Botswana Direct Taxes

A. Income Tax: Scheme of the Act

The Income Tax Act provides a series of steps to be followed in determining the taxpayer's taxable income. The first step is to determine the taxpayer's 'gross income' as defined in section 2 read with section 9 of the Act, which means, in respect of every person:

- the total amount, whether in cash or otherwise accrued or deemed to have accrued to him in that year from every source situated or deemed to be situated in Botswana but shall not include any amount of a capital nature except to the extent specified in the Act. After the determination of 'gross income', the second step is to arrive at the "assessable income" which is done by deducting all the receipts and accruals that are exempt under the Act. Thereafter 'chargeable income' is arrived at by deducting all the amounts that are allowed to be deducted or losses that are allowed to be set off against the ' assessable income' in terms of provisions of the Act. Finally, the "taxable income" is arrived at by aggregating the chargeable income from all sources with the net taxable capital gains, which has to be calculated separately from other income. The scheme of the Act, therefore, is as hereunder:

Gross income minus exempt receipts/accruals

= Assessable Income

minus deductions/brought forward assessed losses

Chargeable income from all sources

plus net taxable capital gains

= Taxable income

B. Income Tax on Resident Corporations (National Government)

1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year)

Income Tax, Income Tax Act, Chapter 52:01, 1995 (hereinafter referred to as "the Act").

2. Organisation Responsible for Administration

Botswana Unified Revenue Service (hereinafter referred to as "BURS") headed by the Commissioner General (hereinafter referred to as "the Commissioner General").

3. Definition and Classification

The term Company is widely defined in s 2 of the Act to include:

• anybody corporate;
• any specified corporation;
• collective investment undertaking;
• any association or society whether incorporated or registered or not, but does not include a partnership; and
• any charitable, religious or educational institution or a trust established for public purposes.

Resident company means a company that -

• its registered office or place of incorporation is in Botswana; or
• is managed and controlled from Botswana.

4. Basis of Taxation

4.1 Source-based or residence based

The tax system operates on a source basis

4.2 If source, define:

The term "source" has not been defined in the Act. It therefore, takes its every day meaning. However it derives its meaning from the principle of origin of income.

4.2.1 Actual source

All sources situated from within Botswana

4.2.2 Deemed source

According to provisions of s 11 an amount accrued to any person shall be deemed to have accrued from a source situated in Botswana where it has accrued to such person in respect of -

• any contract made by such person in Botswana for the sale of goods, whether such goods have been or are to be delivered in or out of Botswana;
• any service rendered or work done by such person in Botswana whether the payment thereof is made by a resident or a non-resident and wherever payment is made;
• any service rendered or work done out of Botswana:

­   by any person under a contract of employment with the government; or

­   by such person, being a resident, for or on behalf of his employer in Botswana during his temporary absence from Botswana, whether the payment for such service rendered or work done is made by a resident or a non- resident and wherever the payment is made.

• any pension, bonus, gratuity or compensation granted to such person in respect of past services:

­   by the Government; or

­   where such past services were performed in Botswana by any other person, and wherever payment is made or the funds from which payment is made are situate.

Provided that where the pension, bonus, gratuity or compensation is payable under paragraph (ii) for past services performed partly in and partly outside Botswana, only the part the Commissioner General has a discretion to apportion the amount.

• any business carried on by a resident, as the owner or charterer of any aircraft, wherever such aircraft may be operated;
• any service rendered or work done out of Botswana by a resident, as an officer or a member of the crew of any aircraft referred to in paragraph (e), wherever payment is made;
• the disposal of an interest in mineral rights over land situate in Botswana or the disposal of a share or interest in the capital or income of a company holding such mineral rights;
• the disposal of mining or prospecting information or mining or prospecting rights over land situate in Botswana; or
• any investment made outside Botswana or any business carried on outside Botswana by a resident of Botswana, other than foreign investment income of non-citizens resident in Botswana.

4.3 If residence, define:

Not applicable

4.3.1 Define resident

Not applicable

4.3.2 Exclusions from the definition of resident:

None

4.3.3 Ceasing of residency provided for in the Act

None

5. Time Tax is Levied

Tax is levied on the earlier of the date an amount is accrued or is received. The effective date of accrual is defined in section 10 as:

• in the case of a business, in relation to which the Commissioner General is satisfied that a commercially recognized system of accounting is regularly followed, at the time it is credited in the books of account of such person; or
• in any other case, at the time it becomes due and payable to him.

6. Included in Tax Base

The total amount, whether in cash or otherwise or deemed to have accrued to a taxpayer in the relevant tax year from every source situated or deemed to be situated in Botswana but excluding any amount of a capital nature except to the extent specified in the Act. (s 9)

7. Year of Assessment

Botswana has a fiscal year ending on June 30. However, a business may select its own accounting year, which may end on a date other than June 30. This accounting year is accepted for the computation of the company's taxable income, which will be the last accounting period prior to June 30.

8. Computation of Taxable Income

8.1 Exemptions

8.1.1 Partial exemptions (amounts exempt irrespective of the identity of the recipient):

The following classes of amounts included in gross income are exempt from tax to the extent indicated (Second Schedule part II):

• Amounts accrued from a business or employment carried on in Botswana by a citizen of any other country, or by a company registered under any law in force in any other country, where such business or employment is carried on in Botswana under the agreement with the Government for the provision of technical assistance.

This exemption is given under the discretionary power of the Minister.

• Amounts exempted under an agreement entered into under sections 52, 53, or 54 of the Act (see discussion of sections, below).

These sections empower the Minister to grant tax relief to anyone who is or may be liable to tax under the Act:

­   Section 52 offers tax relief through Development Approval Orders (DAO). The relief usually takes the form of tax holidays, (ranging between five and ten years), mostly granted to new companies. The Order may also prescribe a reduced tax rate specific to a sector. For example:-under the Manufacturing Development Approval Order 1996, approved companies engaged in manufacturing activity are taxed at 15% instead of the current corporate tax of 25%.Companies have to apply to the Minister responsible for finance for approval.

­   Section 53 empowers the Minister to enter into double taxation agreements with other countries on behalf of Botswana Government.

­   Under section 54, the Minister may enter into a  tax agreement with any person who is or may become liable to tax under the Act, Under this provision the Minister can vary any provision of the Act, if he is satisfied that such a relief is in the interest of the country. However, the provision is seldom used.

• The investment income, from life and annuity funds.

8.1.2 Absolute exemptions (taxpayers enjoying completed exemption from tax on income):

Under the Second Schedule of the Act, some classes of persons are exempt from tax. They are as under:

• A local authority;
• The Bank of Botswana or any other bank or corporation wholly owned by Botswana Government, other than the Botswana Development Corporation and the Botswana Meat Commission;
• Organization in respect of which an order has been made under section 4 of the Diplomatic Immunities and Privileges Act;
• Approved benefit fund, approved provident fund or approved superannuation fund;
• Building societies;
• Institution which is, in the opinion of the Commissioner, a mutual savings bank or a mutual loan association;
• Trade unions or employee’s associations registered under the Trade Unions and Employers’ Organizations Act;
• Associations of employers established for a purpose approved by the Minister;
• Political parties listed in the Schedule to the Societies Act;
• Motor Vehicle Insurance Fund;
• Southern African Centre for Ivory Marketing;
• Botswana Institute of Accountants or any other professional institution established by statute;
• A stock exchange established in Botswana by statute and any ancillary organ thereof;
• A specified collective investment undertaking;
• A international financial organisation such as the International Monetary Fund, to which Botswana is a member under the International Financial Organisations Act; and
• Any special purpose vehicle formed by the government for securitization of public assets.

8.2 Deductions and recoupments

8.2.1 Allowable deductions

The Act provides for a general deduction rule as well as specific deductions.

General Deduction Rule (s 39(2))

The “chargeable income” is ascertained from assessable income by deducting, as a general rule, all expenditure wholly, exclusively and necessarily incurred in the production of the assessable income.

