Botswana Unified Revenue Service (BURS) is working on several initiatives meant to facilitate Small, Micro and Medium Enterprises (SMMEs), and reduce the burden of filing tax returns. The Tax Administrative Act will be passed this year in Parliament to help consolidate all Tax laws into one instrument. BURS Acting Commissioner Operations, William Nkitseng said this piece of legislation will include among others; Customs and Excise, VAT Act, and Income Tax.
“This is an administrative law that will assist in administering all these tax laws,” Nkitseng said at the 25th Budget review session of First National Bank Botswana. BURS has been working to revamp this law with the assistance of a tax expert from the International Monetary Fund (IMF) since 2017. Of concern to the SMMEs, is the introduction of the Presumptive Act, which specifically targets small and micro businesses. According to Nkitseng, it is time that Botswana introduces the Presumptive Act. He said currently it is difficult to deal with small enterprises where issues of tax are concerned because of their diverse and ambiguous business models.
This law is most appropriate for the SMME sector, which mostly struggles with record keeping, filing of tax returns, and most do not have a permanent address of operation. To make it easy to administer, Nkitseng said once the law is in operation, a taxi driver for example, will be required to pay a certain amount like P500 upon their license renewal, which will be directed to BURS. “This law will also affect hawkers who may have to pay an amount like P50 whenever they renew their licenses that will be directed to BURS,” Nkitseng said. In addition to BURS latest developments, the institution will this year implement e-services including a Mobile App that will enable SMMEs to do business with BURS on their mobile devices.
This App in addition to other e-services is expected to reduce SMMEs’ physical contact with BURS and avoid ambiguous processes. “This we believe will encourage SMMEs to utilise BURS services,” Nkitseng said. Other special provisions meant to promote SMMEs are Section 95 of the Income Tax Act that provides for a waiver to pay SAT installments. It recognises that small businesses may not have capacity to pay these on a quarterly basis. Section 131 of the same Act also allows for business partners to elect to be taxed as partners if their company is below the threshold of P300 000. They may approach the Commissioner General for intervention.
Nkitseng said while tax exemptions are a necessity that reduces the tax burden, promote business growth and help create employment, there is need to know what you are giving away and what you are gaining. “It is important to exercise caution and create a balance between these two.” Botswana’s tax regime has been viewed as harmful when judged against international practices. This led to the revision of International Financial Services Centre (IFSC) legislation to get rid of elements considered as unfair tax competition. “All jurisdictions are fighting for FDI and if Botswana is found to be taking part in unfair tax competition, we need to reconsider those,” Nkitseng said.
While some argue that it is not a good idea to give tax incentives because this denies citizens good infrastructure such as roads and schools, others say these incentives are good for the economy especially for areas designated for specific economic activities like the Special Economic Zones (SEZs). Botswana currently has the lowest tax regime in Southern Africa. “VAT is 12 percent while in both South African and Namibia it is at 15 percent,” Managing Tax Consultant at Aupracon, Jonathan More said, adding that Corporate Tax is at 22 percent, while in South Africa it is at 28 percent.
According to More, low tax rates attract cooperation and buy-in from business and individuals to pay taxes. It is also good for SMMEs because they enable them to retain more profits for investments and or distribution as dividends. IFSC Accredited companies in Botswana are offered an even lower, competitive Corporate Tax incentive framework of 15 percent. In the Selibe-Phikwe Economic Diversification Unit (SPEDU) area for example, companies are offered as low as five percent for the first five years of operation and 10 percent VAT thereafter.