Tax Amendment Bill targets PAYE of Directors
Company directors’ pay as you earn ( PAYE) will soon be slashed from 25 percent and taxed through a withholding tax mechanism, according to the latest proposed Income Tax Amendment Bill, 2021.
According to the proposed amendments, depending on where the director is resident, resident directors will pay withholding tax at 10 percent whilst non- resident directors will part with 15 percent as tax. Aupracon Tax Specialists’ Managing Tax Consultant, Jonathan Hore said the move will allow BURS to collect more tax as the fees will not enjoy staggered PAYE rates but will be taxed grossly.
“As an example, a resident nonworking director who earns annual sitting fees of P 70 000 currently pays tax of P 1 700 and will pay P 7 000 after the law commences. Further, resident directors who were not taxed on the basis that their income was less than P36 000 will have to pay tax from the first thebe they earn,” said Hore, emphasizing that directors will contribute more tax.
The new law also seeks to make the withholding tax a final tax, which means that if tax is deducted by the paying company, the directors’ will not need to declare their sitting fees as part of income subject to PAYE or Personal Income Tax in Botswana.
“Practically, that lessens the burden on resident directors as they will have less paperwork to deal with when filing returns.
On the other hand, non- resident directors will not be required to register for tax in Botswana, as contemplated by another section 64A of the Income
This also makes tax compliance for non- resident directors easy and smooth,” Hore said. However, Hore has highlighted that the bill should also seek to amend the Fifth Schedule of the Income Tax Act which still refers to ‘ directors’ as ‘ employees,’ whether working or non- working. “This means that directors’ fees are also subject to PAYE. If the law is implemented as is, then the fees will be taxable under two sections, which will not be easy for taxpayers to implement. In other words, directors’ fees must be excluded from income subject to PAYE.”
Meanwhile, practical matters arising from the law include the need for payers of directors’ fees to issue tax certificates to the directors, most likely in the form of ITW9 forms, which are used for other- withholding taxes.
“The directors will not derive much benefit from the certificates but it will be a record that they would have been taxed at source. Secondly, it is worth noting that most non- resident directors will suffer the tax at the prescribed 15 percent as most double taxation avoidance agreements do not reduce the tax rates applicable on such fees,” said Hore
Meanwhile, practical matters arising from the law include the need for payers of directors’ fees to issue tax certificates to the directors, most likely in the form of ITW9 forms, which are used for other- withholding taxes