Apart from this generality, the Act specifically allows some deductions as follows:

• Legal expenses in the ordinary operations of the business (S 41(1)(c))

Legal expenses actually incurred by the taxpayer during the tax year on a claim, dispute or action at law arising in the course of, or by reason of, ordinary operations undertaken by the taxpayer in the course of carrying on a business are deductible.

• Employer's contributions to approved funds (S 41 (1) (d))

Employers are entitled to deduct amounts contributed during the tax year for the benefit of employees to an approved benefit fund, superannuation fund, pension fund retirement annuity fund or scheme. However, the deduction cannot exceed 20% of the total remuneration paid to the employees who are members of the said fund or scheme.

• Annuities to former employees and their dependants (S 41(1)(e))

A deduction is allowed on annuities paid by a taxpayer during the tax year to a former employee who has retired from employment by reasons of age, infirmity. Annuities paid to a dependent of a former employee after his/her death is also deductible.

• Lease Premiums (S 41(1)(f))

A deduction may be claimed for a premium or other consideration paid for:

­   the right to use or occupy land and buildings for the production of taxable income;

­   the right to use plant & machinery for production of taxable income; and

­   the right to use a patent, design, trademark, copyright or any other property for production of taxable income.

The deduction is spread over the duration of the use or occupation or 25 years, whichever is greater.

Where the entitlement is for an indefinite period, the Commissioner has discretion to allow the deduction over the probable period of the use or occupation, or 25 years whichever is lesser.

• Lease improvements (S 41(1)(g))

Cost of improvements to leased land or building affected by lessee under an agreement is deductible. The deduction is spread over the remaining period of the lease or 25 years, whichever is greater.

• Bad Debts (S 41(1) (h))

Amounts of debts due to a taxpayer that actually became bad during the tax year are deductible only if that amount was included in the determination of assessable income of the taxpayer either in the current or any previous tax year.

• Doubtful debts (S 41(1)(i))

The Commissioner may allow deduction of a reasonable amount of doubtful debts provided they have been included in the ascertainment of assessable income of the taxpayer of either the current or any previous tax year.

• Interest on loans used in the production of assessable income (S 41(1)(k))

The Commissioner may allow deduction of interest incurred on a loan including interest payable on debentures or debenture stock, provided that he is satisfied that the loan was used in the production of company's assessable income.

• Expenditure on scientific research and contributions to Associations, Institutions and Universities (S41 (1) (l))

Revenue expenditure incurred on scientific research undertaken by the taxpayer for the development of his business could be claimed as a deduction. Any contributions to an association, college or university are also deductible provided that the Commissioner is satisfied that such contribution will be used in scientific research relating to the taxpayer's business.

• Replacement cost of implements of the business (S 41(1)(m))

Replacement cost of implements, utensils or similar articles used in the business is a deductible expense.

• Membership subscriptions to trade unions and associations (S 41(1)(n))

Any periodic membership subscription paid to a Trade Union or an Association of employees or employers is deductible provided the union or association is either registered under the Trade Unions and Employers' Organisation Act or established for a purpose approved by the Minister.

• Licence fee or Licence levy paid under the Casino Act (S 41 (1)(o))

Any licence fees or licence levy paid by the taxpayer during the tax year under the Casino Act is allowable as a deduction.

• Expenses in connection with Stock Exchange listing (S 40 (1)(p))

Any expenditure incurred by a company solely by way of initial or annual listing fee to the Botswana Stock Exchange is allowed as a deduction.

• Entertainment expenses necessarily incurred in the production of income (s41(2)(a))

The Commissioner may allow any expenditure incurred during the tax year on hospitality or entertainment to the extent it was, in the opinion of the Commissioner, wholly, exclusively and necessarily incurred by the taxpayer in the production of assessable income of the taxpayer.

• Management fees necessarily incurred in the production of income (S 41(2)(b))

Management or consultancy fees paid to a non-resident are allowed as a deduction only if the Commissioner is satisfied that the expenditure was wholly, exclusively and necessarily incurred by the taxpayer in the production of his or her assessable income.

• Approved training expenditure (S 44)

Two hundred percent of the training expenditure as is in accordance with the rules laid down by the Minister can be claimed as a deduction. Prior approval of the Commissioner is necessary for purposes of this claim. In essence a taxpayer may claim a deduction for an amount that exceeds the actual expenditure incurred.

• Donations to approved Educational Institutions and Sports Clubs or Association (S 51) Donations to:

­   any educational institution recommended by the Minister responsible for Education; or

­   any sports club or sports association recommended by the Minister responsible for Sports, and approved by the Commissioner General are deductible subject to a minimum of P 1 000 and a maximum of 20 percent of the person’s aggregate chargeable income for that tax year.

• Value Added TAX input tax credit not allowed (S41 (1) (q)).

8.2.2 Valuation of inventory/trading stock

Inventories are valued at cost less such amounts, if any, that the Commissioner believes are reasonable as representing the amount by which the value of the stock has been diminished due to damage, deterioration, obsolescence, or other cause. The value of closing stock is included in the gross income, which is deductible in the next year as the opening stock

8.2.3 Reserves and provisions

Amounts transferred to a Reserve Fund and ad hoc provisions made in the accounts are generally not deductible for income tax purposes. However, the deduction of amounts provided in the accounts may be specially authorised. For example, the Commissioner General may allow a provision made for doubtful debts to the extent it is deemed reasonable by the Commissioner General (s.41(1)(i)).

8.2.4 Non-deductible expenses

The following expenses have been specifically disallowed (s50):

• Amounts not wholly exclusively and necessarily laid out or expended for the purpose of producing assessable income (S50 (b));
• Capital withdrawn or expenditure or loss of capital nature;
• Tax imposed under the Act (S 50 (d) and (e));

Taxes, interest and penalties payable in consequence of late payments or any tax of a similar nature charged in a country outside Botswana are also not deductible.

• Contribution to a benefit, superannuation, pension, provident or similar fund which is not approved by the Commissioner General.
• Amounts claimed under another provision of the Act (i.e. Double Deductions).

8.2.5 Recoupments

In the event of disposal of depreciable business assets, in respect of which capital allowances have been granted, appropriate adjustments are to be made in the computation of the chargeable income. The adjustment would either be a balancing allowance, i.e., a deduction from income or a balancing charge, i.e., add back to the income depending on the difference between the disposal value and the written down value for tax purposes, of the asset disposed. The balancing allowance is allowed as a deduction from business income.

Section 28 specifically provides that an amount accrued by way of recovery or reimbursement of:

• any expenditure or loss;
• any bad or doubtful debt which has been allowed as a deduction under section 41; or
• any lease improvement expenditure which has been allowed as a deduction under section 41(1)(g) will be included in the gross income of the taxpayer.

8.3 Depreciable regime

8.3.1 Tangibles (movable and immovable assets, for example plant and machinery)

Depreciation and capital allowances available are as follows (S 41 and Third Schedule):

• Ordinary Wear and Tear to put to relevant section

Annual taxation allowances for expenditure incurred on machinery and equipment before June 30, 1982, can be claimed up to 100%. This allowance may be for any proportion of previously unclaimed expenditure. An annual allowanceis granted for expenditure incurred on machinery and equipment after June 30, 1982, calculated on cost by the straight-line method on the basis of the expected useful lives of the individual assets. Guidelines are provided for expected useful lives of different categories of assets, which vary from four to ten years. Book depreciation is not required to conform to tax depreciation. The capital allowance claimable on a company motorcar is restricted to a maximum of P1,75,000.

The rates applied are:

Heavy machinery used in construction	25%
Motor vehicles	25%
Portable plant and machinery used in industry	25%
Computer software	25%
Installed plant and machinery	15%
Computers	15%
Office machinery	10%

 

• Industrial Buildings (S 41 and Part 1): of the Third Schedule

An initial allowance of 25% of cost is granted on:

­   erection or purchase or any new industrial building; or

­   any improvements, other than repairs, to any industrial building.

The allowance is granted if the building is used solely for the purposes of carrying on a business by the taxpayer. In the case of new buildings the allowance may be claimed in the year in which the building was first used, while in the case of improvement in the year in which the improvements were concluded.

