Tax incentives are generally tools implemented and used by governments across the world to influence economic growth and job creation, among other factors. This is generally achieved by offering taxpayers, companies and investors tax credits or reduced tax rates in exchange for fulfilling statutory conditions which in a way will benefit the economy at large. In most cases, tax incentives are strategically implemented to target the right business and right areas of development. Without any further ado, allow us to help you understand the SPEDU tax incentive and who can benefit from the same. In this article, words importing the masculine shall be deemed to include the feminine.
Basically, SPEDU tax are special corporate tax rates that are applicable to qualifying businesses operating specific development projects in the SPEDU region. Accordingly, the SPEDU designated region consists of the following areas: Selebi-Phikwe, Bobonong, Mmadinare-Sefhophe, Lerala-Maunatlala as well as neighbouring villages, farms and cattle posts. In this regard, qualifying business enterprises will be liable to a tax rate of 5 percent of their taxable income for the first 5 years of operations. Thereafter, the tax rate will increase to 10 percent from the 6th year onwards for as long as the entity operates in the SPEDU region. As alluded to above, the reduced tax rate is applicable to qualifying entities approved by the Ministry of Finance and Economic Development (MOFED) through a Development Approval Order (DAO).
The qualifying entities
The SPEDU Tax dispensation is applicable to both new and existing businesses. Accordingly, this means a new business enterprise can actually be granted the DOA before it even commences operations, subject to satisfying all the statutory requirements. Every business enterprise which intends to take advantage of the incentive is required to be operated through a Botswana registered company. Further, the tax incentive i.e., SPEDU tax, is only granted to business enterprises operating within the boundaries of the specified SPEDU regions which produce goods and services in agriculture, manufacturing and tourism. Technically, this implies that any other business operations other than those producing goods and services in the above stated industries do not qualify for the reduced tax rates.
So how does one obtain the DAO? Businesses are required to complete an application form that is accompanied by BURS’ confirmation of tax registration and a valid tax clearance certificate for new businesses and existing businesses, respectively. Further, the MOFED is empowered to request any additionally information as it deem fit before it grants the DAO to any applicant. As you can see, any business operating in the SPEDU region does not automatically qualify for the concessionary tax rate without the DAO. This also applies to businesses operating in the region without the DAO that produce goods and services in the qualifying areas of agriculture, manufacturing, and tourism. Simply put, without the DAO from MOFED a business is liable to tax at the prevailing rate i.e., 22 percent.
The SPEDU tax undoubtedly brings about some form of tax relief due to the reduced rates. Conversely, the tax concession will attract development of the SPEDU region and its infrastructure which will improve the livelihoods of the people and foster economic growth. On the other hand, operating in the SPEDU region may be a good tax planning strategy for both new and existing business operators due to the reduced tax rates. Therefore, it is key for interested business operators to observe and adhere to the regulatory requirements in order to qualify and take advantage of the incentive.
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.