Everything You Need To Know About TAX

Victoria Marumo

Welcome back to another edition of your already favorite business blog! If you are a first-time reader, I strongly suggest you check out the first two blog posts so you better understand the chapter we are discussing in today’s article. Today we look at a financial monster, TAX. I say monster because this is literally one of those, ?You can run but can’t hide moments”, and here is why; A TAX is a compulsory financial charge or a type of levy imposed on a taxpayer (that is an individual or a legal entity), by a governmental organization spending and various public expenditures. Failure to pay, as well as an evasion of or resistance to taxation is punishable by law.

How Much is TAX in Botswana?

The most important thing to remember is that TAX may go up as and when government sees fit, depending on a number of socio-economic factors. Also, there is no fixed TAX, rather different rates are applicable to different financial stakeholders, under what we call a financial TAX bracket. With that said, there will be a 2 percent increase in Botswana’s TAX from 12 to 14 percent effective from April 1st. Tax returns are due September 30 of each year and the tax year end for individuals is June 30 of each year. 

What categories are subject to income tax?

All types of compensation and remuneration received by an employee for services rendered in Botswana or deemed to have been rendered in Botswana constitute taxable income. These include, but are not limited to, the following:

  • basic salaries, wages, leave pay, and bonuses
  • fees, commissions, and so on
  • contractual gratuities
  • cash allowances (which include travelling, entertainment, or any other allowances)
  • non-cash benefits.

This is a friendly reminder to all individuals whose annual gross income exceeds BWP36,000, that they are required to register as taxpayers and submit annual tax returns no later than 30 September following the end of the tax year. Upon request, an extension is possible.

TAX and Businesses; What is the relationship?

Right! As an entrepreneur, with a salary that falls between the mentioned tax brackets, you will be charged TAX individually from your monthly earnings. Your business will also be charged TAX and as observed above, Botswana has a source-based taxation system. Corporate Income Tax (CIT) is charged at a single flat rate of 22%. Manufacturing companies having the approval from the Minister of Finance for a special tax rate are charged at the rate of 15%. Non-resident companies are taxed on their Botswana-sourced income at a rate of 30%.

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.

Moving on, capital gains are included in taxable income and imposed at the standard corporate tax rate. Where capital gains arise from the sale of shares, only 75% of the net aggregate gain is taxable. Gains from shares that are listed on the Botswana Stock Exchange (BSE) are tax-exempt if the seller holds at least 49% of the shares for minimum one year prior to the disposal. Gains from the disposal of International Financial Services Centre (IFSC) shares are exempt from tax.

Any form of business is liable to tax, does not matter the nature, as long as an entrepreneur legally registers with CIPA, what matters is how much money is coming through to determine your TAX bracket. Suppose you have a side hustle, and for argument’s sake, we will discuss rental properties. Rental income is classified as business income. Any rental income, is taxed at the individual tax rates. Chargeable business income is aggregated together with employment and investment income for purposes of determining the marginal tax rates applicable. Rental income from properties used for business will be subject to 10 percent withholding tax. Furthermore, 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 Are TAX Returns Filed?

Individuals

As registered tax-payer, you have the obligation to submit the returns sent to you depending on the tax type. These returns cannot be downloaded but can be obtained from any Income Tax Office.
Companies
Returns dispatched at the end of June are expected back before end of October.  Companies whose financial year is different from the tax year are issued with returns at the end of their financial year. Such returns are expected to be submitted within four months after the end of the financial year.  

A PAYE (Paye As You Earn) system, under which income tax is withheld from remuneration payable (including non-cash benefits) to employees, is in operation. All this is under the Botswana Unified Revenue Service (BURS).

All taxes are filed at BURS. However, companies are also expected to pay an annual return fee of P500.00 to CIPA, and P300.00 for businesses. This is completely separate from filing taxes but the two work hand in hand, such that if annual returns are not filed with CIPA, the new automated online system will automatically remove the business/company from the site. YIKES!

How To reduce Tax/ Who can be exempted from Tax?

Well, as far as individual taxation is concerned, anyone whose annual salary is below P36000.00 is not liable to pay TAX. In simpler mathematics, anyone earning P2000.00 a month and below is TAX free. Tragic if you think of it because, really in this day and age, with the standard of living going higher every day, people still earn extremely minimum wages? But that is a topic for another day.

Exemption from tax is restricted to gains on disposal of specified assets/property including shares traded on the Botswana Stock Exchange, shares in a Botswana registered public company as defined in the Income Tax Act, bonds, and debentures issued by the government, Bank of Botswana or statutory bodies, shares in an International Financial Services Company as well as principal private residence.

Another way companies may evade or reduce their tax is through debt and this is often referred to an Interest Tax Shield. Companies pay taxes on the income they generate. Interest expenses incurred through loans and mortgages are tax deductible which means they literally lower the taxable income, automatically acting as a TAX shield against TAX obligations. This does not work like magic however, which is why it is imperative to bear in mind that interest shield will only work if the earnings before interest and taxes is bigger than the interest expenses. Tax shields are applicable to individuals just as they are to corporate, and in a nutshell, this is basically to say; taking on more debt makes you inclined to pay regular interest expense but at the same time, that very same interest helps you lower your tax responsibility.

READ MORE:

Botswana – Income Tax

Basis of Taxation

Tax rates in Botswana

Exemptions

Exciting read? Lookout for next week?s post when we discuss property acquisition. Highlight in the comment section, through questions and suggestions, of topics you would like discussed on our weekly blog.  Cheers!

Miss Victoria Marumo is a journalist with a distinctive and creative voice. Her avid reading complements well with her writing in providing captivating information on business topics.

Writer: Victoria Marumo

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