• Other allowances on industrial and commercial buildings (Part II (paragraphs. (3) and (6))

All industrial and commercial buildings are granted a 2.5% annual allowance based on cost. In the case of an industrial building the initial allowance may be claimed on the original cost less the initial allowance.

• Residential Accommodation for employees (Part III)

The erection of a dwelling house for an employee in respect of a business, other than a business of mining qualifies for P 25 000 for each dwelling if more than one is constructed during the year.

• Farming (Part IV)

Works of a capital nature that is incurred in the development of farming business is deductable against business assessable in the tax year in which that expenditure is incurred with unlimited carry forward of losses.

• Mining (s 43 & Twelfth Schedule)

Mining capital expenditure is claimable in the tax year in which such expenditure is incurred with unlimited carry forward of losses.

Balancing allowances are brought to account on the disposal of assets on which capital allowances have been granted. Where the disposal value exceeds the difference between the expenditure incurred on the asset and allowances granted, the whole income is taxed as corporate income, or the balancing charge can be offset against further additions of new equipment. However, there is no rollover relief on motor vehicles, except where such vehicles are used in car rental and taxi service business.

8.3.2 Intangibles/incorporeals (for example, copyright, patents, goodwill and other intellectual rights)

Intangibles like goodwill etc are treated as movable property for disposal gains purposes. No depreciation is allowed on intangibles while calculating business profits.

8.4 Treatment of losses

The assessed loss of any business is an allowable deduction in the ascertainment of the chargeable income of that business in the following year. An assessed loss can only be deducted against the income from that business. Losses not fully set off in the following year should be carried forward for set off against the income from the same source in the next year. The period of carry forward varies depending on the source of income. Farming and Mining losses could be carried forward indefinitely, while any other business loss could be carried forward for only five years.

Losses incurred from one source may be set off against profits or gains from another source. However, if the company has mining or farming business the losses incurred from mining or farming would be set off against mining or farming income respectively. Similarly property disposal losses could be set off against property disposal gains only and not against any other income.

9. Foreign Exchange Losses and Gains

There is no specific provision on treatment of foreign exchange gains and losses. The Commissioner General treats such losses and gains on the basis of the nature of transaction to which such losses and gains relate. If the transaction is of capital nature, losses/gains are treated as capital and vice versa. Gains of a revenue nature are taxable while losses are deductible. This practice has been upheld by the courts.

10. Branch Profits Tax

Domestic branches are not taxed separately.

11. Group Taxation/Consolidated Returns

No group taxation.

12. Presumptive Tax Measures (for example, a minimum tax in the form of a gross asset tax)

No presumption tax.

13. Rates

Company tax is imposed at the rate of 25%. However for resident companies the 255 tax rate is split into 15% basic company tax  rate (BCT) and 10% company tax rate  (ACT).For approved companies under the Development Manufacturing Approval Order, the basic company tax rate and the additional company tax rate are 5% and 10% respectively. ACT can be set off against withholding tax on dividends.

Company tax is imposed at a rate of 15% for non-manufacturing companies and 5% for manufacturing companies. Additional company tax is imposed at a rate of 10% resulting in company tax rate of 25% and 15% for manufacturing companies. International Financial Services Center (IFSC) companies are taxed at a flat rate of 15% with no additional company tax component. Companies must apply for a certificate in order to be classified as IFSC companies, which deal only in specified services and only with non-residents.

14. Rebates

No rebates available

15. Withholding Taxes

(Section 58 & Seventh Schedule) Resident companies making payment of:

• dividend to both resident and non-resident companies; or
• interest to a resident or a non resident
• commercial royalty; entertainment fee, or  management  or consultancy fees to a non resident, has to withhold tax at the rate of 15%. The rate of the withholding tax on entertainment fee payments is 10% of the gross receipts.

Where an associated company pays dividends to another company with which it is associated, tax need not be withheld on payment of the dividend. For this purpose, an associated company in relation to a group of two or more resident companies means a resident company in which another resident company holds 20% or more of every class of equity share.

Any interest, commercial royalty or management and consultancy fees accrued or deemed to have accrued to a non resident where, the payment is made by an international financial service centre company or specified collective investment undertaking, are not subject to withholding tax.

Payments due under certain contracts

(S 57& Sixth Schedule)

Persons making payments under a contract relating to construction operations has to deduct tax from such payments at the rate of 3% of the total amount payable under the contract. In addition the company is required to submit a tax return. The tax withheld is applied as a credit against the company’s final tax liability.

16. Beneficiaries of Revenue National Government

C. Income Tax on Individuals (National Government)

1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year

Income Tax, Income Tax Act, Chapter 52:0112 of 1995 (hereinafter referred to as "the Act").

2.  Organisation Responsible for Administration

Botswana Unified Revenue Office (hereinafter referred to as BURS) headed by the Commissioner General (hereinafter referred to as "the Commissioner General").

3. Definition and Classification

The term "Individual" has not been defined in the Act, and as a result takes its ordinary meaning.

4. Time Tax is Levied

Tax is levied on the earlier of the date an amount is accrued or is received. The effective date of accrual is defined in section 10 as follows:

• in the case of employment, at the time it is –

­   received by him;

­   due and payable, even though not actually paid to him; or

­   credited in the account, reinvested, accumulated, capitalized, carried to reserve or otherwise disposed of by him or on his behalf;

• in the case of a business, in relation to which the Commissioner is satisfied that a commercially recognized system of accounting is regularly followed, at the time it is credited in the books of account of such person; or
• in any other case, at the time it becomes due and payable to him.

5. Basis of Taxation

5.1 Source-based or residence based

The Botswana tax system operates on a territorial basis, and income is taxable in Botswana if the source is within Botswana or deemed to be sourced in Botswana under section 11.

5.2 If source, define:

5.2.1 Actual source

The term "source" has not been defined in the Act.

5.2.2 Deemed source

Same as for corporate taxpayers

5.3 If residence,

5.3.1 Define resident

Although Botswana primarily levies tax on source basis, it does tax certain incomes on the ‘residence’ principle. For example, the income of companies approved under the International Financial Service Centre or the business or investment income of citizen residents earned outside Botswana are subjected to tax on a global basis.

To be a resident of Botswana for a tax year normally means the individual has a permanent place of abode in Botswana and is physically present in Botswana for not less than 183 days in that tax year or the previous tax year.

5.3.2 Exclusions from the definition of resident:

None

5.3.3 Ceasing of residency provided for in the Act

Where an individual is a resident for the purposes of the Act due to his physical presence in Botswana, he or she ceases to be a resident if he or she does not stay present in Botswana for more that 183 days in a tax year.

6. Included in Tax Base

Botswana sourced or income deemed to be sourced in Botswana under S 11.

7. Year of Assessment

Year of assessment coincides with the fiscal year ending June 30 which must be followed by all individuals. An individual carrying on business may make up his accounts for a period of 12 months ending on a date other than 30 June and in respect of his business, income will be computed for the accounting year.

8. Computation of Taxable Income

8.1 Exemptions (do not only indicate the heading, but provide a brief explanation)

8.1.1 Partial exemptions (amounts exempt irrespective of the identity of the recipient):

The following classes of amounts included in gross income are exempt from tax to the extent indicated:

• Official emoluments and allowances of:

­   The President;

­   heads of diplomatic missions and consulates accredited to Botswana; and

­   members of the staffs of such missions and consulates who are resident in Botswana solely for the purpose of carrying out duties as members of such missions;

­   officials of any organisation in respect of whom an order has been made under the Diplomatic Immunities and Privileges Act.

• Allowances exempted under;

­   National Assembly (Salaries and Allowances ) Act;

­   The House of Chiefs (Salaries and Allowances) Act;

­   Allowances payable to members of Parliament and members of House of Chiefs are exempt from tax. However, their salaries are taxable.

­   Allowances and gratuities exempted under the Judges (Miscellaneous Provision Act) are also exempt from tax.

