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PAYE plus vat: is that double taxation?

JONATHAN HORE

Most of us may know that the majority of employees solely depend on employment income for their livelihood. But as long as an employee earns more than P36 000 per annum or P 3 000 per month, they should pay a tax called Pay As You Earn (PAYE).

This tax is deducted by an employer and the employee receives the net amount. After receiving the net of PAYE remuneration, the same person also pays VAT when he buys Vatable items such as groceries, electricity and clothes. In this article, I want to analyse the fusion of these taxes and analyse whether the subjection of VAT and PAYE on the same income is double taxation.  Throughout this article, words importing the masculine shall be deemed to include the feminine.

PAYE

PAYE is a tax that is deducted from the remuneration that is earned by an employee from an employer-employee arrangement, i.e. is a direct tax as it is levied on a specified person’s income. Remuneration includes both the monetary and non-monetary rewards that an employee is entitled to. Regardless of the employment arrangement, a salary forms an integral part of most employment arrangements.

Technically, if an employee earns P 12 000, then PAYE of P 1 087.50 is deducted from them as prescribed by the Income Tax Act. Notice that the employee will take home the after-tax amount of P 12 000 less P 1 087.50, which is P 10 912.50. But after the subjection of the PAYE on that income, that same employee pays another tax called VAT and I will analyse this below.

VAT

VAT is an indirect tax that is levied on goods and services that are chargeable to VAT as prescribed by the VAT Act. I must state that the general VAT rate is 12% and there are some goods/services which are chargeable to VAT at 0%. There are a few other goods/services which are not subject to VAT at all such as educational services and residential accommodation. The way the VAT system is designed is such that everybody pays the VAT and the tax becomes their cost if they are not registered with BURS for VAT purposes.

In other words, if you and I walk into Sefalana and buy groceries, the prices we see on the shelves usually include VAT and we bear the VAT as a cost, since we are the final consumers of those goods. Therefore, we effectively pay two taxes from the same income that we earn. Now, that then beings us to the major question we want to address today being whether there is double tax on the income that we earn.

WHAT’S DOUBLE TAXATION?

Double taxation is the subjection of the same type of tax on the same income, usually in the same country. However, double taxation may also occur when the same type of tax is applied on the same income in two different countries and this explains why we have double taxation avoidance agreements which protect us from double taxation. Let’s now limit our analysis to the PAYE and VAT that is levied in Botswana and find out whether there is double taxation of the same income.

As I stated above, double taxation arises when the same income is subjected to the same tax more than once. But remember that we stated that PAYE is Income Tax which is chargeable in terms of the Income Tax Act. We also mentioned that VAT is payable in terms of the VAT Act. Let me be technical and state that the Income Tax and the VAT Act are two separate statutes which are divorced from each other. Therefore, when you pay PAYE or income tax per the Income Tax Act, you pay a tax that is called Income Tax, a direct tax on your income.

When you later pay VAT on goods and services such as groceries, cars and medical services, you are now paying an Indirect Tax that is charged based on the consumption of taxable goods/services. Therefore, since these two taxes are charged in terms of different statutes, there is no double tax to talk about. The reality is that you pay the taxes from the same income you earn but as long as the taxes are charged by different statutes, we can’t talk about double tax. However, double tax would arise if we were paying Income Tax or VAT more than once on the same income. 

Well folks, I hope that was insightful. As Yours Truly says goodbye, remember to pay to Caesar what belongs to him. If you want to join our Tax Whatsapp group, send me a text on the cell number below. Jonathan Hore writes on behalf of Aupracon Tax Specialists and feedback can be relayed to jhore@aupracontax.co.bw or 7181 5836. This article is of a general nature and is not meant to address particular matters of any person.

