A tax is a compulsory financial charge or type of levy imposed on an individual or legal entity (Tax Payer) by a governmental organization (Botswana Unified Revenue Services) to collectively fund government spending and public expenditures. Taxation falls into two categories; indirect and direct. Direct tax is levied on the individual directly and is not transferrable, whilst indirect taxes are collected by another on behalf of the government. Please note that the tax year in Botswana is 30 June.
There are different forms of direct and indirect taxes in Botswana which are discussed below.
Income Tax:
Refers to the tax calculated on Income that is obtained within Botswana and is above the minimum tax threshold. Income tax is a direct tax. Income tax is therefore categorized into two, as follows:
Individual Income Tax:
It is a requirement that any person earning taxable income (income in excess of P48000 per annum) should accordingly register with BURS so that the income can be assessed and taxed on submission of the tax return. This includes individuals whose only source of income is employment which has been taxed at source through Pay As You Earn (PAYE).
In case an individual has multiple sources of income, the income received from different sources is added together at the end of the tax year to determine the tax liability. As a result, they fill tax returns for the income received. The tax filing will be done online. Individuals whose sole source of income is employment and have annual income below P480, 000 are exempt from annual tax filing.
Corporate Income Tax:
A Company is liable to pay tax like any other person. Income tax rate varies but the general tax rate is 22% of the Company’s Annual tax Profit for Companies registered in Botswana. The Income Tax Return must be filed within four months of the company’s financial year-end to avoid penalties. Manufacturing companies are taxed at 15%, so are companies registered under the International Financial Services Centre. A different tax framework exists for companies registered under SPEDU. Companies registered under SPEDU are taxed at 5% for the first 5 years and 10% there-after.
Botswana has one of the lowest tax rates in the region. It is an attractive destination for investors who wants to maximise their returns by minimizing their tax.
Value-added tax (VAT):
VAT is an indirect tax levied on the supply of goods and services consumed within Botswana. Any company with an annual turnover of more than one million pula (P1 000 000.00) must register for VAT. Additionally, a business with an annual turn over less than P1000,000.00 but more than P500,000.00 may apply to be registered voluntarily. This may be important for a small enterprise making zero – rated supplies (e.g. exports) or those who need to have tax invoices so that they can claim credits for the VAT payable on inputs.
Filing Deadline: The VAT Tax returns must be filed on or before the 25th of the month following the end of the tax period.
PAY AS YOU EARN (PAYE)
Employers are required to withhold tax (PAYE) at the prescribed rates from all payments of remuneration and issue an annual certificate of tax withheld to the employee. PAYE returns must be filed within one month of the end of the tax year.
An employer must deduct tax from various forms of remuneration, including:
- Salaries, wages, bonuses, and allowances.
- Commissions, pensions, and lump sum payments.
- Amounts under a contract of employment.
- Non-cash benefits provided to employees (such as school fees, utilities, motor vehicles, housing, and more).
- The withholding system is commonly referred to as the PAYE system.
- The valuation of non-cash benefits follows prescribed guidelines.
Currently, the tax threshold is P4,000 per month. The maximum marginal tax rate is 25%, which is one of the lowest in the region.
Other Withholding Taxes
Under the law, when a person makes a payment of a specified nature, he/she must withhold a percentage of that payment and remit the amount withheld to the Commissioner General. Types of income from which tax is withheld include:
- Rentals
- Interests Residents and Non Residents
- Dividends Residents
- Management Fees
- Directors Fees (Residents and Non Residents)
- Livestock
- Construction
OWHT must be filed by the 15th of the subsequent month by which the amount was withheld.
Other Withholding Tax Annual returns must be filed within one month of the end of the tax year.
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