Changes to Botswana’s Income Tax for 2024
Botswana Parliament enacted the Income Tax (Amendment) Act 2023 on December 20, 2023.
Effective from January 15, 2024, this reduces the taxation of severance, gratuity bonus, retrenchment and retirement lump sum payments, and extends the tax exemptions for certain early withdrawals from retirement funds.
Terminal Payments to Citizen Employees
Citizens who receive service gratuity, gratuity or severance lump sum payments during or at the end of their employment, have a tax exemption on 50% of these payments (an increase from the previous one third tax exemption).
Terminal Payments to Non-Citizen Employees
non-citizens who receive bonus or gratuity payments under an employment contract (provided the bonus is reasonable and related to generally prevailing retirement benefits) have a tax exemption on 50% of these payments (an increase from the previous one third tax exemption).
Terminal Payments to all Employees
Employees electing to receive severance pay, or receiving a retrenchment package, or commuting a portion of their pension to a lump sum have a tax exemption on 50% of these payments (an increase from the previous one third tax exemption).
Annual Pension or Annuity Payments
If a pensioner would have received an annual annuity income of P20,000 or less from their pension, they may take a lump sum commutation with 100% exemption from tax. (increased from the previous threshold of P500 per year).
Medical Costs for Deferred Members
Deferred retirement fund members taking a lump sum withdrawal that pays for medical treatment purposes have 100% tax exemption.
Loan Settlement for Deferred Pension Members
Deferred pension members pay income tax on only 50% of any amount withdrawn for purposes of settling a loan but, where the tax payable would render the amount insufficient to settle the loan, then 100% will be exempt from tax.
Income Tax (Amendment) Act 2023
Section 32 – Employment Income
Subsection 7
Where in any tax year an approved service gratuity or severance pay accrues to a citizen, whether during the course of or on termination of his or her employment,
the whole of such gratuity or severance pay shall be excluded from the gross income of such person if it is directly invested on his or her behalf in an approved pension fund or approved retirement annuity fund or scheme, and
where it is not so invested 50 per cent only of such gratuity or severance pay shall be so excluded
and, at the option of the Commissioner General, the remaining 50 per cent thereof may be deemed to have accrued at the time it is payable, or accrued in three successive equal annual instalments, the last of such instalments being deemed to have accrued on the date on which the whole amount became payable, provided that the exercise of the option by the Commissioner General would reduce the tax liability of the employee; and provided further that the employee is not
(i) a relative of the employer where the employer is an individual;
(ii) a relative of one or more of the partners where the employer is a partnership; or
(iii) a participator within the meaning in section 132, or a relative or nominee of such a participator of the company where the employer is a close company,
unless the Commissioner General is satisfied that it is a bona fide arm's length payment.
Subsection 10
Where a citizen, other than a citizen referred to in subsection 9, is entitled to a gratuity under a contract of employment, 50 per cent of such gratuity shall be excluded from his or her gross income, and the remaining 50 per cent thereof shall be deemed to have accrued evenly over the duration of the contract, or over the last three years thereof, whichever is the lesser, or over the last year of the contract, at the option of the Commissioner General, provided that the exercise of the option by the Commissioner General would reduce the tax liability of the employee.
Subsection 11
Where a non-citizen employee is entitled to a bonus or gratuity under a contract of employment, 50 per cent of such bonus or gratuity shall be excluded from his or her gross income, and the remaining 50 per cent thereof shall be deemed to have accrued evenly over the duration of the contract or over the last three years thereof, whichever is the lesser, or over the last year of the contract, at the option of the Commissioner General, provided that the exercise of the option by the Commissioner General would reduce the tax liability of the employee, provided further that one third of the bonus or gratuity mentioned herein shall only be excluded from the gross income of a non-citizen employee if in the opinion of the Commissioner General the payment is reasonable in the circumstances having regard to—
(a) the period of the employment;
(b) the nature of the employment;
(c) the salary payable to the employee; and
(d) the measure of retirement benefits generally prevailing at that time.
Subsection 12
Where an employee elects to receive severance pay from his or her employer in accordance with section 27 of the Employment Act (Cap. 47:01), 50 per cent of the amount payable shall be excluded from his or her gross income, and the remaining amount shall be deemed to have accrued evenly over the period of service, or over the last three years thereof, whichever is the lesser, or over the last year of the contract, at the option of the Commissioner General, provided that the exercise of the option by the Commissioner General would reduce the tax liability of the employee.
Subsection 14
Where an employee receives a retrenchment package, 50 per cent of the amount received in money or money's worth or equivalent of the threshold, whichever is greater, shall be exempt from tax and at the option of the Commissioner General, the remaining 50 per cent thereof may be deemed to have accrued at the time it is payable or accrued in three successive equal instalments, the last of such instalments being deemed to have accrued on the date on which the whole amount becomes payable, provided that the exercise of the option would reduce the tax liability of the employee.
Second Schedule, Part II – Classes of Gross Income Exempted
The following classes of amounts included in gross income shall be exempt from tax to the extent indicated:
Paragraph (xxvii)
Where under any law in force in Botswana an employee is permitted to commute a portion of his or her pension, an amount not exceeding 50 per cent of the pension entitlement at the time of retirement;
Paragraph (xxviii)
In the case of any person other than a person subject to paragraph (xxvii), who, being entitled to a pension or annuity on retirement, elects to receive a part of such pension or annuity as a commuted lump sum, an actuarially calculated sum representing a commutation of not more than 50 per cent of his or her full entitlement at the date of his or her retirement;
Paragraph (xxix)
in the case of any person other than a person referred to in paragraphs (xxvii) and (xxviii) who is entitled bona fide to an annual pension or annuity of not more than P20,000, an actuarially calculated sum representing the commutation of that pension or annuity;
Paragraph (xIiv)
Any amount withdrawn by a deferred member under the Retirement Funds Act from the pension entitlement, for the purposes of medical treatment.
Paragraph (xlv)
50 per cent of any amount withdrawn by a deferred pension fund member from the pension entitlement for purposes of settling a loan, and where, by reason of tax payable, the deferred amount is not enough to settle the loans payable, the whole amount shall be exempt.
This free excel-based tool allows you to compare 2020 and 2021 PAYE rates for yourself or for your Botswana based employees.