Gaborone and other parts of the country experienced heavy flooding on the 19th of February 2025, which led to a lot of damage to properties. Just like any other transaction, the flood-induced damages have their own tax implications which need to be analysed. In addition, Business Botswana launched a Business Disaster Management Fund. The floods came as a surprise to the nation as well as business as this is the first such impactful floods in around two decades. In this article, we intend to enunciate the tax implications of some of the floods-induced transactions. In this article, words importing the masculine shall be deemed to include the feminine.
Relief funds & Income Tax
Should it happen that any business obtains compensation from either the Government or any other relief fund, then such compensation is subject to Personal Income Tax (for sole traders) or Corporate Income Tax for corporates. Whilst it may not appear prudent to have these amounts taxed, the Income Tax Act regards any form of compensation or ‘subsidy’ granted to a person in respect of their conduct of business as subject to Income Tax. The said relief is still subject to Income Tax regardless of the fact that it is meant to compensate for damaged assets or lost business. Just like the COVID-19 government relief which was disbursed through BURS, any compensation received due to the floods will also receive similar tax treatment as stated above.
VAT & insurance indemnity
Whilst we are aware that a number of natural disasters may not be covered by insurance companies, any short-term insurance-related indemnity will trigger VAT if the recipient of the funds is registered for VAT with BURS. In addition, any business or company which receives workmen’s compensation in respect of any damage suffered by employees due to the floods will be required to pay VAT to BURS on the workmen’s compensation. The rationale behind this VAT is that such businesses would have claimed input tax as and when they made payments to the insurance company and therefore, the compensation must then be subject to VAT in order to compensate BURS for the input claimed by such businesses. Further, the same VAT treatment will apply for any damaged vehicles, properties or assets where the compensation comes from an insurance company. In brief, any VAT registrant who receives compensation under a short-term insurance policy is supposed to pay VAT to BURS from the amount received from an insurance company. The same VAT treatment is applicable to the insured VAT-registrant in instances where insurance companies pay the indemnity to third parties such as a garage or a claimant, as long as the VAT-registrant is being otherwise indemnified by the insurance company.
Sundry tax matters
Any business which repairs a damaged immovable property used to house staff members will not be able to claim VAT on such repairs as it is considered prohibited entertainment costs. Further, any replacement of furniture and utensils, such as staff accommodation or canteens will also not be admitted as VAT claims on the same basis that anything related to accommodation and provision of food to employees or other persons is regarded as entertainment. However, VAT incurred on the repair of damaged offices, vehicles and other general office equipment is allowed as input VAT. We hope that was insightful.
Tax hint
If you have never had a tax audit conducted on your business by a tax firm, we highly recommend that you consider such to proactively reduce tax gaps. As we say goodbye, remember to pay Caesar what belongs to him. If you want to consult, join our free Tax WhatsApp group or to know about our 9 Tax e-books, send a text to +267 7181 5836 or email us at jhore@aupracontax.co.bw. You can read more tax articles on our website, www.aupracontax.co.bw under the ‘Tax articles’ tab.
