Financing and Tax in Botswana (BOTEC INSABA, 2006)
ASSESSMENT OF FINANCING AND TAXATION ASPECTS IN BOTSWANA
1. Project Financing in Botswana
Project financing relates to SMMEs (small, micro and medium enterprises) soliciting
funds from other sources for a planned project undertaking. In most cases the SMMEs
rely on financial institutions for financial assistance. In the case of Botswana, these
SMMEs have access to private and public/ parastatal institutions from which they can
acquire such funds. The key aspect is for an individual/ entrepreneur to solicit
information on the various options available to them from which they can choose the
option which they feel best addresses their needs, taking into account conditions
associated with such funds. In addition they need to fully understand and also be able to
explain in definite terms what the project is all about and what it aims to achieve. Below
are a number of financial institutions which offer loans to SMMEs for project financing:
Private institutions
a) Barclays Bank of Botswana
b) First National Bank
c) Standard Charted Bank
Private financial institutions offer SMMEs loans from BWP15 000 to BWP40 0001 and
in addition they require the applicant to provide security in the form of an asset. The
market interest rate for such loans usually ranges from 15-20%.
Public/ parastatal institutions
a) Citizen Entrepreneurial Development Agency (CEDA): the minimum amount that
an SMME can borrow from this institution is BWP500 while the maximum is
BWP2 million. In addition this institution does not require any security to process
an applicant’s loan.
1
1BWP = 0.1250 Euros (www.europa.eu.int)
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Financing and Tax in Botswana (BOTEC INSABA, 2006)
b) National Development Bank (NDB): NDB provides loans from BWP20 000 to
BWP52 million (a range that clearly covers SMMEs) and in addition the bank
requires the applicant to make some form of contribution (i.e. 25% of the total
project costs or provide the land on which production will take place).
c) Botswana Development Corporation (BDC): BDC does not usually have limits on
the amount it lends but just like NDB, it dictates that the applicant makes some
contribution. In addition, unlike the other institutions, BDC prefers to form
partnerships with applicants rather than just handing out the loan.
Given the above conditions and pre-requisites, it would therefore proof advantageous for
a small and/or medium entrepreneur who is starting up and does not have any asset to
back up their initiative, to apply for a CEDA loan. Otherwise if an entrepreneur feels they
have all the requirements that may be put forward by the other institutions (both public
and private) they can always approach them. One advantage from private financial
institutions is that as long as an entrepreneur meets their pre-set conditions the processing
of the loans is faster than the public/ parastatal institutions, for example loans are usually
approved in 48hours. Private institutions however, have the disadvantage of high interest
rates ????.
It is worth noting that both the private and the public institutions have the same
requirements and expectations from an SMME. Below is a summary of the expected
documents that must accompany an SMME’s application for a loan (all these details need
to be in the form of a business plan):
Applicant's Background: Applicant (or Company's) information including name,
address, legal status, history and nature of the business.
Management Information: Details of the corporate structure and management setup of
the company, including names of the principal shareholders (if any), directors, managers
and other key personnel (staff members).
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Financing and Tax in Botswana (BOTEC INSABA, 2006)
Project Description: Description of the project to be financed, including project plan, all
existing and proposed plant, production facilities and their capacities, labour, raw
materials and other essential requirements.
Cost estimates: An estimate of the cost of project with breakdown by major items such as
land, building, civil works, machinery, ancillary installations, preliminary and preoperation expenses and working capital.
Market Analysis: Analysis of the market, including an assessment of present and future
demand, prices, competition, description of the existing and/or proposed distribution
channels in the case of a product.
Operational Plans and Profitability: Information on the planned operation and its
estimated profitability, including anticipated sales, selling prices, manufacturing costs
and overheads.
Other Relevant Information: Documents such as copies of Memorandum of Agreement
and/or Articles of Association, manufacturing licenses, relevant approvals from
Government authorities, technical assistance, financial accounts for the last 3 years (if the
company has been in operation).
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Financing and Tax in Botswana (BOTEC INSABA, 2006)
2. Tax aspects in Botswana
Botswana, like most countries relies to a certain extent on revenues generated from taxes
to assist in funding some of its development projects. For instance it is estimated that
non-mineral income taxes contributed 12.1% to government funds for the financial year
2005/06. Below is a brief explanation of tax aspects including a brief summary on the
operations of the overall regulatory body of all tax laws in Botswana; and a brief
description of the various taxes in Botswana.
The Botswana Unified Revenue Services (BURS)
Botswana Unified Revenue Services (BURS) is a regulatory parastatal body which is
mandated with governing and implementing all tax laws in the country. Specifically,
BURS is tasked with executing the following functions:

