August 14, 2003
New tax pact to avoid double taxation

Botswana-based companies doing part of their businesses in South Africa and vice versa have cause to celebrate following the signing of the double taxation avoidance agreement by the two countries.

The agreement was signed by finance and development planning minister Baledzi Gaolatlhe and his South African counterpart Trevor Manuel last week.

“The primary function of the agreement is to remove fiscal obstacles to bilateral trade and investment," a ministry of finance statement says.

It says the treaty will come into force after ratification by parliaments of both countries and notification of completion of formalities by the two countries.

The treaty will replace the previous agreement, which was entered into by the two countries in 1978 for the avoidance of double taxation.

Double Taxation Avoidance or DTA agreement, bilaterally concluded between countries, are well established feature of today's international fiscal scene.

They provide procedures to avoid taxation of the same income by both countries or, if such taxation is unavoidable, to provide tax relief, which will cancel out, the double taxation or minimize its incidence, and thereby encourage inflow of foreign investment.

Factors which necessitated the new agreement, the statement says, include the fact that the old agreement was outdated and did not provide for changes in the concepts of global income.

Also, it did not have clauses relating to tax sparing which protects the tax exemptions given by one country for investors from other countries.

The statement says the allocation of income between the respective countries in cases where a business carried out part of its activities in the other state presented difficulties on both tax administrators and tax payers

For instance, the differences on the issues of allocation business income and taxation of professional income could not be resolved within the ambit of the existing agreement. Both Botswana and South Africa had signed new agreements with other countries, which provide for lesser rate of taxation of dividends and other investments income, taking into account the new treaties signed by both countries.

The statement says the agreement and the protocol provide for clarity and transparency on the issue of taxation of professional and business income. It also covers the taxation of capital gains, as well as other income. A new article on technical fees provides for taxation of management and consultancy fees.

source - Daily News