At times helping the needy through donations does not only contribute to the good welfare of the society but it also helps the donor to manage his or her tax affairs in an efficient way.
In essence, donating to the underprivileged helps a taxpayer to reduce their tax obligations. Keep on reading and allow us to help you understand how businesses and individuals can benefit from making donations to approved donees. In this article, words importing the masculine shall be deemed to include the feminine.
Basically, a donation is considered as anything voluntarily given to anyone or even an organisation without expectation of a payment in return. Donations can come in the form of services or goods, including money. Usually, the most common form of donations is those made to charitable organisations. Generally, donations are not tax deductible, which technically means that they cannot be used to reduce the amount that is subject to income tax regardless of whether the tax under consideration is for a corporate or an individual. In other words, such donations merely become a cost to the donating party. In the event that such donations are deducted in determining income for accounting purposes, the amounts so deducted must be added back in determining tax. As alluded to above, our main focus today is on donations which can be utilised to minimise the tax impact on the donating taxpayers. Let us have a look at what the tax law says regarding donations.
In determining the tax payable for a person in any tax year, the Income Tax Act allows a deduction of ‘a donation to – (a) any educational institution recommended by the Ministry of Education; or (b) any sports clubs or sports associations recommended by the Ministry responsible for sports, … and approved by the Commissioner General.’ Simply put, the tax law allows a deduction of specific donations of at least P1,000 per annum made to, but not limited to, orphans under 18 years, the disabled or destitute, schools, sports clubs, hospitals etc., which must be approved by the respective ministry and BURS. In order to claim an allowable deduction for a donation, a taxpayer need to identify the right donee who is recognized by the Income Tax Act. For instance, orphans, disabled or destitute persons registered with the Office of the President whilst orphans must be recognised by the Ministry responsible for Local Government.
Donate and reduce tax
For a business, a self-employed person or anyone employed by another person to capitalise on donations, all they need to do is identify the approved donee as prescribed by the Income Tax Act, request and obtain an approval from BURS as documentary evidence and claim the donated amount as a deduction to reduce the taxable income. Further, with regards to private companies, the Citizen Inclusion Act requires such companies to compulsorily make donations to disadvantaged citizens. Technically, such donations which are imposed by a statute qualify as an obligatory expense which doesn’t need BURS’ concurrence.
Essentially individuals, including employees, are allowed to make a donation and claim a deduction to reduce their taxable income, provided that such donations made are approved by BURS, in the same way that companies enjoy the said benefits from donations.
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 a text to +267 7181 5836. You can read more tax articles on our website, www.aupracontax.co.bw under the ‘Tax articles’ tab.