In Botswana, Value Added Tax (VAT) is governed by the Value Added Tax Act, which sets out the rules for charging, collecting, and reclaiming VAT. According to the Act, a โpersonโ includes the State, local authorities, boards, natural persons, trusts, companies, and partnerships. While VAT-registered entities are required to charge VAT on taxable supplies and remit it to the Botswana Unified Revenue Service (BURS), they are also entitled to claim input VAT on purchasesโbut only if those purchases are directly linked to generating taxable supplies. Unfortunately, not all expenses qualify. Some are explicitly excluded by law and DStv subscriptions fall into that category. Keep on reading and understand why VAT on DStv cannot be claimed by some VAT-registered businesses. In this article, words importing the masculine shall be deemed to include the feminine.ย
Enter input taxย
Generally, input tax refers to VAT that is incurred on the procurement of goods or services by a VAT-registered taxpayer. Accordingly, Section 20(2) of the VAT Act regulates some types of expenditure from which a VAT claim is not allowed. These include โentertainment,โ unless the business is itself engaged in providing taxable entertainment services. The said Act defines the term entertainment as, in verbatim, โThe provision of food, beverages, tobacco, accommodation, amusement, recreation, or hospitality of any kind by a registered person, whether directly or indirectly to any person in connection with a taxable activity carried on by the registered person.โ From this definition, it is without a doubt that a DStv subscription qualifies as โentertainment,โ as it is primarily used for amusement or providing a hospital environment or atmosphere to clients. Consequently, input tax cannot be claimed on it.ย ย ย
Business use still doesnโt qualify
As alluded to above, DStv expenses are typically incurred by businesses to entertain clients, employees, or third parties. While one might argue that such expenses are related to generating taxable income, it is crucial to understand that tax laws must be interpreted strictly according to the clear meaning of the words used unless the wording of the Act introduces ambiguity. Accordingly, as prescribed by the aforementioned section of the VAT Act, any expense incurred for the provision of hospitality of any kind to any person, regardless of whether it is related to income generation does not qualify for a VAT claim. Simply put, the law is clear: input VAT on entertainment or hospitality is disallowed unless a specific exception applies.
Enter the exceptions
VAT law, however, acknowledges and accommodates VAT-registered taxpayers who are engaged in the business of providing entertainment or hospitality. Accordingly, the VAT framework permits such business operators to claim input tax on related expenses, on the basis that these costs are necessarily incurred in order to deliver entertainment or amusement to their customers. In this regard, the VAT Act states, in verbatim, that input tax incurred on entertainment expenditures is a prohibited claim, โunless the person is in the business of providing entertainment and the taxable supply or import relates to the provision of taxable supplies of entertainment in the ordinary course of that business.โ Technically, businesses such as hotels, lodges, or cinemas may claim such input tax, as their core business involves the provision of entertainment services
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Conclusion
In summary, DStv subscriptions are considered entertainment expenses under the VAT Act, and VAT incurred on them is not claimable even by VAT-registered entities. Unless the DStv service is directly and exclusively used by a taxpayer who is in the business of providing entertainment, it falls into the category of non-deductible VAT expenses for any other business operators. Attempting to claim such VAT could result in penalties, interest, or disallowed deductions during a VAT audit.
Tax hint:ย 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 donโt 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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Contacts:ย You may contact usย atย +267 7181 5836 or +267 393 9435 orย jhore@aupracontax.co.bwย orย www.aupracontax.co.bw.ย This article is general, and tax advice is recommended if decisions are to be made. If you require to join our free Tax WhatsApp groups or to know more about our 9 Tax e-books, please send us a text/whatsapp on the number above.
