Tax collector targets company Directors to boost revenue
Company Directors are set to have their pockets hit as BURS goes in search of new revenue.
According to experts, the amendment of the Income Tax is to ensure Directors pay more tax on their dividends.
Currently, big-earning Directors are taxed up to 25 percent of their annual income while their dividends have escaped largely unscathed.
However, depending on whether they reside locally or not, as of July, new measures will see them cough up as much as 15 percent of their Director’s fees.
Residents will pay withholding tax at 10 percent whilst non-resident Directors will be charged an additional five percent.
Tax specialist, Jonathan Hore, who is also a Managing Tax Consultant at Aupracon Tax Specialists, the move is meant to allow Botswana Unified Revenue Service (BURS) to collect more tax as the fees will not enjoy staggered Pay As You Earn (PAYE) rates but instead will be taxed in one brutal blow.
“As an example, a resident non-working director who earns annual sitting fees of P70, 000 currently pays tax of P1, 700 but will pay P7, 000 after the law commences,” highlighted Hore.
The new law will hit both the rich and the poor.
Hore explained that resident Directors who were not previously taxed on the basis their income was less than P36, 000 will now have to pay tax from the first Thebe they earn.
“This will ensure Directors contribute more to the local treasury,” the expert clarified.
At the moment, Company Directors are regarded as employees and have been paying PAYE.
This means when a Director’s income exceeds P36, 000 per annum, they pay PAYE just like any employee. On the other hand, Directors who do not live in Botswana pay tax from their first Thebe, again as employees.
This applies to both executive and non-executive directors.
The new law, according to Hore, seeks to make the withholding tax a final tax, which means that if tax is deducted by the paying company, the Directors’ will not need to declare their sitting fees as part of income subject to PAYE or Personal Income Tax in Botswana.
“Practically, that lessens the burdens of resident Directors as they will have less paperwork to deal with when filing returns.”
On the other hand, non-resident Directors will not be required to register for tax in Botswana, as contemplated by section 64A of the Income Tax Act, which Hore notes will make tax compliance easier and smoother for them.