Assess and collect tax revenues on behalf of the Government

Administer all revenue (tax) laws

Promote compliance with revenue laws

Take any measures required to improve service given to tax payers etc.
Botswana has a number of Acts of Parliament which set out regulations that govern the
various tax levies in Botswana. These include the following:

Income Tax Act

Capital Transfer Act

Value Added Tax Act

Customs and Excise Duty Act
The various acts stipulate specific tax rates to be levied on companies (SMME’s
included) and individuals as long as they are above the stipulated thresholds associated
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Financing and Tax in Botswana (BOTEC INSABA, 2006)
with each tax. There are various domestic tax levies but of particular importance to
SMMEs is the Value Added Tax (VAT), corporate income tax and personal income tax.
Below is a table depicting the various taxes; their statutory tax rates and the tax base.
Tax
Statutory tax rate
Tax base
Value added tax
10%
Value added
Corporate income tax
15%
Taxable income
Company tax
15% and 5% for non-manufacturing and Taxable income
manufacturing sectors respectively
Personal income tax
Various rates
Taxable salaries
In order for any of the taxes stated above to be applicable, there are special conditions
that an SMME has to meet, and some of the conditions are discussed below.
Value Added Tax
VAT is charged at a rate of 10% on most goods and services that an organisation sells/
supplies to other organisations or persons. VAT it therefore a tax that is levied on the
consumption of a wide range of goods and services. At the end of each tax period, a
business is expected to total all its output tax collected and deduct from it all the input tax
incurred and the net amount is then paid out to the customs and excise unit within the
BURS. Businesses that have an annual turnover of less that BWP12 000, 000 are required
to submit a return every second month while those with a higher turnovers have to submit
monthly returns.
Who is required to register for VAT?
Any person/ company whose taxable supplies for the past period of 12 months are more
than BWP250 000 or are expected to exceed BWP250 000 in the next 12 months. This is
referred to as compulsory registration. Those below the threshold need not register but
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Financing and Tax in Botswana (BOTEC INSABA, 2006)
they can register if they so wish (voluntary registration). A business/ person will not
however be accepted for voluntary registration if:

they have no fixed place of abode or business

they do not keep proper records

they will not submit returns as required
A person who is liable to register but does not register can be charged a penalty of up to
200% of the tax they should have collected. This is in addition to being liable for the tax
as well as the risk losing the input tax credit.
A few examples of goods subject to VAT are: food, household appliances, electricity,
water, thermal or electrical energy, heat, gas, refrigeration and air conditioning, land and
buildings, computers, stationery. Examples of services/ activities that are subject to VAT
are: commercial services, electricians, plumbers, builders, and professional services doctors, accountants, lawyers advertising agencies, intellectual property rights - patents,
trademarks, copy rights, know-how and personal rights - restraints of trade provision of
cover under an insurance contract.
Private or recreational pursuits or hobbies (unless run as a business) and the services of
an employee to an employer are not regarded as a taxable activity. There are also goods
and services that are not subject to VAT and quite a significant number of these are those
that are provided by Government or those that are considered as essentials e.g.
prescription drugs; public medical services; sorghum and maize meal for human
consumption.
Company and corporate taxes
Corporate and company taxes are administered through a process called Self Assessment.
Through this process the taxpayer is required to make his own assessment which he / she
does by submitting a Self Assessment Return form on which they can determine their
own taxes. The requirement to Self Assessment Return applies only to taxpayers
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Financing and Tax in Botswana (BOTEC INSABA, 2006)
determined by the Ministry of Finance and Development Planning. Subsequently, self
assessment return is usually sent by mail during May of every year for those already
registered otherwise they may be collected from BURS. The sequence of the self
assessment process is as follows.

