Botswana: Domestic Corporate Taxation
See International Financial Services Centre for details of the privileged tax regime introduced in 1999 for international companies.
Value Added Tax at a rate of 10% was introduced in 2002 to replace the previous General Sales Tax. This was increased to 12% effective April 2010 as a result of the 2010 budget. The registration threshold was also increased, from BWP250,000 to BWP500,000.
Important changes to the corporate tax regime in Botswana were announced in the 2010 budget (see below).
In July, 2004, Botswana's Finance and Development Planning Minister, Baledzi Gaolathe announced changes aimed at broadening the tax base, limiting exemptions and promoting compliance to raise an estimated BWP50 million (USD10.8 million). Among the measures were limitations to exemptions on the disposal of shares, limitations on the deductions for lease payments for the use of motor cars, and restrictions on deductions for farming losses.
Gaolathe also outlined plans to enhance the valuation of the housing benefits that some employers extend to employees as fringe benefits. "The valuation of the benefit is being increased from 6% to 10% of the rateable value and in the case of properties that are not rated, the valuation is being enhanced from 5% to 8% of the current capital valuation of such property," the Minister explained.
In another revenue raising measure, charitable, religious and other mutual benefit organisations will be subjected to tax "unless they prove to the Commissioner, by filing tax returns and supporting documents that the income they derive has been or will be applied for public purposes."
In delivering his maiden State of the Nation address in November 2008, President Ian Khama said there are concerns that the tax system in Botswana is complicated and is a disincentive to investors. "We are thus in the process of reviewing the tax system with the aim of simplifying it," the President said. "In addition, we will continue to seek double taxation agreements to reduce the cost of doing business in Botswana."
In the 2010 budget, the Minister of Finance and Development Planning announced that the two-tier corporate tax system would be replaced by a single company tax rate of 25% of profits. Companies designated as manufacturing and International Financial Services Centre-registered will be taxed at 15%, with a final 7.5% withholding tax on dividend distributions. These changes were effective July 1, 2010. The minister also announced that the requirement for commercial parastatals to pay 25% of their profits to the government will be "strictly enforced."
The 2011 budget the Minister announced the planned privatisation of some parastatals in addition to merging others, such as the Botwana Postal Service and Botswana Savings Bank. The 2011 budget saw a reduction in the corporate income tax rate to 22% for resident companies, an increase from 25% to 30% for non-resident companies and a reduction of the dividend withholding tax rate to 7.5%.
The corporate tax incentives and specific benefits available to Botswana IFSC companies were unchanged by the 2010 budget.
The following information describes the tax situation in Botswana prior to the changes announced in the 2010 budget.