The Income Tax Act (ITA) mandates a 5% withholding tax on any payments made for the use of land or buildings. According to the Act, anyone who pays rent, by any name, to a resident or non-resident for the use of land or buildings—under any agreement or arrangement—must deduct 5% from the amount owed to the lessor, unless the rent is paid by an individual who does not claim it as a business expense. The tenant is then required to remit the withheld amount to the Botswana Unified Revenue Service (BURS).
This 5% withholding is a standard type of tax deducted at the source by agents of BURS. Beyond rent for land or buildings, this withholding tax also applies to payments for parking or storage fees. In this article, references to the masculine gender shall be deemed to include the feminine.
Rental tax explained
In simpler terms, businesses that rent spaces from other businesses or individuals must withhold 5% of the rent as tax when making payments to their lessors. While individuals also rent land or buildings, the Income Tax Act (ITA) specifically exempts individuals not engaged in business from withholding this 5% tax. Generally, the withholding tax applies when the rent is treated as a business expense by the lessee.
The ITA clearly states that the 5% tax is deductible on payments for the use of any “land” or “building.” Here, “land” includes open spaces, whether or not attached to any building. This means that businesses renting open spaces for any purpose must deduct the 5% from their rental payments.
Although the tax is deductible from rent, the legislature has exempted the first P48,000 per year (equivalent to P4,000 per month) from this tax. Since this is an advance tax, individuals or companies can claim it as a tax credit when filing their annual income tax returns.
Enter parking/storage fees
Some businesses rent land or space for parking vehicles or storing goods. The 5% withholding tax also applies to payments made to landlords for parking or storage fees, as these payments are made for the use of “land” and, at times, “buildings.” In short, parking or storage fees are subject to the 5% tax because they relate to the use or occupation of “land” or “buildings” for agreed periods of time. Any payment made to a person who is not exempt from income tax, in connection with parking or storage space tied to land or buildings, will also incur the 5% withholding tax, just like payments for the use of offices or houses.
We hope this was insightful! As we say goodbye, remember to give Caesar what belongs to him. If you want to consult, join our free Tax WhatsApp group, or to learn more about our 9 Tax e-books, send a text to +267 7181 5836 or email us at jhore@aupracontax.co.bw. You can also find more tax articles on our website at www.aupracontax.co.bw under the ‘Tax articles’ tab.
