New taxes & tax increases: An explainer
Correspondent | Friday February 5, 2021 11:32
These tax changes come against the backdrop of constrained government mineral revenues as well as a dip in SACU and domestic tax collections which were occasioned by COVID-19. Below are the tax changes the Minister proposed to Parliament.
VAT rises to 14%
The Minister proposed to increase the Value Added Tax (VAT) rate from the current rate of 12% to 14%, effective April 1, 2021. When a VAT rate increases, it naturally pushes up the prices of taxable goods and services slightly higher than they would be. This calls for adjustment of spending patterns, especially for the unemployed and low-income earners, to contain the price increases. The VAT rate increase will, all things being equal, increase Botswana Unified Revenue Service (BURS) tax collection by around P1.27 billion per annum. However, the magnitude of the tax collections may be negatively affected should COVID-19 continue to disrupt the economy.
Tax amnesty
For the first time in 10 years, the Minister offered a tax amnesty to taxpayers where tax interest and penalties will be waived upon payment of the principal tax. This is intended to ensure that taxpayers burdened with heavy tax penalty and interest charges are relieved of their onerous obligations. It will also allow those who failed to obtain tax clearance certificates due to tax debts, to obtain the tax clearance certificates.
PAYE and PIT exemption increase
Currently, individuals who earn less than P 3,000/month or P36,000/annum do not pay PAYE (if employed) or Personal Income Tax for those self-employed. This threshold was last increased with effect from July 1, 2011 and had been overtaken by inflation
To that end, the Minister proposed to increase the exemption threshold from the current P36,000/annum to P48,000/annum, which will give a slight tax relief to all individuals as their tax will go down to the extent of the P12,000 increase. Those earning not more than P4,000/month will not pay tax at all.
Sugar tax
The Minister also proposed to introduce, for the first time, a sugar tax on sugar saturated beverages (SSBs), a term which covers drinks such as Coca Cola, Fanta and energy drinks, amongst others. These beverages are known to strain health facilities as they cause obesity and other sugar-related diseases.
The sugar tax will be introduced at the rate of two thebe per gram in excess of 4g/100ml. This is one of the sin taxes, which is meant to curb the consumption of such beverages. The obvious effects of that tax is that it will make the beverages more expensive and manufacturers may be forced to reduce the amount of sugar or introduce low sugar versions of the beverages. Consumers may also be forced to reduce consumption.
Withholding tax on dividends
The rate of withholding tax on dividends is currently pegged at 7.5 percent of the gross dividends. The Minister proposed to increase the rate from 7.5 percent to 10%, effective July 1, 2021. Shareholders will, as a result, pay more tax on dividends and this is expected to boost BURS tax collections. However, the 10% tax may be reduced to five percent by applicable tax treaties Botswana has with other countries.
Tax treaties with countries such as Ireland, UK & Northern Ireland, Mauritius, Seychelles and Zimbabwe have clauses which allow for the mentioned reduction. The withholding tax on dividends is a final tax (i.e. no further tax is paid after the 10%).
Plastic levy
The Minister finally moved in to clear some mist which surrounded the plastic levy of 25 thebe per plastic bag which retailers, amongst others, were charging to consumers without passing it onto government as there was no legislation or collection mechanism. A law will be put in place to enhance collection of the tax by BURS, effective April 1, 2021. This is not likely to have any impact on consumers as the tax was always being collected, albeit without a law backing it.
Fuel levy
The fuel levy will be increased from the current rate of 12 thebe to P1.12, which represents a huge spike. The Minister stated that this increase was made to cater for the fact that the rate was never changed since the inception of VAT in 2002. This levy is different from the National Petroleum Fund (NPF) as it feeds into the national coffers whilst the NPF is used to stabilise the fuel prices.
Levy on second-hand vehicles
The Minister also proposed to introduce a levy on second-hand vehicles imported into Botswana as a way of raising revenue and curtail pollution. No further details were provided regarding the magnitude and date of implementation of the levy. If introduced, this means that second-hand vehicles will be more costly than they are. Many middle-income earners and small businesses rely on such vehicles for their day-to-day operations.
JONATHAN HORE*
*Hore is is managing consultant – Tax at Aupracon Tax Specialist. This article is of a general nature and is not meant to address particular matters of any person