At times, some business operators are compelled to compulsorily register for Value Added Tax (VAT) in the furtherance of statutory requirements.
Generally, VAT registered entities are perceived to be generating huge turnover based on the fact that the statutory threshold for compulsory registration is pegged at P1m per annum. However, in as much as being VAT registered appears to be appealing in the business community, it is imperative to note that once a business is registered for VAT, deregistration of the same comes with its technicalities. Allow us to help you understand the compliance requirements for deregistering for VAT. In this article, words importing the masculine shall be deemed to include the feminine.
Let us first have a look at the registration requirements. The VAT Act allows any person carrying on a trade in or partly in Botswana and whose value of taxable supplies exceeds or is likely to exceed P500,000 to voluntarily register for VAT. In other words, a person may opt whether to register or not, should their annual taxable turnover exceed the said threshold. On the other hand, compulsory registration applies to any person whose annual turnover has exceeded or is likely to exceed P1m. However, it is also imperative to note that a person can be registered even before commencement of trade particularly under specific conditions. For instance, a person may be registered subsequent to winning a tender or a contract that will yield a turnover of over P1m in the next 12months.
To get in the business of the day, let us have a look at a scenario where a person’s revenue may significantly drop below the registration threshold of P1, possibly subsequent to the expiry of a tender or a contract. In such instances, a person may then opt for deregistration to avoid compliance related costs. Let us have a look at the prescribed requirements.
A business operator may apply for deregistration if annual taxable supplies have fallen below P1m. It is critical to note that the drop in revenue alone is not enough to warrant an approval of the VAT deregistration. The Act explicitly states that, ‘A person liable to be registered under section 16(1) who ceases to satisfy the criteria thereunder, or a person registered as a result of an application under section 16(4) may apply for cancellation of the registration only after the expiration of two years from the date the registration took effect.’
Simply put, a VAT registered person’s application for deregistration is only considered after 2 years or 24 months from the date that person was registered for VAT. Looking at it from a different perspective, it is prudent to state that the 2 year timeline stands as a control measure against business operators who might just want to register VAT for short term deals or those who might want to be deregistered as a result of a temporary drop in revenue. Further, the Act provides that BURS reserves the right to approve the deregistration provided they do not have reasonable grounds to believe that the person is capable of generating taxable supplies in excess of P1m.
Businesses need to understand that once registered for VAT, deregistration may only be considered after 24 months from the date of registration. It is advisable for every business to avoid being deregistered by BURS for VAT as they will be deemed to have sold every movable or immovable asset at hand at the time of deregistration, which empowers BURS to demand VAT on such deemed disposals. This may leave businesses technically broke.
Well folks, we hope that was insightful. As us the two Yours Truly say goodbye, remember to pay to 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 us a text on the cell number below. You can read more tax articles on our website, www.aupracontax.co.bw under the ‘Tax articles’ tab.