Botswana Budget 2014/2015 3 February 2014

1. Botswana Budget 2014/2015 3 February 2014

2. 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.

3. Budget Highlights • General: • 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

4. 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.

5. Salient Features of the Current Tax System

6. 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

7. 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)

8. Individuals • Exemptions 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 contract • 27.5% of total salary for 2nd contract • 30% 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

9. Individuals • Exemptions 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.

10. Individuals Valuation of benefits

11. Individuals Motor vehicles – scale of values

12. Individuals Residents – Business & Employment Income Rates

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

14. Individuals Foreign Dividends received by Residents

15. Companies Tax Rates

16. Companies Capital Allowances

17. Companies Capital Allowances (cont..)

18. Companies Self Assessment Tax (SAT) 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.

19. Capital Gains Tax Individuals

20. Capital Gains Tax Resident Company – 22% • Non -Resident Company – 30 %

21. 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

22. 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

23. Capital Transfer Tax • Where the donee is a company – 12.5% • Where the donee is other than a company:

24. Other Income Tax Rates • Unapproved Pension and Provident Funds on Investment Income • Transfer Duty – Immovable Property

25. Withholding Tax * 5% applies where beneficial owner is a company with at least 25% shareholding ** final tax where interest is earned from deposits with financial institutions.

26. 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

27. 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)

28. Value Added Tax (VAT) • Zero-Rated Supplies: • Exports of goods and services • International transport services • Sorghum, maize meal, millet, wheat, sugar and flour for human consumption • Fertilizers, some pesticides and farming tractors • first 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 condoms • Residential accommodation • Education at approved institutions • Donations • Public medical services • Non-fee based financial services • Passenger transport (excluding the transportation of tourists) • farming implements such as ploughs, planters and harvesters

29. Interest & Penalties

30. Important Dates - summary

31. Contact Information • Email - info@accpro.co.bw • Francistown • 2413607 • Plot 337/8, Khama St/Selous Ave, Francistown • Maun • 6860506 • Plot 529, Mophane Ave, Maun