• Foreign Service Allowance

Any amount accrued to a public servant or teacher as foreign service allowance while serving outside Botswana in a diplomatic mission of Botswana.

• War pensions or gratuities;

Any payment in the form of war pensions and gratuities is exempt from tax.

• Certain interest income from financial assets -

­   interest payable by the Botswana Saving Bank, including interest on Botswana Savings Bank Certificates;

­   interest on national development bonds exempted under the National Development Bank Act;

­   interest on bonds exempted under the Development Loan (Botswana Registered Bonds) Act;

­   any amount payable as interest on any subscription share issued by any building society resident in Botswana;

• Payment to members by any co-operative thrift and loan society;
• Certain insurance benefits;

Payments by way of sickness or accident benefits to any person or to his dependants or heirs, by any approved benefit fund, a trade union, or under a policy of insurance covering sickness or accident.

• Maintenance or alimony payments

Amounts received by way of periodical payments in the nature of maintenance or alimony by a woman from her husband is not included in the income of the receiver. The exemption does not apply where, for the purpose of making such payments, the husband has or former husband divested himself of any assets which produce gross income, or divested from himself amounts which would otherwise have been taken into account in ascertaining his taxable income;

• Terminal Gratuities any amount payable to an employee, who is not a citizen of Botswana, whose contract of employment commenced before the 1st July 1999 , upon the bona fide termination of his employment where such payment is made by the employer:

­   pursuant to the terms of a written contract of employment; or

­   by reasons of any law in force in Botswana, by way of bonus or gratuity the extent to which, in the opinion of the Commissioner the payment is reasonable in amount having regard to:

­   the period of the employment;

­   the nature of the employment;

­   the salary payable to the employee; and

­   the measure or retirement benefits generally prevailing at that time;

While gratuities for contracts entered into before July 1, 1999 are exempt, for contracts commencing after that date, only one third is exempt.

• Amounts accrued from a business or employment carried on in Botswana by a citizen of any other country where such business or employment is carried on in Botswana under the agreement with the Government for the provision of technical assistance.

This provision applies where both personnel and the funds do not come from Botswana.

• Any amount accrued from an employment carried on by a non resident aboard an aircraft or road or rail vehicle in the course of the operation of an international transport service by a non-resident;
• Any amount received by way of a scholarship or bursary for the purpose of education and maintenance during such education.
• Any amount exempted under an agreement entered into under section 52, or 53 (see 8.1.1) under corporate taxation;
• Terminal, sitting, ward, subsistence and meal allowances payable to a councillor of a local authority, or a member of land board or a subordinate land board;
• Where under any law in force in Botswana an employee is permitted to commute a portion of his pension, an amount not exceeding one third of the pension entitlement at the time of retirement;
• In the case of any person other than a person referred to above who is entitled to bona fide annual pension or annuity of not more than five hundred Pula, an actuarially calculated sum representing the commutation of that pension or annuity;
• Any amount payable as interest accrued in any year to any resident individual from any banking institution or building society in Botswana, up to a limit of P 2 500;
• Any amount paid as a subsidy or a grant to any person from the Productive Employment Development Fund under the Financial Assistance Scheme; and
• Salaries, emoluments, obligations, securities, dividends or non cash benefits received by the employees of international financial organisation to which Botswana is a member.

8.1.2 Absolute exemptions (taxpayers enjoying completed exemption from tax on income)

Not available.

8.2 Deductions and recoupments

8.2.1 Allowable deductions

Same as for bodies corporate.

8.2.2 Valuation of inventory/trading stock

Same as for bodies corporate.

8.2.3 Reserves and provisions

Same as for bodies corporate.

8.2.4 Non-deductible expenses

In addition to expenses that may not be deductible by companies, individuals are also not allowed the following deductions:

• domestic or private expenses; and
• interest on mortgage loan for residential property.

It is stated that interest on mortgage loan for residential property is not deductible. However, if the property has been let out and income is taxed under section 33, interest would be deductible. If the house is occupied for own residence and no income is derived from the property, interest on mortgage loan is not deductible.

8.2.5 Recoupments

Same as bodies corporate.

8.3 Depreciable regime

8.3.1 Tangibles (movable and immovable assets, for example plant and machinery)

Same as bodies corporate.

8.3.2 Intangibles/incorporeals (for example, copyright, patents, goodwill and other intellectual rights)

Same as bodies corporate.

8.4 Treatment of losses

Same as for bodies corporates. However, with respect to assessed losses incurred in any tax year by a person other than a company, carrying on the business of farming the individual may:

• set off all or part of such loss against his chargeable income in the previous two previous years preceding the year in which the loss was incurred, commencing with the year immediately preceding such loss (s47(1)); and
• within three years after the end of any tax year, by notice in writing to the Commissioner, elect that the whole or part of such losses be deductible in ascertaining his chargeable income for that tax year. In other words individual tax payers are allowed to set of their farming losses against their other incomes, including employment income (s46).

9. Foreign Exchange Losses and Gains

Same as for bodies corporate.

10. Rates

Individuals are to be taxed as per one of the following tax tables:

RATES OF TAX FOR 2001/2002 AND SUBSEQUENT TAX YEARS

TABLE 1 - Applies to resident individuals

Taxable income Tax

0 – 25,000 0

25,000 – 43,750 0 + 5% of excess over 25,000

43,750 – 62,500 937.50 + 10% of excess over 43,750

62,500 – 81,250 2,812.50 + 15% of excess over 62,500

81,250 - 100,000 5,625.00 + 20% of excess over 81,250

Over - 100,000 9,375.00 + 25% of excess over 100,000

TABLE 2 - Applies to non-resident individuals, to trust falling under section 14 (2) and to estates of deceased persons.

Taxable Income Tax

0 – 43,750 5% of every Pula

43,750 – 62,500 2,187.50 + 10% of excess over 43,750

62,500 – 81,250 4,062.50 + 15% of excess over 62,500

81 250 –100,000 6,875.50 + 20% of excess over 81,250

Over - 100,000 10,625.00 + 25% of excess over 100,000

11. Rebates/Tax Threshold

No rebates are available. The threshold is Pula 25,000 for resident individuals only. No threshold for non-resident individuals.

12. Fringe Benefit Taxes (Benefits Flowing from an Employer-Employee or an Office Relationship)

Any payment in cash or otherwise received in respect of employment, is included in the employee's gross income (s27).

The following non-cash benefits are given monetary values and are liable to PAYE tax in accordance with the provisions of the Fifth Schedule of the Act and the Tax Deduction Tables issued by the Commissioner:

• Value of any quarters or residence provided by the employer rent -free or reduced rent:

The monetary value is 6% of rateable value of such property at the commencement of the tax year, less any rental that may be paid by the employee. In the case of non rateable property, 5% of current capital valuation of such property is used.

Apportionment is accordingly made if the property became rateable during the tax year 6% of the interim rateable valuation made of such property) or if such property was provided for a period of less than 12 months.

If the employment income of an employee is less than the threshold, the value of benefit is taken as nil. The valuation of housing benefit should also not be greater than the excess of 25% of his employement income over any amount payable by him as rent for his quarter or residence during the relevant tax year.

• School fees borne by the employer:

­   Full amount of the fees borne or paid by the employer;

­   Full amount of the fees reimbursed by the employer; or

­   The market values of the benefit whichever is higher.

• Value of the use of the company car provided by the employer:

The amount included in the gross income is determined as follows:

Cost of vehicle Employee's benefit Fuel cost adjustment (to be updated) –

1- 50,000

50,001- 100,000

100,001- 150,000

150,001- 200,000

200,000 and above Benefit on the excess over P 200,000 is 15% thereof.

The fuel cost adjustment is restricted to P 5,000.

Where the cost of fuel is borne by the employee, the fuel cost adjustment is deducted from the benefit, but where the fuel cost is borne by the employer, full benefit is taxable.

• Value of utilities provided or paid for or reimbursed by the employer, e.g. house help, telephone, water, electricity etc.

­   Full value of expenditure borne by the employer or paid on behalf of the employee by the employer;

­   The amount reimbursed by the employer ; or

­   The market value of the benefit, whichever is higher is subject to withholding tax as part of employment income.

