Depreciation and depletion
Annual and capital allowances available are as follows.
Companies other than mining companies
Annual taxation allowances for expenditures incurred on machinery and equipment before 30 June 1982 can be claimed up to 100%. This allowance may be for any proportion of previously unclaimed expenditures. For expenditures incurred on machinery and equipment after 30 June 1982, annual allowances are granted, calculated on cost by the straight-line method on the basis of the expected useful lives of the individual assets. Guidelines are provided for expected useful lives of different categories of assets, which vary from four to ten years. Book depreciation is not required to conform to tax depreciation. The capital allowance claimable on a company motorcar is restricted to a maximum of BWP 175,000.
An initial allowance of 25% of cost is granted on certain industrial buildings. All industrial and commercial buildings (excluding residential properties) are granted a 2.5% annual allowance based on cost or, in the case of an industrial building on which an initial allowance has been claimed, the original cost less the initial allowance.
Balancing allowances and charges are brought to account on the disposal of assets on which allowances have been claimed. Where disposal value of an item of machinery or equipment exceeds the difference between expenditures incurred on the asset and allowances granted, the whole amount is taxable as corporate income or the balancing charge can be offset against further additions of new equipment, thus providing rollover relief. However, there is no rollover relief on motorcars except where the cars are used in a car rental or taxi service business.
In ascertaining the business income for any tax year from a mining business, there shall be deducted from business income an allowance, to be known as a mining capital allowance, computed in accordance with 100% of the mining capital expenditure made in the year in which such expenditure was incurred, with unlimited carryforward of losses.
Amortisation of goodwill is not allowed as a tax-deductible expense.
Start-up expenses are not specified in the law. However, pre-incorporation expenses might be disallowed since, generally, expenses incurred when there is no income are not allowed.
The maximum net interest expense claimable by a company (except for a variable rate loan stock company; a micro, small, or medium enterprise; or a bank and an insurance company) is 30% of the taxable income or earnings before interest, tax, depreciation, and amortisation (EBITDA).
Disallowed interest, if any, is to be carried forward and claimed in three years. In respect of mining companies, such denied interest is to be carried forward and claimed in ten years.
In addition to the above restriction, interest paid to a non-resident will be allowed as a deduction in the year where the relevant WHT on interest has been remitted to the BURS.
Bad debts written off and specific provisions for bad debt are allowed as a deduction when computing taxable income. General provisions are not allowed as a deduction.
Donations made to (i) any educational institution recommended by the Ministry of Education, (ii) any sports clubs or sports associations recommended by the Ministry responsible for sports, (iii) the government, in respect of the provision of health facilities, or to any health institution recommended by the Minister responsible for Health and Wellness, or (iv) any other eligible beneficiary as may be prescribed by the Minister, and approved by the Commissioner General, shall be deducted when arriving at taxable income, limited to 20% of the chargeable income.
Fines and penalties
Penalties and associated interest are not allowed as a deduction.
Any taxes paid are specifically disallowed in computing a company’s taxable income.
Other significant items
An allowance is granted for dwelling houses erected for employees by a business other than a mining business. The amount of the allowance is the lower of cost or BWP 25,000 for each dwelling house constructed.
A deduction of 200% of the cost of an approved training expenditure is allowed, provided such expenses do not include any expenses that the taxpayer is entitled to reimbursement from under the Vocational Training (Structured Training) Regulations (TRL).
Companies with shareholders having 5% or more of equity, either directly or indirectly, are classified as close companies, and there are additional tax regulations in respect of these shareholders.
Small companies, that is resident private companies whose gross income does not exceed BWP 300,000, may elect that the company be taxed as a partnership.
Expenses incurred by the company for having its shares listed on the Botswana Stock Exchange are deductible in determining the chargeable income of the company.
Net operating losses
Losses may be carried forward for five years, with the exception of mining and prospecting operations, for which there is no time limit. There is no allowance for carrybacks.
Payments to foreign affiliates
Royalties, interest, and service fees paid to foreign affiliates are generally deductible, provided such amounts are at arm’s length and WHT is paid.
In the case of a mining company, head office expenses allowed as a deduction in ascertaining gross revenue from mineral licence shall be limited to 1.5% of gross income for the year of assessment, and any excess of such expense above the limit shall be treated and taxed as a dividend.
Where the interest rate on a loan made by a foreign-based mining company to an affiliate mining company resident in Botswana is considered by the commissioner to be in excess of the market rate, such excess will be disallowed as a deduction and taxed as a dividend.