05 July , 2006
Botswana Unified Revenue Service - Public Notice
Amendments To The Income Tax And Vat Acts

The Bills to amend the Income Tax and Value Added Tax Acts were published in the Government Gazette on 27th May 2006. The Bills have been passed by Parliament and are to take effect from 1st July 2006.

The following is a synopsis of the major changes brought about by the 2006 Amendment Acts.

INCOME TAX (AMENDMENT) ACT, 2006

• Corporate Taxation
  • The two-tier corporate taxation system has been retained. However, a cap has been placed on the set-off of additional company tax limiting its availability for set-off to 5 years following the year in which it was paid.
  • All references to current year tax have been removed
    
    
• Interest withholding tax (WHT)
  • Interest payments to non-residents are subject to a 15% withholding tax, unless the withholding tax rate is varied by a Double Taxation Avoidance Agreement. A new 10% withholding tax applies to all interest payments to residents over P6 000 per year or P1 500 per quarter or P500 per month.
    
    The withholding tax must be deducted by the payer of the interest before making the payment.
  • Persons exempt from taxation and International Financial Services Centre companies, banking companies or financial institutions receiving interest in the ordinary course of their business will not be affected by the interest withholding tax.
  • Interest paid by Collective Investment Undertakings to a unit holder or that accrued from foreign currency bank accounts is subject to interest withholding tax.
    
    
• Individual taxation
  • The definition of ‘employment income’ has been modified while that of ‘retrenchment package’ no longer makes reference to the Employment Act.
  • Non-corporate taxpayers that are obliged to file income tax returns have the option to self assess their tax liabilities for a tax year and to pay the taxes in one lump sum when they file their returns for the tax year.
  • The exemption limit of interest income for resident individuals has been increased from P2 500 per year to P6 000 per year.
  • Tax rates for individuals have been amended so that the non-taxable threshold for resident individuals is increased from P25 000 to P30 000 per year and the top marginal rate of 25% will now apply to income over P120 000 per year. Non-resident individual rates and rates for net aggregate gains of the individuals have also been amended. The rates and bands are depicted in the following tables:
    
    

    Tax table for resident individuals
    Taxable Income	Tax
    0 – 30 000	0
    30 000 – 60 000	0 + 5% of the excess over P30 000
    60 000 – 90 000	1 500 + 12.5 % of excess over P60 000
    90 000 – 120 000	5 250 + 18.75% of excess over P90 000
    120 000 and above	10 875 + 25% of excess over P120 000
    Tax table for non-resident individuals, trusts falling under Section 14 (2) and estates of deceased persons
    Taxable Income	Tax
    0 – 60 000	5% of every Pula
    60 000 - 90 000	3 000 + 12.5% of excess over P60 000
    90 000 – 120 000	6 750 + 18.75% of excess over P90 000
    Over 120 000	12 375 + 25% of excess over P120 000
    Tax table for net aggregate gains of individuals
    Taxable Income	Tax
    0 – 15 000	0
    15 000 – 60 000	0 + 5% of the excess over 15 000
    60 000 – 90 000	2 250 + 12.5% of the excess over P30 000
    90 000 – 120 000	6 000 + 18.75% of excess over P60 000
    Over 120 000	11 625 + 25% of excess over P120 000

    
    
    
• Taxation of special entities
  • New definitions for investment company, investment income, securitization and special purpose vehicle are provided.
  • Income accruing to Collective Investment Undertakings from the sale of shares and securities will be considered as part of their business income and not as disposal gains.
  • Special purpose vehicles (SPVs) formed by Government for securitization of public assets and dividends distributed by these SPVs are tax exempt.
  • The election period for setting off of group losses for BDC companies has been reduced from 6 years to setting off within the current tax year. BDC companies will now be able to elect within the current year to have current year losses set off against current year income of other BDC group members.
    
    
• General administrative provisions
  • Penalties will be incurred if a tax certificate is not delivered to a contractor by the time of the due date of the payment of the tax withheld i.e. 15th of the following month.
  • The period for preserving documents has been increased. Taxpayers will now have to preserve their books of accounts and other relevant documents for a period of 8 years instead of the current 7 years.
    
    
• Disposal gains
  • The income accruing from the disposal of a principal private residence will be exempt from tax if the proceeds are re-invested in another residential property within 24 months of the disposal of the principal private residence. However, if the disposal gains are not so reinvested within a period of 24 months, the exemption would be available only in respect of the most recent disposal of the principal private residence.
  • Shares, units or debentures of a public company or those actually traded on the Botswana Stock Exchange are exempt from disposal gains tax. For companies that have released 49% or more of their equity shares for trading on the Botswana Stock Exchange sale of any of their equity shares are eligible for tax exemption from the disposal gains tax.
  • This exemption excludes proceeds arising from sales of shares, units or debentures undertaken by investment or similar companies where the shares, units or debentures are disposed of for profit generation in the ordinary course of business.
  • Disposal of shares of International Financial Service Centre companies are tax exempt.
  • Sale of shares of companies, whose underlying dominant assets are immovable properties that result in effectively transferring the property, will be deemed to be the sale of the immovable properties and subject to tax on disposal gains.
    
    
• VALUE ADDED TAX (AMENDMENT) ACT, 2006
  • Time of supply rules
    The time of supply rules have been amended to stipulate that the time of supply for immovable property is when the transfer deed is registered with the Registrar of Deeds or whenever payment is received, whichever occurs first.
  • Value of supply rules
    The VAT due on new contracts of the BPC Rural Electrification Scheme or a supply of housing under the BHC Tenant Purchase Scheme may be amortised over the instalment period (or spread over the life of the contract).
  • Taxable supply rules
    Disposal of capital goods or any goods on hand is deemed to be a taxable supply at the time of de-registration except where a claim of input tax on these goods is denied in terms of section 20 (2) or would have been denied had the VAT Act been in force.
  • Input tax
    Persons registered for VAT may claim their input tax within 4 months of the date of the tax invoice.
  • Zero rated goods
    The following goods have been included in the list of zero-rated goods provided they are sold in their natural state and have not been mixed with other goods:
    • Millet grain
    • Millet meal
    • Wheat grain
    • Maize cobs
    • Flour
    • Sugar
    • Setswana beans comprising of the black-eye, ER 7 and the regular red or brown beans
      
      Other goods that have been zero-rated include the following:
    • Pesticides;
    • Fertilizers; and
    • Farming tractors
      The zero-rate applies to supplies made on and after 1st July 2006.
      
      
  • Exempt supplies
    Goods added to the list of exempt supplies are:
    • Domestic passenger transport by rail or road
    • Cash grants made by or received from the State
    • Donations
    • Condoms
      
      The exemption applies to supplies made on and after 1st July 2006.

BURS will be running a number of seminars to fully explain these changes and their effect in various centres in the country during July 2006. Any further enquiries regarding the Amendment Acts should be directed to the Internal Revenue Division of the Botswana Unified Revenue Service at the following numbers:

5th July 2006