• Value of free interest or low interest bearing loans granted by the employer:

The difference in the amount of any preferential rate of interest granted to the employee and the normal commercial rate of interest currently prevailing is treated as the value of the benefit. The commercial rate of interest is the prime rate of interest as declared by the Bank of Botswana as on the 1st July of the tax year concerned.

• Furniture and Furnishing:

The benefit is based on the cost of furniture and furnishing supplied by the employer. No benefit is assessable if the cost of furniture and furnishing does not exceed P 15,000. The assessable benefit is 10 % of the excess over P 15,000.

• Share savings or share option schemes:

Where the employee is given the benefit of joining the share savings or share option scheme, the difference between the market value of shares at the time the option was excercised and the cost incurred by the employee under the scheme would be the value of the benefit.

• Medical Contributions:

The employer's contributions to a Medical Benefit Fund on behalf of the employee up to an amount equal to 100% of the required contributions are not taxable in the hands of the employee.

• Any other benefit:

Where the cost of benefit provided is met fully or partly by the employer, the value of benefit will be:

­   the cost to the employer;

­   the cost reimbursed by employer; or

­   the market value of the benefit , i.e., the cost that would have been incurred by employee to obtain the same benefit had it not been provided by the employer.

13. Allowances

Entertainment allowance is included in the gross income of the employee, while travelling and subsistence allowances are not taxable.

14. Treatment of Pension, Provident or Retirement Annuity Fund Income

Annuities received from domestic funds are taxable as ordinary income, while only two thirds of lump sum benefits derived from these funds is taxable. Contributions towards domestic pension funds are deductible in determining one's chargeable income. As contributions towards foreign funds are not tax deductible annuities and lump sum receipts from these funds are not liable to tax.

15. Treatment of Professional Income

No special treatment - treated as ordinary income.

16. Treatment of Investment Income

Interest income receivable in Botswana from the Rand Monetary Area or arising from within Botswana is taxable at the time of accrual of the income. Under Section 32(1) any dividend or interest accrued from an investment such as is referred to in section 11(i) is taxable. Thus income from investment made abroad by a citizen of Botswana, being a resident in Botswana, is taxable.

Interest income for any resident individual, accruing from any banking institution or building society in Botswana, is exempt from tax up to a limit of P 2,500; interest on subscription shares issued by any building society is exempt from tax.

17. Withholding Taxes

Interest, dividends, commercial royalties, and management and consultancy fees payable by a Botswana resident to a non-resident are subject to withholding tax at the rate of 15%. Similarly, entertainment fees are subject to a withholding tax of 10%. However, the double taxation agreements with the United Kingdom and South Africa exempt management and consultancy fees from the requirement to withhold tax

18. Beneficiary of Revenue

National Government

D. Income Tax on Non-Residents (National Government)

1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year)

Income Tax, Income Tax Act, 12 of 1995 (hereinafter referred to as "the Act").     

2. Department Responsible for Administration

The Department of Taxes (hereinafter referred to as "DOT") headed by the Commissioner of Taxes (hereinafter referred to as "the Commissioner").

3. Included in Tax Base

Botswana sourced income. In the case of dividend, interest, commercial royalty, management and consultancy fee and entertainment fee, tax at 15% is withheld from such payments. The tax withheld is the final charge and such income is not included in the taxable income of the non-resident".

4. If Sourced-Based, Define (If Not Already Done)

4.1 Actual source

The term "source" has not been defined in the Act. It therefore, takes its every day meaning.

4.2 Deemed source:

"Under section 27(3), where the business is carried on by a person both within and outside Botswana, the Commissioner may deem such income as attributable to the operation of business in Botswana as from a source situated in Botswana. The Commissioner shall take into account, the nature of operations carried out in Botswana, the turnover of business in Botswana, the situation of assets, volume of stock and other relevant considerations while deeming such income as from a source situate in Botswana."

5. Rates

See Table 2 in C 10, above.

6. Beneficiary of Revenue

National Government

E. Income Tax: Treatment of Dividends, Interest, Royalties and Fees

1. Dividends

The term 'Dividend" is defined in section 2 of the Income Tax Act to mean any amount distributed, whether in cash or otherwise, by a company to its shareholders; and the expression “amount distributed” includes:

• in relation to a company which is not being wound up or liquidated, any profits distributed, whether of a capital nature or not, including an amount, other than an amount representing a return of capital, equal to the nominal value of any bonus shares, debentures or securities awarded to the shareholders;
• Provided that bonus shares do not include shares issued by a company to a shareholder in satisfaction of bonus award and is included in its equity share capital;
• in the event of the partial reduction of the capital of a company, any cash or the value of any property which is given to a shareholder in excess of the amount by which the nominal value of the shares of that shareholder is reduced;
• in the event of the reconstruction of a company, any cash or the value of any property which is given to a shareholder in excess of the nominal value of the share held by him before the reconstruction; and
• where a dividend consists of property other than cash, is deemed to be of an amount equal to the market value of the property at the time of the distribution of the dividend:

­   To avoid double taxation, any distribution of profits by an investment company, a unit trust, [or] collective investment undertaking, a variable rate loan stock company or similar company, where such distribution is made out of dividends accrued to such investment company, unit trust, other undertaking or company, if withholding tax had been deducted from such dividends, in accordance with the provisions of section 57 (1) (a) and the Seventh Schedule, by the company which declared the dividends; are not liable to the withholding tax;

­   where any such distribution of profits as is referred to above is made partly out of dividends accrued and partly out of interest, the distribution of the interest income will be treated like other dividend income and be subject to the 15% withholding tax.

Dividends received by both residents and non-residents, from resident companies where a withholding tax has been deducted, are not liable for tax. The withholding tax is 15% of the gross dividends declared which is a final tax (dividend is not included the taxpayer's chargeable income. The withholding tax on dividends distributed by associated companies to other associated companies (companies with shareholding that is not less than 20% in the other) is deferred until such dividends are distributed to non associated members.

Gross dividends received from a foreign investment by a resident person are liable to tax as ordinary income (included in the chargeable income).

Dividends paid by international financial service company or a collective investment undertaking to non residents are not taxable.

2. Interest

Interest from a source or deemed source in Botswana is liable to tax in the hands of both residents and non-residents (s 32); in the case of non-residents the tax withheld @ 15% is final, there is no further liability to tax.

Interest paid by an International Financial Services Centre company or a Collective Investment Undertaking to a non-resident is not taxable in the hands of the recipient nor is the IFSC required to withhold tax.

Interest accrued to a resident individual from any banking institution or building society in Botswana is exempt up to a limit of P 2500 in any tax year. However interest on any subscription share issued by any resident building society is fully exempt.

Interest accruing to the government of any country or to any non-resident institution or company in a loan is exempt to the extent to which the Minister is satisfied the exemption such interest is public interest.

3. Royalties

Commercial royalties have been defined in s 2 of the Act to mean any amount payable for the use of, or the right to use, any copyright of literary, artistic or scientific work (including cinematograph films, and films or tapes for radio or television broadcasting), and patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.

Any person, resident or non-resident in receipt of the above is assessable to tax, if such payment is made by a resident person or a “permanent establishment” in Botswana. However, as regards a non-resident, if the appropriate withholding tax @ 15% is deducted, there is no further liability to tax.

Any payments on account of the above to a non-resident by an International Financial Services Centre company or a Specified Collective Investment Undertaking is not taxable in the hands of the recipient nor is the SCIU required to withhold tax.

4. Fees

Management or consultancy fee has been defined in s 2 of the Act to mean any amount payable for administrative, managerial, technical or consultative services or any similar services, whether such services are of a professional nature or not.

Any person, resident or non-resident in receipt of the above is assessable to tax, if such payment is made by a resident person or a “permanent establishment” in Botswana. However, as regards a non-resident, if the appropriate withholding tax @ 15% is deducted, there is no further liability to tax.

