Overview of Corporate Income Tax In Botswana
Corporate income tax in Botswana applies to all income earned from business activities conducted within the country.
Expenses are deductible only if they are wholly, exclusively, and necessarily incurred in the production of assessable income.
Deductible Expenses
These are costs that can be lawfully subtracted from a company’s gross income to determine taxable income.
Examples of Common Deductible Expenses
- Employee salaries and wages
- Professional fees
- Advertising and marketing cost
- Administration costs
- Depreciation (capital allowances on machinery and equipment -based on their expected useful life).
For motor vehicles, the capital allowance is capped at P175,000 to limit excessive claims on high-value or luxury vehicles. The cap applies only to passenger vehicles-those primarily designed to carry people. Vehicles used wholly for business or commercial purposes, such as delivery trucks, vans, tractors, or construction equipment, are not subject to the P175,000 limit.
Non-Deductible Expenses
These are costs that cannot be claimed to reduce taxable income. They usually include expenses that are not related to business operations.
Examples of Common Non-deductible expenses
- Personal expenses
- Fines and penalties
- Donations to non-approved entities
IMPORTANCE OF UNDERSTANDING DEDUCTIBLE VERSUS NON-DEDUCTIBLE EXPENSES
1.Accurate Tax calculation
Proper classification of expenses ensures accurate tax computation. Deductible expenses reduce taxable income, while miss-allocation can result in over payment or underpayment of tax. Persistent misclassification may also raise concerns of tax evasion.
2.Compliance with BURS Regulations
The Botswana Unified Revenue Service (BURS) requires businesses to follow specific guidelines on what qualifies as deductible. Failure to comply can trigger audits, penalties, or interest on unpaid taxes.
3.Improved Record keeping
Understanding the nature of each expense encourages businesses to maintain clear and complete documentation, including receipts and invoices.
4.Strategic Decision-making
Businesses can make more informed spending decisions by prioritizing deductible expenses, such as staff training, over non-deductible costs.
IMPACT ON INCOME TAX
1. Deductible Expenses Lower Taxable Income
When deductible expenses are correctly claimed, they reduce the gross income used to calculate tax, thereby lowering the overall tax payable. Non-deductible expenses do not provide this benefit.
2. Non-Deductible Expenses Increase the Tax Burden
Since non-deductible expenses cannot be claimed, they result in higher taxable income, leading to a greater tax liability.
Important guidelines
- Keep detailed records and receipts for all expenses
- Separate personal and business costs clearly
- guidelines
- Differentiate between deductible and non-deductible expenses to optimize tax liabilities and avoid penalties
- Consult a tax advisor to ensure compliance with BURS requirements
