Budget Speech 2014/2015

The Botswana budget proposal for

2014/2015 presented to the

National Assembly on Monday, 3

February 2014 by the Minister of

Finance and Development Planning,

the Honorable O.K. Matambo.

Budget HighlightsGeneral:•Budget prepared within an environment of continued uncertainties surrounding the state of the world economy and their likely effects on the local economy.•Focus on improving project implementation, growing the economy and employment creation, improving productivity and sustaining sovereign rating, investing in infrastructural development to support growth, investing in human capital, enhancing people’s welfare and livelihood, strengthening the judicial system and combating crime, and strengthening local governance•Priorities are to focus on service delivery, maintenance of existing infrastructure and completing on-going projects which have high rates of return. •Inflation decreased 4.1% in December 2013•Foreign exchange reserves equivalent to fund 16.5 months of imports•Economy grown by 4.2% in 2012 and projected to grow by 5.4% in 2013 and 5.1% in 2014•Revised budget forecast for 2013/14 is a surplus of 386.16 million (down from original estimate of P779.3 million•Proposed budget surplus for 2014/15 of P1.326 billion•Formation of Botswana Oil Limited and storage facilities to increase fuel supply cover from 18 days to 60days•Substantial construction component in infrastructure •Civil servants salaries still being reviewed

Budget Highlights

Fiscal:•VAT registration threshold to be increased from annual turnover of P500,000 to P1 million •All farming equipment and all basic food stuff which are currently zero rated will be exempted.•The list of basic food stuffs will be increased to include vegetables, rice and milk•Amendments to the Income Tax Act and the Value Added Tax Act will be made during the forthcoming year – no further indications given of what these changes may be• changes will be presented to the Transfer Duty Act during the year to assist first time home owners.

Salient Features of the Current

Tax System

Taxable Income•Income from, or deemed to be from a source within Botswana is taxable in Botswana•Business income from different sources is deemed to accrue from one business•Farming, mining and prospecting income or losses and capital gains are ascertained separately•The offset of farming losses by an individual against other chargeable income earned by that individual up to 50% of the other chargeable income•Gains on disposals of property are taxable, and capital losses can be carried forward for one year only•Normal business expenses wholly, exclusively and necessarily incurred in the production of assessable income are allowed as deductions•Specific deductions include capital allowances, lease improvements, bad debt provisions, approved citizen training expenditure and approved pension fund contributions•Assessed losses from business can be carried forward for no more than five years, except for farming, mining and prospecting losses, which can be carried forward indefinitely•Special provisions apply to IFSC companies and mining businesses

Individuals

Employment income

•Includes salaries, wages, terminal payments, directors and other fees, bonuses, commissions, allowances and the value of benefits•Employment income from, or deemed to be from a source within Botswana is taxable in Botswana•All employment income, including benefits in kind, is subject to monthly withholding tax (PAYE)

IndividualsExemptions and tax-free benefits for individuals

•Bank and building society interest of P7 800.00 per annum, for resident individuals (note that the 10% tax deducted by these financial institutions on interest earned by a resident individual is a final tax and the interest does not then form part of the assessable income of the resident individual) •Medical fund contributions and medical attention paid for by the employee•The value of contractual travel benefits for employees and their families•Contractual terminal gratuities payable to expatriate employees are exempt to the extent of one-third, with a maximum of:

25% of total salary for 1st contract27.5% of total salary for 2nd contract30% of total salary for 3rd contract

• Minimum of 2 years should have been completed• Should be stated in the employment contract

•Severance pay and certain gratuities payable (other than those mentioned above) are exempt to the extent of one third. Investment of such payments directly into an approved pension or retirement annuity fund results in 100% exemption

IndividualsExemptions and tax-free benefits for individuals (cont..)

•Pension fund contributions:• A contribution made by a resident individual to an

approved superannuation fund is deductible from that resident’s taxable income

• The deduction is limited to 15% of the chargeable income, excluding investment income

•Retrenchment package: one third or P36 000.00, whichever is greater is exempt•Donations:• Donations made to an educational institution

recommend by the Ministry of Education or to any sports club or social association recommended by the relevant Ministry and approved by the Commissioner General are deductible from chargeable income

• This deduction is restricted to 20% of the aggregate chargeable income for that year.

