Other Withholding Taxes
Under the law, when a person makes a payment of a specified nature, he/she has to withhold a percentage of that payment and remit the amount withheld to the Commissioner General. Such tax can be final or an advance tax. For an advance tax, a person from whom tax was deducted has to submit a tax return for further assessment. If the tax is final, a payee is not required to submit an annual tax return to declare tax deducted from such income.
Types of income from which tax is withheld include;
- Construction contracts (for residents and non residents)
- Management and consultancy fees (for non – residents)
- Royalties (for non- residents)
- Interest (for residents and non residents)
- Dividends (for residents and non residents)
- Entertainment fees (for non – residents)
- For applicable rates, see withholding tax rates
CONSTRUCTION CONTRACTS (Section 57 and Sixth Schedule of the Income Tax Act)
As per the provisions of section 57 of the Income Tax Act, every person who makes a payment to any person under a contract relating to construction operations shall deduct tax from such payment in accordance with the provisions of the Sixth Schedule of the Income Tax Act, except for; a) Contracts with a value of less than P2,000,000 being executed by construction companies which have been classified as falling under categories OC, A and B of PPADB in terms of section 121 of the PPADB Act. b) Contracts exclusively for design, engineering, surveying work and other related professional services.
The rate applicable is 3% on the gross amount (excluding VAT) and it is not a final tax
For more details, see DGN 2
MANAGEMENT AND CONSULTANCY FEE (section 58 and the 7th Schedule of the Income Tax Act)
For income tax purposes, management and consultancy fees include any amount paid for administrative, managerial, technical or consultative services or any similar services, whether such services are of a professional nature or not.
The rate applicable is 15% of the gross amount paid to a non – resident and such tax is final. That is, a taxpayer from whom tax has been deducted is not required to submit a tax return for further assessment. This rate may be varied by Double Tax Avoidance Agreements (tax treaties).
For more details, see DGN 6
COMMERCIAL ROYALTIES (section 58 and the 7th Schedule of the Income Tax Act.)
The Income Tax Act defines commercial royalties as any amount payable for the use of, or the right to use, any copyright of literary, artistic or scientific work, any patent, trademark, 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.
The rate applicable is 15% of the gross amount payable to a non – resident and it is a final tax. This rate may be varied by Double Tax Avoidance Agreements. (Tax treaties)
INTEREST (section 58 and the 7th Schedule of the Income Tax Act.)
a) NON-RESIDENTS Applicable rate is 15% of the interest amount paid and such tax is final.
The rate for non – residents will be varied by Double Tax Avoidance Agreement.
Section 58 (3) of the Income Tax Act provides for the Commissioner General to direct that withholding tax not apply if the amount is insignificant. The rate may varied by Double Tax Avoidance Agreements (tax treaties).
b) RESIDENTS
Withholding tax on interest paid to residents came into effect on the 1st July 2006 through the Income Tax (Amendment) Act, 2006. The withholding tax is applied to all interest income earned by any resident person on all amounts in excess of P1500 per quarter ( or P500 per month or any factor by which in a year that person will earn P6000). The provisions of the amendment excludes the following entities from the withholding tax:
i. Exempt persons
ii. IFSC companies or
iii. Any banking company or financial institution where it receives interest income in the normal course of its business.
Withholding tax on interest is an advance tax and the rate applicable is 10%. An exclusion certificate is issued by BURS to entities that are exempt from withholding tax on interest. Any other document should not be accepted by the interest paying entity for it not to deduct.
For ease of administration, particularly for banks, payers of interest will only be required to issue Tax Certificate (ITW 9) after the end of the tax year. In case of companies whose financial year end does not coincide with tax year end, interim certificates will be issued to them to enable them to file their returns for the purpose of claiming credit on tax deducted from interest income.
DIVIDENDS (section 58 and the 7th Schedule of the Income Tax Act.)
The Income Tax Act defines dividends as amount distributed, whether in cash or otherwise, by a company to its shareholders.
Withholding tax on dividends applies to both residents and non – residents at the rate of 15% and it is a final tax. This rate may be varied by Double Tax Avoidance Agreements (tax treaties).
There is an incentive for resident companies to offset withholding tax on dividends against Additional Company Tax (ACT), which is 10% of tax paid on the company’s chargeable income. ACT can only be utilized within a five year period. Form ITW 21 is used for claiming ACT against withholding tax payable and must be submitted together with tax certificates (ITW17) to BURS for authentication.
ENTERTAINMENT FEES (section 58 and the 7th Schedule of the Income Tax Act.)
Entertainment fee includes any amount payable to an entertainer (including any cabaret, motion picture, radio, television or theatre artiste and any musician) or a sportsman or sportswoman, for the personal activity of such entertainer or any other person in relation so such activity.
Withholding tax is not applicable to entertainment fees paid to an entertainer or artiste for public benefit.
The rate applicable is 10% of the gross income and it is a final tax.
Entertainers and artistes must apply for a tax clearance certificate with BURS and must produce it at the boarder before leaving the country.
