Enacted budget measures include rate changes and tax amnesty
Measures announced in Botswana’s budget 2021/22 have been enacted and unless otherwise noted are effective as from 1 July 2021. The most important tax changes—which include a tax amnesty—are as follows:
- The withholding tax on dividends is increased from 7.5% to 10%.
- Withholding tax applies to directors’ fees at a rate of 10% on payments to resident directors and 15% on payments to nonresident directors (the tax on nonresidents is a final tax, while for residents it is an advance payment of tax).
- The tax on foreign dividends received by Botswana residents is reduced from 15% to 10%.
- The tax-free threshold for rent and commission withholding tax is increased from BWP 36,000 to BWP 48,000 (BWP 4,000 per month).
- The tax-free threshold for resident individual income tax (including employment tax) is increased from BWP 36,000 to BWP 48,000 per year (BWP 4,000 per month). The highest bracket taxed at 25% now starts at BWP 156,000 per year.
- The withholding tax on dividends relating to mining operations is reduced from 15% to 10%.
- The standard VAT rate increased from 12% to 14% on 1 April 2021.
In addition to the above changes, the budget introduces an amnesty for income tax (i.e., corporate and personal income tax, taxes collected under the PAYE scheme and other withholding taxes) and VAT purposes during the period 1 July 2021 through 31 December 2021 to encourage taxpayers to settle their outstanding tax obligations.
The Botswana tax authorities have issued regulations for the application of the amnesty. Under the amnesty, taxpayers can avoid unpaid penalties and interest provided they settle the principal tax liability in full and notify the tax authorities electronically within seven days of the payment. The tax authorities then must notify the taxpayer of the remission of penalties and interest within 21 days from the date they were notified of the payment. For income tax purposes, the amnesty applies to all tax years up to the 2020/2021 tax year and for VAT, the amnesty applies to all VAT periods before May 2021 or June 2021, depending on the taxpayer’s VAT period.
It is unclear which types of communications will qualify as “electronic,” but they likely will include emails or submissions made via a web-based portal should the tax authorities create such a portal.
The regulations specify that there will be no remission of penalties and interest that have been fully settled—the amnesty is for unpaid penalties and interest only, excluding fines charged under the Income Tax Act and VAT Act. Taxpayers who have been convicted of a criminal offence under the Income Tax Act or VAT Act or other crimes, such as money laundering, economic sabotage, drug trafficking, etc., will not be eligible for the amnesty. It would appear from this provision that the Botswana tax authorities will be coordinating with other law enforcement agencies to determine the eligibility of taxpayers to participate in the amnesty.
The regulations do not require taxpayers to be fully compliant in terms of filing tax returns. Affected taxpayers should consider participation in the amnesty to file all overdue income tax and VAT returns during the six-month period.