Any payments on account of the above to a non-resident by an International Financial Services Centre company or a Specified Collective Investment Undertaking is not taxable in the hands of the recipient nor is the SCIU required to withhold tax.

Entertainment fee has been defined in the Act as any amount payable to an entertainer (including any cabaret, motion picture, radio, television or theatre and any musician) or a sportsman, for his personal activity as such.

A 10 % withholding tax is deductible from such payments made to a non-resident and this constitutes a final charge.

5. Rents

The Act does not define the word "rent", however rental income is treated like any other income.

F. Income Tax: Specific Industries

1. Mining Tax

Mining Income:

For the sake of completeness the provisions before and after the Amendment Act of 1998 are explained hereunder –

The two main activities in a mining industry are:

• acquiring a “mining or prospecting right” (leasing of land), prospecting, gathering information and establishing mining rights; these are activities which precede the extraction proper of the mineral;
• the extraction and marketing of the mineral proper, defined as “mining operations” in the Act.

The same taxpayer could undertake both activities (or phases). On the other hand, the first phase could have been carried on by one person and the second phase by a different person. If the latter were to happen, the disposal of such mining rights and information by any person (wherever resident), whose activity is limited to the first phase, is deemed to be a source of income from Botswana.

The mining income in such an event includes:

• disposal of mining rights over land in Botswana;-
• disposal of shares or rights in mining companies holding mineral rights over land in Botswana;-
• disposal of mining or prospecting information over land in Botswana.

It is be noted that despite the fact that the income from all three events arise from land situate in Botswana, the source of the income still has to be ascertained in the same manner as a business in general.

The income from business of “mining operations”, however, is clearly from a source situate in Botswana. The gross income from mining operations should, in addition to the amounts accrued in carrying on the business of mining operations, include (if the same taxpayer carries on the first phase as well) the income from the first phase referred to above.

The gross income of such a person consists of:

• all amounts accrued from mining and prospecting operations (there is a departure from the source principle in this regard in that amounts received from activities ancillary to mining in Botswana, such as processing, marketing, servicing, financial and administrative operations carried in or outside Botswana are included in the gross income. The scope of the liability is further extended in that even income accruing to an associated person wherever resident from such activities is deemed to arise in Botswana);
• any royalty repaid, remitted or exempted, (this pre-supposes that the royalty has been claimed in an earlier year as a deduction);
• excess of the disposal value of any property already included in the “mining capital expenditure”.

As regards expenditure in relation to mining income, the most significant item is the deduction allowed as “mining capital allowance”, which in effect is a write-off of all pre-production capital expenditure.

The disposal of mining property is excluded from taxation as disposal gains, under the Tenth Schedule.

Mining Capital Allowance (Prior to 1998 Amendment):

All capital expenditure incurred by the person, prior to the actual operation of the mine, such as acquisition of mining rights and information, preparation of site, construction of buildings, acquisition of plant and machinery, etc, defined as “mining capital expenditure” in the Act, qualify for capital allowance. The allowance is the “residual capital expenditure”, divided by the lesser of ten years or the “life of the mine” as determined by the Mining Commissioner.

Mining Capital Allowance (After 1998 amendment-12th Schedule):

As from the tax year 98/99, the entire “mining capital expenditure” could be claimed in the year in which such expenditure was incurred. The assessed loss as a result of the grant of such allowance could be carried forward indefinitely tills such time as it is fully absorbed.

It should be noted that the provisions relating to initial and annual allowances would not apply once the mining capital allowance has been granted. As far as the allow-ability or not of other deductions are concerned, the same rules as for a business in general would apply, except that deductibility of head office expenses if limited to 1.5 % of gross income for the year of assessment.

Tax Rate applicable to Mining Companies after the Amendment Act of 1998:

Mining profits other profits from diamond mining are taxed according to the following formula:

Annual tax rate = 70 - 1500

X:

where X is the profitability ratio given by taxable income as a percentage of gross income.

Example: If the gross income of a mining company for the year 00/01 is Pula 12,000,000 and the chargeable income is P 6,00,000, the tax liability will be computed as follows:

Profitability ratio is 6,000,000/12,000,000 = 50

The tax rate applicable is 70- 1500/50 = 40%

The tax payable is 40% of P 2,800,000 = 1,120,000

Alternatively, if the Gross Income is Pula 21,000,000 and the chargeable income remain the same, then;

Profitability ratio is 6,000,000/21,000,000 = 29

The tax rate applicable should not to be less than company rate (current 25%), since computed rate of, 70- 1500/29 = 19%, is below 25%.

The tax payable will be 25% of P 2,800,000 = 1,120,000

Note:

Although the tax rate should not be less than company rate, it can exceed this rate if the Profitability ratio is more than 33 1/3%. This formula is not negotiable.

The companies engaged in diamond mining are taxed on the basis of tax agreements entered into between the Government and those companies under section 53 of the Income Tax Act. If there is not tax agreement a is the case with De-beers Botswana, the company is allowed capital allowances just like other mining companies, except that instead of using the formula, it is taxed at the company rate of 25%.

Mining Losses:

Mining losses for any year, like farming loss, could be carried forward indefinitely and be set off against the profits from the Mining business in the subsequent years.

2. Insurance Business

The provisions relating to the computation of chargeable income from insurance business is contained in Section 54 and the Fourth Schedule of the Act.

• The chargeable income derived by any person from the carrying on in Botswana of an insurance business other than life insurance business is ascertained by deducting from the sum of all premiums (including premiums on re-insurance) accrued to such person during any tax year in respect of the insurance of any risk, and other amounts accrued from the carrying on of such business, the sum of –

­   the total amount of the liability incurred in respect of premiums on re-insurance;

­   the actual amount of the liability incurred in respect of any claims during the tax year in respect of that business of insurance, less the value of any claims recovered under any contract of insurance, guarantee, security or indemnity;

­   the expenditure, not being expenditure falling under paragraph (a) or (b), incurred in respect of that business of insurance in accordance with sections 38 to 47;

­   such deduction as may be allowed by the Commissioner in respect of unexpired risks;

Provided that such deduction allowed in respect of any tax year is included in the assessable income of the following tax year;

­   such deductions as may be allowed by the Commissioner in respect of claims which have been intimated but not paid;

Provided that such deduction allowed in respect of any tax year is included in the assessable income of the following tax year; and

­   such deduction as may be allowed by the Commissioner in respect of claims which have not been intimated or paid; Provided that the deduction allowed under this paragraph in respect of any tax year is included in the assessable income of the following tax year.

• Payments into a Statutory Reserve Solvency Account established under the Insurance Industry Act, are deductible in ascertaining chargeable income and payments out of such fund are included in gross income.
• The Commissioner may recognize the establishment of a claims equalization account for tax purposes, transfers into the account being deductible in ascertaining chargeable income, and transfers out being included in gross income.

3. Farming

Farming activities include livestock, agricultural and pastoral farming.

Farming Income:

The determination of the farming income differs from the determination of any other business income in two major aspects.

Firstly, with regard to the valuation of livestock, an alternative to the normal valuation of lesser of cost or market value, is available to the farmer, namely, a system of Standard Valuation prescribed by the Minister by notification in the Government Gazette. The valuation prescribed is in relation to the age of each class of animal, which would appear to be well below the market value. When adopted, this valuation, in effect, enables the postponement of tax to the actual year of disposal.

Secondly, expenditure, which would normally be treated as capital expenditure under accounting concepts, is allowed as deduction in the year in which the expenditure is incurred, in determining the chargeable income for that year. Some of such items are construction of roads, bridges, air-strips, erection of fences, sinking of bore holes, plantations, orchards and vineyards and erection of buildings for farming operations. However, if any of such assets are disposed, all farming allowances granted in respect of such asset will be added back in the year of disposal.

Capital allowances on commercial building, residential accommodation of employees, plant, machinery and vehicles, are the same as other businesses in general.

Farming Losses (S 46):

The Act provides for special treatment of farming losses in comparison to assessed loss from any other business in four major areas:

• the farming losses are carried forward indefinitely; and
• it could be set off against the chargeable income from other sources (except from property disposal gains) upon a claim made within three years of the year in respect of which the claim is made (this claim is not available to companies carrying on the business of farming).