Most of us may know that the majority of employees solely depend on employment income for their livelihood. But as long as an employee earns more than P36 000 per annum or P 3 000 per month, they should pay a tax called Pay As You Earn (PAYE). This tax is deducted by an employer and the employee receives the net amount. After receiving the net of PAYE remuneration, the same person also pays VAT when he buys Vatable items such as groceries, electricity and clothes. In this article, I want to analyse the fusion of these taxes and analyse whether the subjection of VAT and PAYE on the same income is double taxation.  Throughout this article, words importing the masculine shall be deemed to include the feminine.

PAYE

PAYE is a tax that is deducted from the remuneration that is earned by an employee from an employer-employee arrangement, i.e. is a direct tax as it is levied on a specified person’s income. Remuneration includes both the monetary and non-monetary rewards that an employee is entitled to. Regardless of the employment arrangement, a salary forms an integral part of most employment arrangements.

Technically, if an employee earns P 12 000, then PAYE of P 1 087.50 is deducted from them as prescribed by the Income Tax Act. Notice that the employee will take home the after-tax amount of P 12 000 less P 1 087.50, which is P 10 912.50. But after the subjection of the PAYE on that income, that same employee pays another tax called VAT and I will analyse this below.

VAT

VAT is an indirect tax that is levied on goods and services that are chargeable to VAT as prescribed by the VAT Act. I must state that the general VAT rate is 12% and there are some goods/services which are chargeable to VAT at 0%. There are a few other goods/services which are not subject to VAT at all such as educational services and residential accommodation. The way the VAT system is designed is such that everybody pays the VAT and the tax becomes their cost if they are not registered with BURS for VAT purposes.

In other words, if you and I walk into Sefalana and buy groceries, the prices we see on the shelves usually include VAT and we bear the VAT as a cost, since we are the final consumers of those goods. Therefore, we effectively pay two taxes from the same income that we earn. Now, that then beings us to the major question we want to address today being whether there is double tax on the income that we earn.

WHAT’S DOUBLE TAXATION?

Double taxation is the subjection of the same type of tax on the same income, usually in the same country. However, double taxation may also occur when the same type of tax is applied on the same income in two different countries and this explains why we have double taxation avoidance agreements which protect us from double taxation. Let’s now limit our analysis to the PAYE and VAT that is levied in Botswana and find out whether there is double taxation of the same income.

As I stated above, double taxation arises when the same income is subjected to the same tax more than once. But remember that we stated that PAYE is Income Tax which is chargeable in terms of the Income Tax Act. We also mentioned that VAT is payable in terms of the VAT Act. Let me be technical and state that the Income Tax and the VAT Act are two separate statutes which are divorced from each other. Therefore, when you pay PAYE or income tax per the Income Tax Act, you pay a tax that is called Income Tax, a direct tax on your income.

When you later pay VAT on goods and services such as groceries, cars and medical services, you are now paying an Indirect Tax that is charged based on the consumption of taxable goods/services. Therefore, since these two taxes are charged in terms of different statutes, there is no double tax to talk about. The reality is that you pay the taxes from the same income you earn but as long as the taxes are charged by different statutes, we can’t talk about double tax. However, double tax would arise if we were paying Income Tax or VAT more than once on the same income. 

Well folks, I hope that was insightful. As Yours Truly says goodbye, remember to pay to Caesar what belongs to him. If you want to join our Tax Whatsapp group, send me a text on the cell number below. Jonathan Hore writes on behalf of Aupracon Tax Specialists and feedback can be relayed to jhore@aupracontax.co.bw or 7181 5836. This article is of a general nature and is not meant to address particular matters of any person.

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The Daring Dozen at Bari

8th December 2020
JEFF---Batswana-smoke-unit

Seventy-seven years ago, on the evening of December 2, 1943, the Germans launched a surprise air raid on allied shipping in the Italian port of Bari, which was then the key supply centre for the British 8th army’s advance in Italy.

The attack was spearheaded by 105 Junkers JU88 bombers under the overall command of the infamous Air Marshal Wolfram von Richthofen (who had initially achieved international notoriety during the Spanish Civil War for his aerial bombardment of Guernica). In a little over an hour the German aircraft succeeded in sinking 28 transport and cargo ships, while further inflicting massive damage to the harbour’s facilities, resulting in the port being effectively put out of action for two months.

