Withholding tax brief
Withholding tax (WHT) is income tax charged in terms of the Income Tax Act on specified amounts. The tax is deducted by the payer from amounts due to a payee, resulting in the payee receiving the amount after tax. The question then is whether the WHT is deductible on amounts payable to the Government of Botswana (GoB).
The default destination of most people who try to answer this question is the Second Schedule to the Income Tax Act wherein persons who are exempt from income tax are listed. The interesting thing is that the GoB is not listed among exempt persons in that Act, which results in some concluding that WHTs are deductible as the GoB isn’t among the exempt persons. However, there is a more superior Act to the Income Tax Act and that is the Interpretation Act CAP 01:04. That Act is the mother of all Acts and it must be read before one reads any other Act, including the Income Tax Act. The fact that such Act falls in Chapter 1 of the land’s statutes speaks volumes. The rest of the Acts are proteges to the Interpretation Act.
The Interpretation Act is more superior to any enactment and shall be used to interpret even the constitution of Botswana. Section 2 of that Act states that, ‘each provision of this Act applies to every enactment … being- (a) the Constitution; (b) an Act (including this Act) of the Parliament of Botswana…’ Now, the Income Tax Act is interpreted after one first considers the Interpretation Act and not vice versa. If this analogy was soccer, the Interpretation Act would be leading by 1 to nil, so far.
Secondly, the Interpretation Act has an interesting provision which exonerates the GoB from any provision of an enactment, except where that enactment specifically states that it binds the GoB. Section 25 of that Act states that, ‘the Republic or Government shall not be bound by an enactment except by express terms or by necessary implication.’ This means that the Income Tax Act cannot bind the GoB except if the Income Tax Act states so or it is implied that it does. There is nothing in the Income Tax Act which binds or implies that the GoB pays income tax. The fact that the GoB deducts taxes like PAYE must not be construed to mean that it pays income tax; it simply deducts PAYE as it is an employer. However, it cannot in any way suffer income tax.
No tax at all
I have made it abundantly clear above that the GoB cannot be bound by the Income Tax Act as there is nothing in that Act which subjects it to WHTs. Now, this simply means that when one is paying interest, dividends or rent to the GoB, they do not deduct WHT from the GoB as it is exempt per the Interpretation Act. The Income Tax Act is silent on the exemption of the GoB because the exemption is in the Interpretation Act, a superior legislation. Further, since WHT is income tax, it does not make tax sense to deduct income tax from someone who doesn’t pay that tax. Doing so would be tantamount to implying that the Ministry of Finance & Economic Development would be required to file an annual income tax return and pay tax on all its revenues, which is unthinkable. Therefore, no WHT applies on amounts payable to the GoB. Further, the only Act which binds the state is the VAT Act as it clearly states so in section 6. Lastly, if WHTs are deducted from the GoB, it will still end up in the GoB’s coffers anyway as BURS collects taxes for the GoB. The tax imposition wouldn’t make a difference.
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 or know more about our 9 Tax e-books, send me a text on the number below.