Budget time has come and gone again. In my estimation, this budget must have been a very difficult one to prepare and the Ministry of Finance and Development Planning is to be applauded I think for their efforts.

Once again we are able to state that although we have to deal with some fairly far- reaching changes to the value added tax (VAT) and Income Tax regimes in Botswana, the changes are not radical.

This is certainly important for taxpayer.

In South Africa the tax laws change all the time. Taxpayers have to contend with issues that are foisted upon them by the authorities that take time out of their business schedules. Compliance with the myriad of laws in South Africa (and other jurisdictions are as bad if not worse) is extremely difficult.

I think that is why the informal sector is so large in South Africa. The people who operate in the informal sector simply could not be bothered to deal with all the compliance laws, so they shy away from them, keeping to cash and cigarette-box accounting.

There were basically four major changes in the VAT and Income Tax regimes that were proposed by Minister of Finance and Development Planning Kenneth Matmbo. These are:

•    The threshold at which it becomes compulsory to register as a VAT vendor will increase to P500 000 per annum of business turnover. The threshold turnover that was required previously for compulsory VAT registration was P250 000;
•    There is an increase in the VAT rate to 12 percent - a two-percent (2%) increase, which is still better than the South African rate of 14 percent. Just a pity it will now be a little more difficult to work out VAT as the 10 percent was such an easy calculation to make;
•    Previously a company in Botswana paid Company Tax of 15 percent and Additional Company Tax (ACT) of 10 percent. The ACT could be used to offset withholding taxes upon dividends, which was set at 15 percent. This two tier system will be abolished from July this year and replaced by a simple 25 percent Company Tax rate; and
•    There will no longer be any ACT to utilise to offset dividend withholding taxes.
Withholding taxes upon dividends are reduced from 15 to 7.5 percent. Whilst this seems on the face of it to be a tax reduction, given the fact that ACT will no longer be generated to offset the withholding tax, the Withholding Tax will now be payable over and above the Company Tax, when dividends are declared. Shareholders will thus now effectively pay more tax than previously.

There appears to be scope for tax arbitrage in that the personal tax rate remains at 25 percent. It looks as if company shareholders who are directors may be able to take directors’ fees and thus avoid large dividend declarations. However, such one-off payments might well generate penalties and interest in terms of Pay-As-You-Earn (PAYE) requirements. We shall have to study the changes to the Income Tax Act to ascertain the effect of the new rules.

Certainly the changes are not very onerous and Botswana is still an excellent base and place to operate from regardless of the changes to the Income Tax and VAT Acts. Apparently there are still changes to be announced in future. A lot depends upon the speed of economic recovery worldwide I am sure.

Let us hope that the world recession becomes a thing of the past and that the demand for Botswana beef, diamonds and tourism picks up significantly in the short term.

Peter O’Halloran is tax partner at BDO in Gaborone. Contact Peter on 3902779 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

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