Last week we reflected on the tax effects of providing quality services. We compared good quality service to a poor quality service. We found that a good quality service can in fact bring in more tax whereas a poor quality service can be disastrous to the economy.
A good quality service saves the receiver from incurring unnecessary costs. This is positive for you the provider because you will obtain customer loyalty and improve your long-term profitability.
In taxation, a good quality service reduces the taxpayers’ compliance costs. If the Commissioner General was to improve efficiency of his audits such that each case is settled after calling for two interviews at most (just as an example), then taxpayers would save on costs incurred in attending such extra audits and this saves on future allowable deductions, hence better profitability and better contribution to the economy in the form of tax paid over to BURS.
A lot of economies like Singapore have seen the value of quality and have turned around their economies to make more money through provision of quality. If Botswana was to consider this, in the long run we will be providing labour regionally and not relying heavily on minerals.
This week we wish to tackle a few questions raised by taxpayers;
Q1. If I am an expatriate from South Africa and have started working in a company in the month of June, how much tax should I be charged on a salary of P35 000? My employer has charged me P7 156.25 based on earnings of P420 000 for the year. I was of the opinion that I should not pay any tax at all for the tax year 2009-2010 but my employer say that BURS requires all employers to assume that every employee has worked for the full tax year at the stated salary and the onus is on the employee to prove that they only earned for that one month and if satisfied then BURS is the only one allowed to make a tax refund to the employee. My employer says that I should submit my ITW8 and BURS will refund the full amount.  Is that correct or should the employer have not taxed me at all.  Please respond urgently. CE
Solution
If the total income for the year is P35 000, then it is not taxable for residents. If an expatriate starts work in June, which is the last month of the tax year, then he will at most pay tax as a non- resident on the P35 000, which will come to P1 750 (5%*35 000).
If he has a contract of employment for 2 years, then next tax year he will be classified as a resident because he would have been physically present in Botswana for at least 183 days in that tax year.
Then he will be re-classified as a resident for 2010 by continuity. That would call for revision of the current PAYE and he would be given a tax-free band of P30 000 and thus refunding him part of the PAYE collected. Effectively we are saying that he would end up getting a refund of P6 906.25 [P7 156.25 – P250 (5%*5000)], almost the whole amount deducted.
Way forward
It sounds like an enquiry has been made and the CG gave his own opinion, but remember it is the duty of the employer to collect the right amount of tax from the employee. If they are convinced that their employ with the taxpayer is the first in the country in the tax year ending 30th June 2010, they will still be collecting the right amount of tax if they use the nonresident rates. Since the PAYE for the month of June was remitted to CG by the 15th of July 2010, after the taxpayer received his, copy of ITW 8 (tax certificate) from the employer, he can submit a tax return and get his refund back. Comments may be sent to cecilia222ramabu @yahoo.com or ceciliar@bac.ac.bw