Individuals

Housing

• 10 % of municipal valuation or where no municipal valuation is available:• 8 % of current capital valuation, (P250 x floor area)

Use of employer's furniture

• Under P15000.00 - no benefit deemed to have accrued• 10 % of the excess over P 15 000.00 of the cost to the employer

Loans

The difference between the interest at concessionary rate and prime lending rate announced by Bank of Botswana on 1 July of the tax year

Other benefitsSuch as school fees and utilities: cost to the employer or market value, whichever is the greater

Valuation of benefits

IndividualsMotor vehicles – scale of values

Cost of Vehicle Value of Benefit Fuel Cost Adjustment

1 - 50 000 2 500 1 000  

50 001 - 100 000 5 000 2 000  

100 001 - 150 000 7 500 3 000  

150 001 - 200 000 10 000 4 000  

200 001 -and over

15 % on the excess of P 200 000 5 000 Maximum

IndividualsResidents – Business & Employment Income Rates

Taxable Income

Tax Payable

0 - 36 000 0        

36 001 - 72 000 0 + 5% Over 36 000

72 001 -108 000 1 800 +

12,5% Over

72 000

108 001 -144 000 6 300 +

18.75% Over

108 000

144 001 -and over 13 050 + 25% Over

144 000

Individuals

Non-Residents, Trusts and Estates of Deceased Persons – Business & Employment Income Rates

Taxable Income

 Tax Payable

0 - 72 000     5% of each Pula

72 001 -108 000 3 600 + 12,5% Over

72 000

108 001 -144 000 8 100 +

18,75% Over

108 000

144 001 -and over 14 850 + 25% Over

144 000

Individuals

Foreign Dividends received by Residents

On gross amount received 15%

Companies

Tax Rates

Resident company - manufacturing taxable income – approved

15%

Resident company - other taxable income 22%

Non-resident company 30%

Capital gains 22%

Foreign dividends 15%

Mining taxable income (excluding diamonds) 22% to 55%

International financial services centre company 15% or 22%

Companies

Capital AllowancesStraight Line  Straight line annual allowances on plant or machinery at rates between10% and 25% fixed by the Commissioner of Taxes:

  

Heavy Plant or machinery used in construction 25%

Motor vehicles and aircraft (for passenger motor vehicles, limited toexpenditure of P 175 000)

25%

Plant or machinery used directly in manufacturing or production

25%

Other plant or machinery including farming equipment 15%

Computer hardware 25%

Computer software - off the shelf 100%

Furniture and fittings including soft furnishings 10%

Companies

Capital Allowances (cont..)

Statutory Straight Line Allowances:  Industrial buildings - initial allowance (Including hotels) - annual allowances

25%2,5%

Commercial buildings - annual allowances 2,5%

Farm buildings, improvements, water supplies and other farm capitalWorks

100% 

Companies

Companies are required to pay quarterly SAT installments on a financial year basis.

Companies with annual income tax liabilities of less than P 50 000 may

rather elect to make one payment within 4 months of end of the financial year. SAT is optional for non-corporate tax

payers.

Self Assessment Tax (SAT)

Capital Gains TaxIndividuals

Taxable Income   Tax Payable

0 - 18 000

0        

18 001 - 72 000

0 + 5% over 18 000

72 001 -108 000

2 700 + 12,5% over 72 000

108 001 -144 000

7 200 +18.75%

over 108 000

144 001 -and over

13 950 + 25% over 144 000

Capital Gains Tax

Resident Company – 22 %

Non -Resident Company – 30 %

Capital Gains Tax

Inclusions – disposal of:•Any moveable or immovable property in Botswana•Any shares or debentures of a company•A residential property•Assets of an IFSC company situated in Botswana Examples of exclusions:•Principal primary residence of an individual who has owned the residence for at least 5 years prior to the date of disposal•Any property or business (other than land and buildings) in respect of which capital allowances are claimed•Shares, units or debentures of a resident public company which is traded on the Botswana Stock Exchange and at least 49% of its equity shares are released for trading on the Botswana Stock Exchange. •Any property of a company carrying on the business of mining

Capital Gains Tax

Deductions:•Cost of acquisition of the property•Cost of improvement of the property•Expenditure incurred in the disposal of the property•The indexed cost of acquisition, in respect of disposal of immovable property•In the case of the disposal of any other property (other immovable property) 25% of the capital gain•Any brought forward capital losses from the previous tax year Roll over relief:•Relief is available where a person reinvests the original investment plus all or part of the gain from the disposal of the immovable property•The gain reinvested will be considered for capital gains tax purposes only upon the disposal of the property in which it was reinvested•The portion of the original gain not reinvested is subject to capital gains tax in the tax year in which it arose•The re-investment to be made within one year of the disposal of the property

Capital Transfer Tax

•Where the donee is a company – 12.5%

•Where the donee is other than a company:

Taxable Income   Tax Payable

0 - 100 000 0 + 2%    

100 001 - 300 000 2 000 + 3% over 100 000

300 001 - 500 000 8 000 + 4% over 300 000

500 001   and over 16 000 + 5% over 500 000

Other Income Tax Rates

Unapproved Pension and Provident Funds on Investment Income

Transfer Duty – Immovable Property

Standard Rate 7,5%

Urban property transfers (waived where VAT is payable) 5%

Agricultural land transfers - citizens (waived where VAT is payable)

5%

Agricultural land transfers - non-citizens (duty equivalent to VAT payable is waived)

