BOTSWANA UNIFIED REVENUE SERVICE

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1 BOTSWANA UNIFIED REVENUE SERVICE DEPARTMENTAL GUIDANCE NOTE ON CHARITABLE, RELIGIOUS OR EDUCATIONAL INSTITUTIONS, TRUSTS ESTABLISHED FOR PUBLIC PURPOSES AND SOCIAL AND SPORTING ASSOCIATIONS. 1. Intrductin This Departmental Guidance Nte is issued t explain the prvisins and prcedures as t the tax treatment f charitable, religius r educatinal institutins and trusts established fr public purpses and scial and sprting assciatins. Such institutins and assciatins were hither t listed as persns exempt frm tax in Part I f the Secnd Schedule f the Incme Tax Act, Cap but have nw been remved frm the list f exempt persns. Hwever, their grss incme generally remains exempt frm tax if applied fr the charitable r public purpses within the tax year r the extended perid as apprved by the Cmmissiner General. But any incme r dispsal gains derived by such institutins r assciatins and nt applied fr the public purpses will nw be taxable. The purpse f this Nte is t enumerate and explain the respective bligatins f the abve listed persns and the prcedure t be fllwed t cmply with thse bligatins under the Incme Tax Act, Cap This Nte has n frce in law and des nt bind the Cmmissiner General nr des it restrict the rights f bjectin and appeal as prvided by the Incme Tax Act. 2. Persns cvered This Nte specifically relates t charitable, educatinal and religius institutins, trusts established fr public purpses and any assciatins frmed fr the purpse f prmting sprting and scial amenities and nt invlving the acquisitin r pssible future acquisitin f gain. 3. Relevant prvisins f the law: The relevant prvisins have been intrduced thrugh the Incme Tax (Amendment) Act, 2004 which brught the fllwing specific prvisins int frce with effect frm 1 st July 2004 and will therefre apply frm tax year Sectin 2 DGN 10 (Departmental Guidance Nte) The law relating t tax treatment f these persns has been brught in by Incme Amendment (Amendment) Act f 2004 which extended the meaning f cmpany under Sectin 2 f the Incme Tax Act by inserting a new subparagraph (e) t the definitin f a cmpany as under: Page 1

2 Cmpany includes (e) any charitable, religius r educatinal institutin r a trust established fr public purpses 3.2. Sectin 71 The managers r trustees f these institutins, trusts and assciatins are nw required t file returns as is required by the Amendment f sectin 71 that reads as fllws: (4) The manager r trustee f any charitable, religius r educatinal institutin r a trust r an assciatin referred t in the prvis t paragraph (xxxix) r in paragraph (xl) f Part II f the Secnd Schedule shall, in accrdance with the prvisins f sectin 65, furnish a tax return f the grss incme f such institutin, trust r assciatin, fr the tax year including statements f accunts, certificates and ther relevant dcuments in relatin t the return, signed by such manager r trustee, as the case may be, and shall als furnish such evidence as may be required by the Cmmissiner as t the applicatins f such incme during the tax year Secnd Schedule Part I Paragraphs (iv) and (x) have been deleted frm Part I f the Schedule thereby remving the blanket exemptin frmerly granted t charities, educatinal and religius institutins, trusts established fr public purpses and any assciatins frmed fr the purpse f prmting sprting and scial amenities and nt invlving the acquisitin r pssible future acquisitin f gain. Part II Part II f the Secnd Schedule is amended by adding the fllwing new paragraphs at the end f paragraph (xxxviii) theref (xxxix) any incme f a charitable, religius r educatinal institutin r a trust established fr public purpses: Prvided that where a persn t whm this paragraph applies, carries n any business r derives any gains frm dispsal f any prperty chargeable t tax under sectin 35, exemptin under this paragraph shall nt be granted t such persn unless it is prved t the satisfactin f the Cmmissiner that the incme f that persn has been applied exclusively fr public purpses within that tax year r such extended perid as may be allwed by the Cmmissiner; (xl) any incme f any assciatin frmed fr the purpse f prmting scial r sprts amenities and nt invlving the acquisitin f gain r the pssibility f future gains t the extent that such incme is applied exclusively fr the purpses f such assciatin Page 2

