As businesses across Botswana continue to equip employees with mobile phones to support productivity, many remain unaware that these cell phone benefits attract Pay-As-You-Earn (PAYE) tax under the Income Tax Act. The Botswana Unified Revenue Service (BURS) classifies employer-provided cell phones and related costs as taxable fringe benefits when they are used for personal purposes. In this article, words importing the masculine should be deemed to include the feminine.
The law
Section 32 (1) (e) of the Income Tax Act states that PAYE arises on “the value of any other benefit or advantage granted to an employee in respect of his or her employment, included in which may be the difference in the amount of any preferential rate of interest granted to the employee by the employer in respect of any loan made by the employer to the employee, and the normal commercial rate currently prevailing”. According to this section, any benefit extended to an employee by virtue of them having an employment contract with the employer attracts PAYE to the extent that it is used for private purposes. Where cell phone benefit is concerned, the value of personal usage in relation to the employer-provided cell phone attracts PAYE.
Cell phone benefit explained
A cell phone benefit typically arises when an employer provides a handset, pays monthly contract fees, or covers airtime and data costs for an employee. While the arrangement is often intended to support business communication, it is accepted that part of the usage is personal unless proven otherwise. As a result, the value of the personal-use portion must be added to the employee’s taxable income. The taxable value is usually based on the actual cost incurred by the employer for airtime, data, and handset charges. Where usage records are not maintained, the entire amount paid may be taxable. Employers are therefore advised to keep clear usage policies or split billing to distinguish between personal and business use.
Employer’s responsibility
Companies are encouraged to review their payroll systems and implement proper controls to ensure compliance, while employees should be aware that cell phone perks, like other non-cash benefits, do carry tax consequences in Botswana. It is worth noting that companies should incorporate cell phone allowance when computing the taxable income of an employee. Many companies either overlook them or assume they are fully exempt. Failure to declare and tax these benefits can result in penalties, interest, and backdated PAYE assessments for employers.
Conclusion
With digital communication now central to business operations, more employers are offering mobile phones as part of their remuneration packages. However, the tax rules remain clear, where an employee gains personal benefit from an employer-funded cell phone, PAYE applies. It is therefore important for employers to determine a ratio split between business usage and personal usage of the employer-provided cell phone or to set a market-related business portion and getting the employee to pay for the excess over the business portion to avoid any PAYE. The correct PAYE rate should be applied to determine the employee’s tax liability.
Tax hint: If you have never had a tax audit/review conducted by a tax consultancy firm to check whether you are tax compliant, or should it be apparent that you are not certain that your tax affairs are in good order, then don’t wait for the taxman to pounce on you, as that can be very costly. Contact us today so we can help you fix your tax affairs whilst you still have time.
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