The income Tax (Amendment) Bill 13 of 2013 which was published last month prescribing that a 4 percent withholding tax be deducted on payments to any farmer who sells livestock for slaughter is riddled with loopholes. This is according to a local tax expert.
The tax expert, who preferred anonymity, said the impeding bill once passed into law might not serve its purpose as he believes both the seller and buyer can manipulate the actual transaction so as to avoid tax.
“It is critical to note that the 4 percent withholding tax will only be deducted when the payment is being done as withholding taxes in Botswana arise on payment and not accrual. The payer will be required to issue the seller of the livestock with a certificate duly stamped by Botswana Unified Revenue Services (BURS) as proof of withholding,” he said.
The success of tax collection in this case, according to the tax expert, rests purely on taxpayers’ trustworthiness. The proposed bill amendment seeks to deduct 4 percent of the total farmers’ returns at source by their clients such as BMC, abattoirs or any other buyer of the livestock and the tax be paid to BURS.
This would then mean that according to the Income Tax Amendment Bill presented by the Minister of Finance and Development Planning, farming tax will be described as any amount from farming operations carried on a tax year by any person and will form part of such person’s gross income for that tax year.
However, according to the tax expert, withholding tax is being introduced to ensure that sellers or dealers in livestock comply with their tax obligations. “As tax will be deducted from the seller, there will be incentives for the seller to, if not compliant, normalize their tax affairs with BURS,” he explained. He is of the view that those who have been trading for years without complying with income tax obligations may soon find themselves on the receiving end of the law as BURS may pick their non-compliance, given that the registration form requires a taxpayer to declare when they started trading. He added that it would be easier to catch tax evaders as BURS can now obtain any taxpayer’s bank statement without a court order and warned that it will spell disaster for tax dodgers.
The withholding tax will only apply to sellers of livestock for slaughter and no withholding tax will be deducted when livestock is sold to BMC for slaughter as the same bill will exempt the national abattoir from tax income.
The withholding tax will also not apply to dairy livestock, or livestock kept for purposes other than slaughter.
However, the tax expert, who works for one of the leading tax and audit firms, said the withholding tax is envisaged to encourage tax compliance among farmers and speculators in livestock for slaughter.
“It is not envisaged that the tax will impede trading in livestock as similar taxes have not had a negative effect on business, save for the administration burden of issuing withholding taxes and claiming the tax deducted as a credit,” he explained.