3 within that tax year r such extended perid as may be permitted by the Cmmissiner. 4. Applicatin f the Amendment The cmbined effect f the abve amendments t the Act is as fllws: 4.1 Withdrawal f blanket exemptin As indicated abve, the deletin f paragraphs (iv) and (x) f Part I f the Secnd Schedule has effectively remved the blanket exemptin that was accrded t these institutins, trusts and assciatins. The inclusin f new paragraphs (xxxiv) and (xl) in Part II f the Secnd Schedule nw prvides fr the exemptin f business incme and/r dispsal gains f such institutins and assciatins nly if it is exclusively applied fr public purpses within the tax year r within the extended perid as allwed by the Cmmissiner General. 4.2 Taxability f business incme and dispsal gains in the hands f charitable, religius r educatinal institutins and public trusts and any unapplied incme f scial and sprts assciatins All incme that accrues t these institutins, trust r assciatins is exempt prvided it is nt business incme r dispsal gains that are nt applied fr public purpses. Whether a persn is carrying n business r has dispsal gains will be decided n the basis f the respective prvisins f sectin 2 and sectin 35 f the Act. Any incme f a scial r sprts assciatin will be taxable t the extent it has nt been applied fr the purpses f the assciatin within the accunting perid r within the extended perid as apprved by the Cmmissiner General 4.3 Obligatin t file a return f incme under the self assessment and payment f self assessment tax installments Where the institutin, trust r assciatin derives taxable incme (i.e. nn-applied business incme and/r dispsal gains in the case f charitable, religius r educatinal institutins and public trusts and any incme in the case f sprts assciatins r scial assciatins established nt fr gain r future gain) during an accunting year it shall be required t file a self assessment incme tax return within 4 mnths after the end f its accunting year. 4.4 Claim f exemptin f incme pssible if applied exclusively fr public purpses within the accunting perid r within the extended perid as apprved by the Cmmissiner General. Hwever, such institutin, trust r assciatin can claim exemptin f such taxable incme prvided it is applied exclusively fr public purpses within the accunting year in which it is earned. Alternatively, they may seek the Cmmissiner General s apprval fr extending the perid f applicatin f such incme beynd the Page 3

4 relevant accunting year. Such an applicatin must be submitted t the Cmmissiner General within ne calendar mnth f the end f the relevant accunting year s that there is adequate time fr a decisin t be made befre the due date f filing the return. The applicatin must be submitted n Frm ITA 25 (SA APN) attached. Fr the transitinal tax year , such an applicatin may be filed by 31 March Validity f extensin fr applicatin f incme and cnsequences f failure t apply the taxable incme within the extended perid Extensins will nt nrmally be granted beynd the immediately succeeding accunting year. Where the incme is nt applied within the prescribed r extended perid, it will be treated as incme f the accunting year during which it was derived and will be taxed accrdingly. All liabilities fr self assessment tax installments will be calculated and interest and penalties will be charged wherever necessary. 5 Summary f Obligatins f persns cvered 5.1 Des this Amendment mean that persns wh are cvered by this amendment have t register? Yes. Institutins, trusts r assciatins cvered by this amendment have t register using frm ITRG 1. A certificate f registratin with the Registrar f Scieties, Registrar f Deeds r ther registering Gvernment Department tgether with the bjects r cnstitutin f that persn must accmpany the registratin frm. 5.2 What des the Amendment mean fr persns already enjying a blanket exemptin? Institutins, trusts r assciatins t whm this amendment applies wh may have already enjyed the benefits f a blanket exemptin under Part I f the Secnd Schedule and wh may nt have registered with the BURS (r the then Department f Taxes) fr tax purpses are nw required t register. 5.3 Whether the amendments wuld apply t incme derived frm 1 July 2004? The amendments are applicable frm tax year and therefre any amunt f incme derived during the accunting perid relevant t the tax year wuld be subject t the new prvisins. Page 4