Determining the assessable income (income arrived at after deducting types of
income exempted from the imposition of tax, these may include dividends
received by an International Financial Service Centre company)

Determining the ‘chargeable income’ from each source

Determining the taxable income of the person/ business as a whole, and

The application of the tax rates as appropriate
What is of particular importance is determining the ‘chargeable income’ of each source in
accordance with the income tax act. For purposes of this process, provisions of the act
should be interpreted and applied. The ‘chargeable income’ is determined from
assessable income by deducting all expenditures wholly and exclusively incurred in the
production of the income. These include: legal expenses in the ordinary operations of the
business; as an employer, contributions to approved pension or benefit funds; debts
written off; expenditure on scientific research and subscriptions to institutions and
universities; approved training expenditures etc.
Determining income for farming activities differs differently from the determination of
any other business income. Of particular importance is expenditures i.e. some expenses
which would normally be classified as capital expenditure under accounting concepts are
permitted as deductions when determining the chargeable income for the year. Such
items are sinking of boreholes; planting trees, plantations, orchards and vineyards;
erection of buildings for farming operations and erection of fences.
Determining the taxable income is the aggregate of the chargeable income from all
sources less the following deductions: Contributions, in cash or in kind to educational
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Financing and Tax in Botswana (BOTEC INSABA, 2006)
organizations and sports bodies approved by the Minister of finance and Development
Planning. This deduction is however subject to the following limitations:

The donation has to exceed BWP1, 000

The amount of the deduction should not exceed one fifth of the aggregate
chargeable income
Additional tax relief for business may also be so ordered if such business can promote the
development of Botswana’s economy. These include facilities to train and impact skill to
Botswana and number of Batswana employed and their capacity.
Tax payable for resident companies consists mainly of the basic company tax, and the
rate for a company other than a manufacturing or an international financial services
company is 15% of the taxable income. Where the taxable income comprises of
manufacturing income and other income, the rate of 5% will be applied on that part of the
taxable income attributable to the manufacturing income, and 15% on the other income.
Non-resident companies have to pay 25% of their taxable income.
Companies affiliated to the Botswana International Financial Services Centre2 pay
corporate tax of 15% guaranteed until 2020 and in addition these companies are also
exempted from (amongst others) the value added tax and the company tax..
Personal income tax
The personal income tax is levied on an individual’s salary or earnings and it varies
according to amounts earned. For instance the tax-free threshold is P30 000 per annum,
while the maximum personal tax rate is P120, 000 per annum and the tax rate for this
salary is 25%. The details are presented in the table below;
2
An institution that facilitates the delivery of a wide range of cross-border financial services to clients in
other countries.
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Financing and Tax in Botswana (BOTEC INSABA, 2006)
Taxable income
Tax
0 - 30 000
0
30 000 – 60 000
0+5% of the excess over 30 000
60 000 – 90 000
1 500+12% of the excess over 60 000
90 000 – 120 000
5 250+18.75% of the excess over 120 000
120 000 and above
10 875 + 25% of excess over P120 000
The above details are however relevant to residents, citizens and any individual who is
physically residing in Botswana for more than 183 days. The personal income tax is
based on the principle of ‘pay as you earn’. It is therefore, expected from an SMME to
deduct payable income taxes from their employees on behalf of Government as and when
they receive their salaries.
Finally it is very important for an SMMEs to thoroughly understand tax laws and
regulations of Botswana. Although in some instances it may be difficult for them to come
across such information, networking with relevant authorities makes it easier for an
entrepreneur to have access to crucial information. In addition they can easily ask for
assistance from the authorities on tax issues they do not understand.
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