PAYERS OBLIGATIONS
1.Registration
The registration process for Other Withholding Tax is an extension of the registration for income tax. A person who makes a payment subject to withholding tax must register so as to remit tax to BURS.
2. SUBMISSION OF MONTHLY REMITTANCES
The prescribed form used for tax deducted from any payment subject to withholding tax is Monthly remittance return for Other Withholding Tax (ITW 7B). For payment procedures, see Payments
Note that banks and financial institutions are not required to submit tax certificates in respect of tax on interest monthly basis.
3. Submission of annual return
Every payer is required to submit an annual return within 31 days after the end of the tax year showing;
a) Details of the payer and totals of tax deducted and paid to the Commissioner General in form ITW10 (OWHT) - Annual Withholding tax return for Other
Withholding Taxes
b) List of payees and all details pertaining to the withholding tax(Schedule A or B), and
c) Copy(s) of tax certificate(s) (ITW9/ITW17 /ITW21) indicating tax deducted in respect of each payee.
4. Issuance of tax certificate to payee
A payer must give the payee a tax certificate on withholding tax ( ITW 9/17/21) within 15 days from the date of payment of such tax at BURS.
PAYEES OBLIGATIONS In the case of withholding tax on construction contracts and interest for residents, payees must include tax certificates in their annual income tax return submissions for purposes of claiming credit on tax deducted through withholding tax.
Regarding tax deducted on non – residents, the tax is final and so their tax obligations will be dependant on the laws in their respective jurisdictions
Section 11 of Vat Act defines exempt supplies as those supplies that are exempt under paragraph 2 of second schedule as amended. Exempted goods and services consist principally of
• Financial
• Medical
• Accommodation in a dwelling and
• Educational activities.
An exempt supply is not regarded as a taxable supply. If a person only makes exempt supplies, then he is not carrying on a taxable activity and may not register for VAT if this is his only activity.
Businesses engaged in both taxable and exempt supplies: If a registered person makes both taxable and exempt supplies, only that part of input tax incurred which relates to making taxable supplies can then be claimed.
Section 43 (1) of the Value Added Tax Act gives the Minister the power to grant a relief, by way of refund of VAT paid or borne on a supply to, or import by :
(a) Any person enjoying full or limited immunity, rights or privileges under section 3 of the Diplomatic Immunities and Privileges Act, or under section 4
of that Act or under principles of recognized law, or
(b) Any diplomatic or consular mission of a foreign country established in the Republic of Botswana, relating to transactions concluded for purposes of such mission.
The purpose of privileges and immunities is not to benefit Diplomatic Missions or individuals, but to ensure the efficient performance of the functions of the Diplomatic Missions.
Click here to view document on VAT procedures governing Diplomatic Missions, Consular Missions and Privileged Persons.
The following topics are covered in the document:
- Application for Registration and the form used
- Treatment of imports
- Application for a refund of VAT and relevant forms
- Requirements of a Tax Invoice
Imported Goods
All goods imported into Botswana are subject to VAT; with the exception of the imports listed in the Third Schedule of the VAT Act. These VAT-exempt imports are essentially the same as those that are exempt from customs duties. Very few of these exempt imports are relevant for mainstream business enterprises.
VAT liability on imports arises when the goods are cleared through Customs. Goods held in bonded warehouse are not subject to VAT until they are cleared for use.
The Act makes provision for deferment of VAT due on imports where the importer provides adequate security for the tax due or where the Commissioner is satisfied that the importer has in the past paid all tax due on imports promptly.
The value of imports for VAT purposes must include all taxes and duties payable, and the cost of insurance and freight. For goods coming from Southern African Customs Union (SACU) member countries (i.e. South Africa, Lesotho, Namibia and Swaziland), the value for VAT purposes will include insurance and freight.
Declaration procedure
1. Complete 4 copies of VAT Deferral form (VAT 004.1) each time goods are imported.
2. Attached a copy to an authorized BW500 for your records. A statement would be generated at the end of the month and the amount due is payable by the 25th of the following month. It is important to always make sure that Personal Identification Number is linked to Vat account number. Note: Always make sure that the account number is quoted in block 48 of BW500.
Failure to pay outstanding amounts of VAT deferred by the due date will result in the registration suspended or cancelled.
Input tax for imported purchases should be claimed only after payment has been made. Any input tax claimed on deferred VAT before payment will result in interest and penalties being charged. If the problem is discovered after 4 months, the person will risk losing the opportunity to claim the input tax.
Imported Services
Only services imported for use or consumption in Botswana for a purpose other than to make taxable supplies are subject to VAT. In practice, this means a person who is making only exempted supplies or non-registered supplier will be liable to VAT on services imported. A person making mixed supplies (i.e. both taxable and exempt supplies) is liable for VAT on services imported as inputs to making exempt supply. Liability for tax on an imported service arises when the services are received or when payment is made for the services, whichever is the earlier. Once either of these events occurs, payment of the VAT due must be made within 30 days.
