2021 Income Tax Amendment Act Enacted

Tax Fountain

The widely conversed Income Tax (Amendment) Bill 2021 passed into law and was published in the Government Gazette of Friday of 14 May 2021. The bill became law upon receiving the assent of the President Dr Mokgweetsi Masisi on 29 April 2021. The Act brings about various tax changes as enunciated below, and will take effect from 1 July 2021. As a tax firm, we intend to demystify the technical jargon applicable to the issue at hand and enhance your understanding of tax matters.

New PAYE Tables
The exemption threshold for PAYE will increase and reduce PAYE or Personal Income Tax for all individuals. Previously, individuals earning P3000 per month were not required to pay tax, but with the new law this threshold shall increase to P4000 per month. So any income between P4 001 and P7 000 per month will be taxed at 5% whilst that between P7 001 and P10 000 will be taxed at 12.5%. Income between P10 001 and P13 000 per month will suffer tax at 18.75% whilst 25% will apply on monthly income in excess of P13 000.

Tax on dividends
The Act increases tax on dividends from 7.5% to 10% when a shareholder receives a dividend payment from a company. However, tax treaties may bring this down to 5% if the shareholder is a company holding at least 25% shareholding where a provision is made in the applicable double tax treaty. It is important to note that the withholding tax is a final tax, meaning that once taxed by the company declaring them, the receiving shareholder will not be taxed any further.

Tax on directors’ fees
Directors’ fees which currently suffer PAYE at 25% at the highest bracket will soon be taxed through a withholding tax mechanism at 15% or 10%, depending on where the director is resident. Resident directors will pay withholding tax at 10% whilst non-resident directors will part with 15% as tax. Previously, directors only paid PAYE if they earned P36 000 and above during the year. However, they will pay tax at 15% or 10% on every thebe. For example, a resident non-working director who earns annual sitting fees of P70 000 currently pays tax of P1 700 and will pay P7 000 after the law commences. Further, resident directors who were not taxed on the basis that their income was less that P36 000 will have to pay tax from the first thebe they earn. This will make them contribute more tax.

Following the above, the payers of the directors’ fees will now need to issue tax certificates to the directors, most likely in the form of ITW9 forms, which are used for other withholding taxes. This will be evidence that withholding tax was deducted at source.

Rent and commission
Currently, businesses which pay rent are required to deduct a withholding tax of 5% from the rent. In like manner, any payer of commission is also required to deduct a 10% tax from such commission. For both the rent and commission, the payer is only required to deduct the tax on amounts of at least P3 000 per month. The exemption threshold will increase from P3 000 to P4 000 per month when the Act takes effect from 1 July 2021.

Tax on interest
Any payer of interest to a resident person is required to deduct 10% withholding tax after excluding from the interest P7 800 per annum. However, the P7 800 shall be abolished effective 1 July 2021, which simply means that the withholding tax will apply from the first thebe of interest.

The team at Tax Fountain, your go-to Tax Consultants, hopes that you found this article useful. Should you require further assistance or tax consultancy, please contact us using the following details: info@taxfountain.co.bw or +267 760 910 79.