The loss can also spread back for two years.

Averaging Farming Income (s 41):

A person (other than a company) could, in any tax year, claim the farming income for that year and the two prior years be aggregated and averaged for the three years. If the Commissioner approves the claim, the farming income for the three years has to be determined accordingly and the prior year assessments revised.

No category of farmers is exempt from tax.

Generally farmers with less than 300 cattle or in the case of crop farming, farming less than 100 hectares are not required to declare their farming income. They however, have the right to opt to be taxed.

4. Ships and Aircraft Owners

Income derived by a resident aircraft owner or charterer will be taxable in Botswana wherever such aircraft may be operated - s 11(e). The income accruing to non-resident from lease of aircraft is not subjected to tax from tax year 2001-02.

5. Other

The Botswana Meat Commission and companies belonging to the Botswana Development Corporation group are taxed under special provisions.

G. Income Tax: Administrative Procedures (National Government)

1. Payment Periods

Income tax returns are issued annually to registered taxpayers after the end of each tax year.

Tax returns are to be submitted to the Department of Taxes within three months from the end of a tax year. However the Commissioner may allow extension in certain cases for valid reasons.

From the information furnished in the tax return submitted, the Department raises an assessment determining either the tax due or refundable, as the case may be for the relevant tax year.

For employee taxpayers, a Pay as You Earn (PAYE) system operates. The PAYE system covers both cash and non-cash employment benefits.

From tax year 2001/02, the self assessment tax (SAT) system has been introduced for companies. Under the SAT system, equal quarterly instalments are to be paid on or before the following dates:

For 2001/02 and 2002/03 –

First payment 30 Sept 2001 and 30 Sept 2002

Second payment 31 Dec 2001 and 31 Dec 2002

Third payment 31 March 2002 and 31 March 2003

Fourth Payment 30 June 2002 and 30 June 2003

Final balance payment 30 Sept 2002 and 30 Sept 2003

For subsequent tax years –

First payment within 3 months of the beginning of financial year and remaining three quarterly instalments at 3-monthly intervals thereafter. The final balance payment must always be made on or before 30 September immediately following the tax year ending in June.

Taxpayers whose income is subject to PAYE are not required to submit returns except in cases where there is other income or the Commissioner specifically demands a return from the taxpayer, for whatever reason.

Self-assessment will gradually be extended to all taxpayers.

2. Rulings

2.1 Possibility of advance rulings

None

2.2 Publication of rulings

None

3. Codification of Revenue Practices

The Commissioner has published a limited number of Departmental Guidenance Notes on topical issues. To help employers to deduct PAYE correctly, a guide has been published.

4. Refunds

Dealt with under Section 110 of the Act.

The main features are:

• Where the Commissioner is satisfied that any person has overpaid tax for any tax year, by deduction or otherwise, he may authorise refund of such overpaid tax and such refunds shall be charged on and paid out of the Consolidated Fund.
• With effect from tax year 2001/02, interest @ 1% a month or part of month will be paid by the Department of Taxes to the taxpayer on the tax refunds due for more than six months. The interest will start to accrue 6 months after the submission of the tax return or 6 months after the claim requesting the refund has been received by the Commissioner.
• No interest will be payable on any amount of tax paid in excess as a result of the deduction of assessed loss under sections 46 and 47 in respect of farming.

5. Interest, Charges and Penalties

Interest:

Any self assessment tax not paid within the time specified in the Act will bear interest at the rate of one and half per cent for each month or part of the month during which the tax remains unpaid.

The Commissioner may, however, remit the interest charged, if the interest so charged is due to a mistake committed by the Department of Taxes.

Where for any tax year- there is a shortfall of tax paid under the self assessment scheme, either in the quarterly instalments or the final payment , the taxpayer will be liable to bear interest calculated at the rate of one and a half percent for each month or part of the month during which the tax payable remains unpaid.

Any withholding tax deducted or deductible by any person and not paid within the time specified in the Act bears interest at the rate of two per cent for each month or part of a month during which it remains unpaid.

Penalties: (s 115-118)

Penalty for non-filing or late filing of tax return is imposable up to a maximum of 100% of the tax chargeable for the tax year. (116(1)

The Commissioner may also levy a penalty not exceeding P500 when the taxpayer does not respond to a notice from the Commissioner to file the tax return. This penalty can be mitigated by the Commissioner once the tax return has been filed. (116(2).

Penalty for filing of incorrect tax return is levy-able up to a maximum of 100% of tax that would have been lost if the return had been accepted as correct, where the incorrect return, statement or information is attributable to the careless or gross neglect of the tax payer. Penalty up to a maximum of 200% is levy-able if the incorrect return, statement or information is attributable to fraud or wilful negligence on the part of the taxpayer.

Where there is failure to comply with provisions relating to withholding taxes including failure to furnish access to records and documents relating to withholding taxes, penalty of P100 per day or 1 percent of the tax due for each month or part of a month during which such failure or impediment continues, whichever is greater is levy-able.

Penalties are also imposed for committing default in appointing public officers, precedent partner or agent or address for service of notices. The amount of penalty in such cases shall not exceed P100 for each day during which the default continues.

H. Income Tax: Anti-Avoidance Provisions (National Government)

1. Transfer Pricing Legislation

There is no specific transfer pricing legislation in place.

However section 35 attempts to address the issue by deeming certain transactions to be not at "artm's length".

2. Thin Capitalisation Legislation

There is no specific thin capitalisation legislation in place except under the taxation of mining profits where debt equity ratio of 3:1 and any interest on part of the loan which is in excess of this ratio is taxed as a dividend.

In the case of participator (defined as a person holding directly or indirectly shares carrying 5% or more of the voting power) or a relative or nominee of a participator advances loan to the company either free of interest or a rate lower than commercial rate of interest, deemed interest computed at commercial rate prevailing at the time the loan is made is taxed in the case of such participator. Such deemed interest is not deductible in the case of the company. This provision is intended to encourage equity investment.

In the case of IFSC companies, interest on foreign debt computed in relation to the excess of foreign debt over foreign equity, is not deductible in terms of section 140 of the Income Tax Act. This provision is not applicable where foreign debt is not more than 12 times the foreign equity in the case of banks and three times the foreign equity in the case of other IFSC companies.

3. Controlled Foreign Entities (CFES)

There is no specific CFE legislation in place but any investment made outside Botswana or any business carried on outside Botswana by a resident of Botswana, is deemed as a Botswana source and income derived from these sources are taxed in the hands of the resident.

4. Provide a Brief Discussion of General Anti-Avoidance Provisions (Both under common and statutory law)

A general anti-avoidance provision is incorporated in the Act in section 35 based on the common law substance over form doctrine as well as the arm's length principle. It reads as under:

Where the Commissioner is of the opinion that a transaction, operation or scheme (referred to as a “transaction”), including a transaction for the alienation of property:

• is fictitious or artificial, or is entered into or carried out otherwise than as a transaction between independent persons dealing at arm’s length; and
• that such transaction has the effect of avoiding, reducing or postponing the liability to tax of any person for any tax year, he may disregard such transaction for the purposes of this Act and determine the liability for the tax chargeable under this Act as if the transaction had not been entered into or carried out, or in such manner as in the circumstances he deems appropriate to counteract such avoidance, reduction or postponement.

A contract of employment or agency where the employee or agent, or the relative or nominee of such employee or agent, is the employer or principal, or one of the employers or principals, of such employee or agent is deemed to be non arm's length transaction.

5. Transactions between Connected Persons

Covered by the general anti-avoidance rule.

I. Capital Gains Tax on Corporations (National Government)

1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year

Disposal gains tax, The Income Tax Act (Act no. 12 of 1995)

2. Department Responsible for Administration

Department of Taxes

3. Basis of Taxation (Source-based or residence-based)

Source based

4. Time When Tax is Levied

Tax is levied at the time the consideration becomes due and payable. There are no specific rules determining the time of disposal.

