator are deemed to be dividends:
- Gratuity in respect of employment,
- Cost of any passage benefit more frequently than once in 2 years
- Interest free or low interest loan not repaid within 9 months.
VALUE ADDED TAX
Output VAT is collected by registered vendors on sale of goods and services and input VAT is paid on purchase. Excess of output value is paid to Botswana Unified Revenue Service usually once every 2 months, generally. Large companies are designated to pay VAT each month. Excess of input VAT is claimed, on the contrary. This is an indirect tax. Every vendor making supplies in excess of P 1,000,000 (1 million Pula) is required to be registered for VAT. Persons may make adjustment to correct errors made in previous VAT returns within a period of 4 months. Input tax may not be recoverable if purchases are not for business e.g. expenditure on registered person`s grocery, entertainment whether entertaining residents or non – residents, provision of domestic accommodation and purchase of motor vehicle.
Interest, school fees, cremation or burial service and postal service are exempt from VAT. Essential food items such as sorghum, printed matter such as books and newspapers, construction of residential buildings, caravans used for permanent residences, transport by bus or aircraft, exports, supplies to charity, drugs and medicines supplied on prescription and sale of residential property by builders are zero-rated supplies. Input VAT can be claimed for zero-rated supplies but not for exempt supplies.