THE TAX DIALOGUE
You may need to know that certain farmers’ income is exempt from income tax but the same farmers still pay the tax through the 4% livestock tax. This is an issue which the Botswana National Beef Producers Union made a lot of noise about in 2015 when the law came into force. I will explain this aspect in more detail today. In this article, words importing the masculine shall be deemed to include the feminine.
Section 30 of the Income Tax Act (‘Act’) states that resident individual farmers who rear livestock not exceeding 300 cattle or 1800 goats/sheep are not taxed on their farming income. The exemption applies to both citizens and non-citizens, as long as they are resident in Botswana. In other words, their income is exempt from income tax and they technically should never declare the income in tax returns. That is what happens on the ground. Such farmers do not need to either keep accounts or report profits from such endeavours to BURS. I must emphasise that this only applies to those running such ventures in their individual capacities and not through companies or other such vehicles. It is also important that such farmers do not exceed the 300 or 1800 thresholds stated, otherwise their income becomes taxable. They however pay tax if they earn other income such as rent or salaries.
Enter the 4% tax
Despite the exemption provided in Section 30, Section 58 of the Act was amended to introduce a 4% tax on the sale of livestock for slaughter. What this means is that any person who sells livestock for slaughter must have 4% tax deducted from their income. Technically, the likes of BMC and butcheries who buy livestock must deductthe 4% at source. As an example, a farmer who sells cattle worth P100 000 to the BMC will have P4 000 deducted as tax before the BMC pays them the net amount of P96 000. Technically, the same farmer whose income is exempt from income tax per the provisions of Section 30 pays the same tax through the 4% withholding system.
Time to pay tax
It is understood that the tax authorities felt that these farmers had benefitted a lot from government support and the time had come for them to contribute to the fiscus, hence the introduction of the 4% tax in 2015. There is a principle in taxation which dictates that every person is supposed to contribute to the development of their country or that in which they live through beefing up the fiscus. This is the understanding behind the introduction of the 4% tax. Whilst there may be a technical issue between the two mentioned sections of the Act, it is apparent that the legislature wanted to take away the exemption in Section 30 and get these livestock farmers to pay tax.
It is important to state that when the 4% tax is deducted, it becomes a final tax to such farmers, that is, they don’t need to declare it in their income tax returns. Further, they cannot claim the 4% tax as a tax credit as the farming ventures are regarded as not taxable businesses. Remember this only applies to resident individuals whose livestock for slaughter doesn’t exceed the thresholds stated.
Obey the law
The law is the supreme and must be followed to the letter despite technicalities that may be available. Practically, farmers cannot escape this tax as it is deducted by buyers of livestock. On the other hand, they can’t claim the same 4% tax as it is regarded as a final tax. From a legal perspective, it is however ideal that the Act be amended to remove the exemption sitting in Section 30 such that Section 58 remains with the undiluted taxing right.
Well, folks, I hope that was insightful. As Yours Truly says goodbye, remember to pay to Caesar what belongs to Ceasar. If you want to join our Tax Whatsapp group or know about our eight tax e-books, send me a text on the cell number below.
Disclaimer: Jonathan Hore is a Managing Tax Consultant at Aupracon Tax Specialists. This article is of a general nature and is not meant to address the particular matters of any person. Feedback can be relayed to firstname.lastname@example.org or 7181 5836.