THE TAX DIALOGUE
Jonathan Hore
Internationally, churches, non-governmental organisations, public trusts etc (hereinafter called ‘NGOs’) do not pay tax. It is therefore not surprising why most people are of the view that such entities are exempt from tax in this country. What tends to happen is that people are swayed by the fact that these organisations are not profit-making and therefore no tax applies to them, as is the case in other countries. I will attempt to show you that these organisations are not exempt from tax, despite them being not-for-profit by nature. In this article, words importing the masculine shall be deemed to include the feminine.
Income tax
Income Tax is a tax that is payable on the profits that a taxable entity makes. Most NGOs depend on tithes, offerings, members’ subscriptions and donations from well-wishers. Let me state in advance that such income is indeed exempt from income tax as it is regarded as non-business income. However, the organisations themselves are not exempt as entities, which means that they must register for income tax, prepare accounts and file income tax returns.
Having established above that NGOs don’t pay tax on non-business income, I now turn to the taxation of business income earned by NGOs. It often happens that some NGOs engage in income generating activities such as passenger transportation, rental of buildings or running schools. To that effect, the unused income or surplus of the business income at year-end may be taxed at 22% if an application is not granted by BURS for extension of time within which to utilise the excess business income. However, if approval of extension of time to use surplus business is granted, say up to the following year, then the surplus business income escapes tax. Further, the late-submission of income tax returns by such entities may trigger late-return filing penalties. Ok, now you see that it is a fallacy that NGOs don’t pay tax; right? Kudos to this writer; high 5 – Twaaa!
VAT
If an NGO engages in the trade of goods or services subject to VAT such as the letting out of commercial buildings, it may be subject to VAT if its annual revenue exceeds P1m in any 12month period. In such cases, the NGO is then required to comply with VAT filings, just like any other business.
On the other hand, NGOs which are not registered for VAT are required to pay a tax called VAT on imported services whenever they consume services such as consultancy provided by non-residents. This VAT is paid by the NGO at 12% of the value of the services imported from the non-residents. This is a complex matter which we can’t finish in one article. Again, the fact that an entity is an NGO does not make it exempt from tax.
PAYE
Every employer, whether they are a company, trust, society or any other such organisation must deduct PAYE from employees who earn more than P3 000/month. It may also happen that employees may earn less than P3 000/month whilst enjoying benefits such as housing, private motoring and cellphone usage, which makes their taxable income exceed P3 000 and thus liable to PAYE. NGOs are therefore required to deduct PAYE and pay it to BURS monthly, over and above filing an annual PAYE return by 31st July of each year. Non-compliance makes the NGO personally liable for the tax.
Tax on rent, entertainment fees etc
NGOs must also deduct the 5% tax on rental expenses which are least P3 000/month and pay the tax to BURS. They are also required to deduct a 10% tax on entertainment fees they pay to foreign-based singers and other entertainers etc. This means that they must make periodical tax payments as well as submitting annual Other-withholding tax returns.
Well folks, I hope that was insightful. As Yours Truly says goodbye, remember to pay to Caesar what belongs to him. If you want to join our Tax Whatsapp group, send me a text on the cell number below.
This article is of a general nature and is not meant to address particular matters of any person. Tax advice is recommended if transactions are contemplated.
Jonathan Hore is a Managing Tax Consultant at Aupracon Tax Specialists and feedback can be relayed to jhore@aupracontax.co.bw or 71815836.