Over two thousand ground personnel were killed during the raid, with the release of a secret supply of mustard gas aboard one of the destroyed ships contributing to the death toll, as well as subsequent military and civilian casualties. The extent of the later is a controversy due to the fact that the American and British governments subsequently covered up the presence of the gas for decades.

At least five Batswana were killed and seven critically wounded during the raid, with one of the wounded being miraculously rescued floating unconscious out to sea with a head wound. He had been given up for dead when he returned to his unit fourteen days later. The fatalities and casualties all occurred when the enemy hit an ammunition ship adjacent to where 24 Batswana members of the African Pioneer Corps (APC) 1979 Smoke Company where posted.

Thereafter, the dozen surviving members of the unit distinguished themselves for their efficiency in putting up and maintaining smokescreens in their sector, which was credited with saving additional shipping. For his personal heroism in rallying his men following the initial explosions Company Corporal Chitu Bakombi was awarded the British Empire Medal, while his superior officer, Lieutenant N.F. Moor was later given an M.B.E.

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A Strong Marriage Bond Needs Two

8th December 2020

Remember: bricks and cement are used to build a house, but mutual love, respect and companionship are used to build a HOME. And amongst His signs is this: He creates for you mates out of your own kind, so that you may find contentment (Sukoon) with them, and He engenders love and tenderness between you; in this behold, there are signs (messages) indeed for people who reflect and think (Quran 30:21).

This verse talks about contentment; this implies companionship, of their being together, sharing together, supporting one another and creating a home of peace. This verse also talks about love between them; this love is both physical and emotional. For love to exist it must be built on the foundation of a mutually supportive relationship guided by respect and tenderness. As the Quran says; ‘they are like garments for you, and you are garments for them (Quran 2:187)’. That means spouses should provide each other with comfort, intimacy and protection just as clothing protects, warms and dignifies the body.

In Islam marriage is considered an ‘ibaadah’, (an act of pleasing Allah) because it is about a commitment made to each other, that is built on mutual love, interdependence, integrity, trust, respect, companionship and harmony towards each other. It is about building of a home on an Islamic foundation in which peace and tranquillity reigns wherein your offspring are raised in an atmosphere conducive to a moral and upright upbringing so that when we all stand before Him (Allah) on that Promised Day, He will be pleased with them all.

Most marriages start out with great hopes and rosy dreams; spouses are truly committed to making their marriages work. However, as the pressures of life mount, many marriages change over time and it is quite common for some of them to run into problems and start to flounder as the reality of living with a spouse that does not meet with one’s pre-conceived ‘expectations’. However, with hard work and dedication, couples can keep their marriages strong and enjoyable. How is it done? What does it take to create a long-lasting, satisfying marriage?

Below are some of the points that have been taken from a marriage guidance article I read recently and adapted for this purposes.

POSITIVITY
Spouses should have far more positive than negative interactions. If there is too much negativity — criticizing, demanding, name-calling, holding grudges, etc. — the relationship will suffer. However, if there is never any negativity, it probably means that frustrations and grievances are not getting ‘air time’ and unresolved tension is accumulating inside one or both partners waiting to ‘explode’ one day.

“Let not some men among you laugh at others: it may be that the (latter) are better than the (former): nor let some women laugh at others: it may be that the (latter) are better than the (former): nor defame nor be sarcastic to each other, nor call each other by (offensive) nicknames.” (49:11)

We all have our individual faults though we may not see them nor want to admit to them but we will easily identify them in others. The key is balance between the two extremes and being supportive of one another. To foster positivity in a marriage that help make them stable and happy, being affectionate, truly listening to each other, taking joy in each other’s achievements and being playful are just a few examples of positive interactions.
Prophet Muhammad (PBUH) said: “The believers who show the most perfect faith are those who have the best character and the best of you are those who are best to their wives”

UNDERSTANDING

Another characteristic of happy marriages is empathy; understanding your spouses’ perspective by putting oneself in his or her shoes. By showing that understanding and identifying with your spouse is important for relationship satisfaction. Spouses are more likely to feel good about their marriage and if their partner expresses empathy towards them. Husbands and wives are more content in their relationships when they feel that their partners understand their thoughts and feelings.