5. Included in Tax Base

Gains made from the disposal of the following properties are liable to tax: (S 34 read with Tenth Schedule Para 1):

• land and building held as part of business
• other business property (excluding assets on which annual allowances have been granted),
• shares, units and debentures in a company (other than a public company)

If the property, in all instances above mentioned, is disposed in the normal course of business, that disposal will constitute gross income from business and not from property disposal. For example, the disposal of land and building by a real estate dealer, sale of shares by an investment company constitutes gross income from business.

6. Exemptions/Exclusions

• Gains on disposal of any shares or units in or debentures of a public company.
• Any property which represents al foreign participation of an International Financial Services Centre company.
• Immovable property owned by a company, the shares of which are wholly owned by one or more of the following funds:

­   an approved provided fund, an approved superannuation fund, and

­   the Motor Vehicle Insurance fund and a statutory life insurance fund.

7. Allowable Deductions

The gain on disposal of the property is the difference between the disposal value and the sum of:

• the cost of acquisition of the property and expenses incidental to the acquisition;
• the cost of improvements;
• expenses directly relating to the disposal;
• inflation adjustment; and
• 50% deduction of net disposal gain (chargeable income minus all other deductions) in the case of disposal of property other than immovable property. (Tenth Schedule Para 4).

The cost for acquisition for purposes of the above computation is:

• were the property disposed, was acquired prior to 1 July 1982, the cost of acquisition is the actual cost when acquired plus improvement thereafter, compounded by 10% for each 12 months from the date of acquisition to 1 July 1982.
• where the property disposed, was acquired after 1 July 1982, the cost of acquisition is the actual cost of the property; and
• where the property disposed, was acquired by gift or inheritance, the cost is the market value as at date of acquisition , if acquired after 1 July 1982; if before, the cost is the market value as at 1 July 1982. (Tenth Schedule Para 7).

Indexation:

A deduction on account of inflation is allowed from the gross income arising from the disposal of immovable property. The difference in the cost of living index in the month of disposal and as in July 1982 or the date of acquisition whichever is later is ascertained in the first instance. This difference is applied on the cost of acquisition, as determined in the paragraph above, to arrive at the deduction for indexation. (Tenth Schedule Para 8)

8. Non-Deductible Expenses

Expenditure that may not be deducted are:

• Expenses not incurred wholly, exclusively and necessarily for the purposes of acquisition, improvement or disposal of the property concerned, and
• Expenses which have already been claimed and allowed as a deduction under any other provisions Act.(Tenth Schedule Para 4)

9. Roll-Overs

In the case of disposal of immovable properties of a business, if the person reinvests in another immovable property, within a year of the disposal, the disposal gains on the first property, to the extent reinvested, will not be liable to tax. An appropriate claim has to be made within a year of disposal to avail of this concession. (Tenth Schedule para 14)

10. Treatment of Losses

The loss from each disposal is computed separately. The loss if any from a disposal is set off from the gains from other disposals during the year. The balance is the net aggregate disposal loss. A loss can be carried forward for only one year and set off against the disposal gain in the following year. Any unabsorbed loss is extinguished at the end of the following year. (Tenth Schedule para 12)

11. Rates

The net aggregate gain of a company is taxable @ 25 %

12. Rebates

None

13. Tax Period

Similar to as for income tax

14. Withholding Taxes

None

15. Beneficiary of Revenue

National Government

J. Capital Gains Tax on Individuals (National Government)

1. Name of Tax and Levied in Terms of Which Levied (Name, Number and Year)

Same as bodies corporate.

2. Department Responsible for Administration

Same as bodies corporate.

3. Basis of Taxation (Source-based or residence-based)

Same as bodies corporate.

4. Time When Tax is Levied

Same as bodies corporate.

5. Included in Tax Base

Same as bodies corporate.

6. Exemptions

Same as bodies corporate. In addition gains on disposal of the principal residence of any individual who is the owner of such residence. The allowance is allowed once, to qualify it should be “principal house” disposal gains of any other property is taxable

7. Allowable Deductions

Same as bodies corporate.

8. Non-Deductible Expenses

Same as bodies corporate.

9. Treatment of Losses

Same as bodies corporate.

10. Rates

The net aggregate gain of an individual is taxed according to the following table:

TABLE 4

Taxable Income Tax

0 - 12,500 0

12,500 - 43,750 0 + 5% of excess over 12,500

43,750 - 62,500 1,562.50 + 10% of excess over 43,750

62,500 - 81,250 3,437.50 + 15% of excess over 62,500

81,250 - 100,000 6,250.00 + 20% of excess over 81,250 Over - 100 000 10,000.00 + 25% of excess over 100,000

11. Rebates/Annual Deduction

Same as bodies corporate. There is a threshold of P 12,500.

12. Tax Period

Same as bodies corporate.

13. Withholding Taxes

Same as bodies corporate

14. Beneficiary of Revenue

Same as bodies corporate.

K. Special Taxes (Other Than Income Tax) on Certain Industries/Types of Income

1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year

2. Department Responsible for Administration

3. Taxpayer

4. Included in Tax Base

5. Tax Rate

6. Beneficiary of Revenue

L. Taxation of Capital

1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year

Capital Transfer Tax, Capital Transfer Tax Act , No 13 of 1985

2. Department Responsible for Administration

Department of Taxes

3. Taxpayer

The person liable to pay the capital transfer tax is the donee. The term donee has been defined in the Act as under to mean:

• any beneficiary of a chargeable disposal (gratuitous disposal of property or rights in a property or property devolving on inheritance); and
• a trustee who receives such property for the benefit of any beneficiary.

4. Included in Tax Base

The tax base includes the aggregate taxable value of all 'chargeable disposals' made by a donor to a donee in a tax year. (S 3)

The term "chargeable disposal" has been defined in S 2 to mean:

• any gratuitous disposal of property including any gratuitous waiver or renunciation of a right; or
• any property devolving on any person by way of inheritance.

The time of disposal has been defined in S 3 as:

• on the date when all the legal formalities for a valid disposition of property have been complied; or
• on the date on which the ownership of the property vests in the donee.

If the aggregate value of the chargeable disposal accrues to more than one person in undivided shares, such value will be deemed to have accrued to each of them equally. (S 3)

A married woman will be liable to capital transfer tax in her own name in respect of the aggregate value of the chargeable disposal accruing to her in any tax year. (S 3)

However there are certain disposals which have been exempted from the Capital Transfer Tax (S 4). This include the value of any property which is dispose of –

• by way of inheritance to spouse on the death of the other spouse;
• to the benefit of the donor's spouse during the life of the other;
• the sum of value of all property disposed of by the donor for the maintenance, education or training of a child for a period ending not later than the year in which the child attains the age of 21 or, after attaining that age, if he continues to undergo full time education or training the year in which he ceases to undergo full time education or training;
• the aggregate value of casual gift of not more than P2000 donated to any person in any tax year;
• transactions relating to majors of companies where there is no change in the beneficial ownership of the assets.

5. Tax Rate

The tax is chargeable at the following rates

(First Schedule):

Aggregate Taxable value Rate of tax –

• Person (other than company):

First P 100 000 2%

Next P 200 000 3%

Next P 200 000 4%

Balance 5%

• Resident Company 12.5%
• Non-resident Company 12.5%

6. Beneficiary of Revenue

National Government

M. Donations Tax (National Government)

1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year

No Donations Tax, but a Capital Transfer Tax, see I, above.

2. Department Responsible for Administration

3. Taxpayer

4. Included in Tax Base

5. Tax Rate

6. Beneficiary of Revenue

N. Other (National Government) (National Government)

1. Name of Tax and Levied in Terms of Which Act (Name, Number and Year

2. Department Responsible for Administration

3. Taxpayer

4. Included in Tax Base

5. Tax Rate

6. Beneficiary of Revenue

O. Relief from Double Taxation

Comprehensive Double Taxation Avoidance Agreements are in force with the following countries:

• Mauritius
• Republic of South Africa
• Sweden
• The United Kingdom