5 5.4 What des the Amendment mean in respect f filing f returns? Since these institutins, trusts r assciatins will be registered as cmpanies and may suffer tax n sme f their incme, they will be required t file annual incme tax returns as per the requirements f the Act. Returns are generally mailed t taxpayers but taxpayers are reminded that it is nt sufficient fr taxpayers t argue that they did nt file returns because they were nt mailed t them. Taxpayers are therefre advised t request returns frm the nearest tax ffice when they realise that returns may nt have been mailed t them. 5.6 Are there special returns fr filling? A return, ITA 25 (SA) has been prepared fr filing by these institutins, trusts r assciatins and that is the return that must be used t declare items f incme. Fr the transitinal tax year , such returns may be filed by end f March 2006 withut any interest r penalty fr late filing. 5.6 What happens if incme is partly applied during the tax year r extended perid? Nrmally the business incme and/r dispsal gain nt applied fr public purpses will nt be exempt in the case f scial r sprts assciatins and they wuld be subjected t all self assessment prvisins relating t payment f tax, interest and penalties. There, hwever, may be a case f a charitable institutin that it earns incme frm business and/r dispsal gains and als received subscriptin r dnatins during the year and the entire amunt may nt be applied during the year. In such cases the exemptin will be granted in the prprtin that the business incme r capital gains bears t the ttal incme and the percentage f incme exclusively applied fr public purpses. Example 1 (Scial Assciatins nt fr persnal gains) Tax Year nwards Ttal incme P Applied fr scial purpses within the tax P year r apprved extended perid Amunt exempt P Taxable thrugh self-assessment P Page 5

6 Example 2 (Religius, Charitable, Educatinal Institutins) Tax Year nwards Ttal incme Ttal incme applied fr public purpses within the tax year r apprved extended perid Amunt exempt Taxable amunt at the marginal rate fr cmpanies thrugh self assessment Business incme r dispsal gains = P40000 Nn-business incme = P60000 Nn-business incme = P60000 Business incme (55000 / ) x P40000 = P22000 P40000 P22000 P P P P22000 = P82000 P Other bligatins that must be fulfilled? There are several bligatins that a taxpayer must fulfill. Amngst these are the fllwing: Filing f returns when they are due; Deductin and payment f withhlding taxes; Deductin and payment f PAYE; Filing f Annual Returns f Withhlding Taxes; Payment f self assessment tax; and Payment f any taxes that may be due and payable 6 Cmmunicatin Any cncerns r questins regarding the Amendment r this Nte may be addressed t: The Cmmissiner Internal Revenue Btswana Unified Revenue Service Incme Tax Divisin P/Bag Gabrne Tel: S Lekau Cmmissiner Internal Revenue Dated: 16 March 2006 Btswana Unified Revenue Service Page 6

7 Frm ITA 25 (SA APN) REQUEST FOR EXTENSION FOR APPLICATION OF BUSINESS INCOME AND/OR DISPOSAL GAINS OF CHARITABLE, RELIGIOUS OR EDUCATIONAL INSTITUTIONS, TRUSTS ESTABLISHED FOR PUBLIC PURPOSES AND SOCIAL AND SPORTING ASSOCIATIONS Name f institutin, trust r assciatin TIN Address Telephne number Accunting perid Tax year fr which extensin is applied fr Amunt f business incme and /r dispsal gains Prpsed date f applicatin Brief descriptin f prject/wrk n which funds will be applied Reasns fr nnapplicatin during the accunting year Declaratin As Manager / Trustee f the abve named institutin, trust r assciatin, I declare that I have examined this applicatin and that the abve infrmatin is crrect and cmplete Status f declarant Name f declarant Signature f declarant Date Page 7

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