Successful married couples grow with each other; it simply isn’t wise to put any person in charge of your happiness. You must be happy with yourself before anyone else can be.  You are responsible for your actions, your attitudes and your happiness. Your spouse just enhances those things in your life. Prophet Muhammad (PBUH) said: “Treat your women well and be kind to them for they are your partners and committed helpers.”

COMMITMENT

Successful marriages involve both spouses’ commitment to the relationship. The married couple should learn the art of compromise and this usually takes years. The largest parts of compromise are openness to the other’s point of view and good communication when differences arise.

When two people are truly dedicated to making their marriage work, despite the unavoidable challenges and obstacles that come, they are much more likely to have a relationship that lasts. Husbands and wives who only focus on themselves and their own desires are not as likely to find joy and satisfaction in their relationships.

ACCEPTANCE

Another basic need in a relationship is each partner wants to feel valued and respected. When people feel that their spouses truly accept them for who they are, they are usually more secure and confident in their relationships. Often, there is conflict in marriage because partners cannot accept the individual preferences of their spouses and try to demand change from one another. When one person tries to force change from another, he or she is usually met with resistance.

However, change is much more likely to occur when spouses respect differences and accept each other unconditionally. Basic acceptance is vital to a happy marriage. Prophet Muhammad (PBUH) said: “It is the generous (in character) who is good to women, and it is the wicked who insults them.”
“Overlook (any human faults) with gracious forgiveness.” (Quran 15:85)

COMPASSION, MUTUAL LOVE AND RESPECT

Other important components of successful marriages are love, compassion and respect for each other. The fact is, as time passes and life becomes increasingly complicated, the marriage is often stressed and suffers as a result. A happy and successful marriage is based on equality. When one or the other dominates strongly, intimacy is replaced by fear of displeasing.

It is all too easy for spouses to lose touch with each other and neglect the love and romance that once came so easily. It is vital that husbands and wives continue to cultivate love and respect for each other throughout their lives. If they do, it is highly likely that their relationships will remain happy and satisfying. Move beyond the fantasy and unrealistic expectations and realize that marriage is about making a conscious choice to love and care for your spouse-even when you do not feel like it.

Seldom can one love someone for whom we have no respect. This also means that we have to learn to overlook and forgive the mistakes of one’s partner. In other words write the good about your partner in stone and the bad in dust, so that when the wind comes it blows away the bad and only the good remains.

Paramount of all, marriage must be based on the teachings of the Noble Qur’an and the teachings and guidance of our Prophet Muhammad (PBUH). To grow spiritually in your marriage requires that you learn to be less selfish and more loving, even during times of conflict. A marriage needs love, support, tolerance, honesty, respect, humility, realistic expectations and a sense of humour to be successful.

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Chronic Joblessness: How to Help Curtail it

30th November 2020
Motswana woman

The past week or two has been a mixed grill of briefs in so far as the national employment picture is concerned. BDC just injected a further P64 million in Kromberg & Schubert, the automotive cable manufacturer and exporter, to help keep it afloat in the face of the COVID-19-engendered global economic apocalypse. The financial lifeline, which follows an earlier P36 million way back in 2017, hopefully guarantees the jobs of 2500, maybe for another year or two.

It was also reported that a bulb manufacturing company, which is two years old and is youth-led, is making waves in Selibe Phikwe. Called Bulb Word, it is the only bulb manufacturing operation in Botswana and employs 60 people. The figure is not insignificant in a town that had 5000 jobs offloaded in one fell swoop when BCL closed shop in 2016 under seemingly contrived circumstances, so that as I write, two or three buyers have submitted bids to acquire and exhume it from its stage-managed grave.

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