30%

The first P 200 000 of the purchase price in the case of a citizen of Botswana is exempt from transfer duty

Withholding Tax

 

Construction contra

ct payme

nts

Interest

Rent Dividends Commissi

on

Commerci

al Royalties

Management

or Consultancy fees

Payments to

Entertainers and Sports

persons

Residents 3%   10%** 5% 7.5%  10% - - -

Non-residents 3%   15% 5% 15%  10% 15% 15% 10%Treaty Countries

               

Barbados 3% 10% 5% 5% /7.5%*  10% 10% 10% 10%

France 3% 10% 5% 5% /7.5%*  10% 10% 7,5% 10%

India 3% 10% 5% 7.5%  10% 10% 10% 10%

Lesotho 3% 10% 5% 7.5% 10% 10% 10% 10%

Mauritius 3% 12% 5% 5% /7.5%*  10% 12,5% 15% 10%

Namibia 3% 10% 5% 7.5%  10% 10% 15% 10%

Russia 3% 10% 5% 5% /7.5%* 10% 10% 10% 10%

Seychelles 3% 7,5% 5% 5% /7.5%*  10% 10% 10% 10%

South Africa 3% 10% 5% 7.5%  10% 10% 10% 10%

Swaziland 3% 10% 5% 7.5% 10% 10% 10% 10%

Sweden 3% 15% 5% 7.5%  10% 10% 7,5% 10%

United Kingdom 3% 10% 5% 5% /7.5%*  10% 10% 7,5% 10%

Zimbabwe 3% 10% 5% 5% /7.5%*  10% 10% 10% 10%* 5% applies where beneficial owner is a company with at least 25% shareholding** final tax where interest is earned from deposits with financial institutions.

Value Added Tax (VAT)

•VAT is imposed comprehensively on an end-user basis at the rate of 12% on standard rates supplied. Certain specified supplies are either zero rated or exempt from VAT – including certain farming implements, such as ploughs, planters and harvesters•Registration is mandatory where 12 months turnover is expected to be P500 000 or more•VAT is payable by the importer of services not utilised in the making of taxable supplies•Input tax includes:• Transfer duty payable under the Transfer Duty

Act• Any tax deemed to have been paid in respect

of supplies of second hand goods

Value Added Tax (VAT)

•Input tax claims should be made within the following time limits:• For those who file monthly returns, within a period

of four months• For those who file returns every tow months,

within two tax periods• For tax paid in respect of imports, within two tax

periods•Late VAT returns penalty: the greater of P 50 per day or 10% of the tax due ( nil and refund vat returns – penalties limited to P5,000)•Late payment of VAT: compound interest at 1.5% per month or part thereof on both outstanding tax and any penalties charged•VAT refunds – Interest at 1% per month or part of a month is payable if the refund is not made within two calendar months of the due date of the return (1 month for IFSC companies, approved manufacturers and exporters)

Value Added Tax (VAT)

Zero-Rated Supplies:Exports of goods and servicesInternational transport servicesSorghum, maize meal, millet, wheat, sugar and flour for human consumptionFertilizers, some pesticides and farming tractorsfirst 5,000 liters per month of water supplied to a residential property (some exceptions apply)Supplies to the Head of State

 Exempt Supplies:

Prescription drugs and condomsResidential accommodationEducation at approved institutionsDonationsPublic medical servicesNon-fee based financial servicesPassenger transport (excluding the transportation of tourists)farming implements such as ploughs, planters and harvesters

Interest & Penalties

Interest/penalty Charge

Interest – late payment of tax1.5% per month or part of a month, compounded monthly

Interest – on penalties arising from failure to submit a return

1.5% per month or part of a month, compounded monthly

Penalty – failure to register P10,000 and abovePenalty – failure to provide information

P10,000 and above

Penalty – subsequent failure to provide information

P20,000 and above

Penalty – failure to submit VAT returns

P50 per day or 10% of tax payable – whichever is greater

Penalty – failure to submit income tax return

P100 per day up to a maximum not exceeding tax payable

Important Dates - summary

Self-assessed tax (SAT)

Final payment of income tax (company)

- equal quarterly installments beginning 3 months from startof accounting year i.e. 25% (with an 80% accuracy) of the estimated tax liability (no quarterly payments are required if total company tax charge is less than P50.000) - 4 months from the end of the accounting year 

Annual income tax return submission (company)

- 4 months from the end of the accounting year

Annual income tax return submission (individual)

- 30 September following the tax year

 PAYE / WHT  - 15th of the following month

Annual return of WHT - 31 July following the tax year

VAT returns and Payments

- 25th of the month following the VAT period

Contact Information

Email - info@accpro.co.bw

Francistown2413607Plot 337/8, Khama St/Selous Ave, Francistown

Maun6860506Plot 529, Mophane Ave, Maun