VAT registration possible without P1m

Did you know that the VAT Act allows any person to register for VAT before their annual turnover exceeds P1m? This is, however, subject to meeting certain conditions prescribed by the Act and of course, the approval of BURS. The fact that more emphasis is cast on compulsory registration after exceeding P1m in sales makes the topic a fascinating business case to talk about. Today’s article seeks to unfold this registration option and give a clear picture on who is obliged to register and who can volunteer for VAT registration. Throughout this article, words importing the masculine shall be deemed to include the feminine

VAT registration possible without P1m

Can anyone register?

What is key to understand is that only persons conducting taxable activities continuously or regularly in or partly in Botswana can be registered for VAT. This aspect creates a prerequisite condition that disqualifies persons who explicitly deal with exempt supplies, such as residential accommodation, financial services, domestic road transport etc. Also excluded are persons conducting private or recreational or hobbies. In other words, only persons trading in goods or services that would ordinarily be charged VAT at 14% or 0% can apply for VAT registration. It is therefore essential to ascertain whether you are trading in taxable or exempt supplies and if you are obliged legally to register for VAT or whether you should register voluntarily.

Compulsory vs voluntary

VAT registration becomes a legal requirement once a person’s annual taxable sales exceed the P1m threshold. Such persons will be required to notify and apply for registration to the Commissioner General within 21days after breaching the threshold.

However, the VAT Act contains a provision that allows a person to register for VAT if he proves   that the threshold will be exceeded in the next 12months. The examples below illustrates scenarios that permits a person to apply for VAT registration:

Example 1: Tiro (Pty) Ltd, a stationery Shop has been awarded a tender worth P2,5m to supply a private school with stationery and uniforms in 2021. The company can register for VAT on the premise of the tender document as it will certainly breach the P1m mark.

Example 2: Mr Botho, a sole trader, started trading in January 2021 and operates a restaurant in Gaborone. His sales for the past three months amounts to P600,000.

From the above illustrations, it can be argued beyond reasonable doubt that both Mr Botho and Tiro (Pty) Ltd will exceed the P1m in the next 12months.  In such instances, both parties can be registered for VAT before they actually meet or exceed P1m.

The Act also provides for voluntary registration for persons whose taxable turnover have reached P500,000. In other words, businesses can only voluntarily register for VAT upon meeting the P 500 000 in sales and it is no longer the norm that anyone intending to conduct business can be registered even without sales. However, this has the downside of constraining, among others, start-ups, capital intensive businesses as well as exploration businesses.

As highlighted above, any person trading in taxable supplies can voluntarily register for VAT once the above conditions are fully satisfied.

Why register?

VAT registration allows a trader to claim input tax incurred on his purchases, giving a financial benefit that comes through the recovery of VAT incurred. It is key to understand that once a person has satisfied the registration conditions, he is obliged to adhere to all the requirements of the VAT Act such as filing VAT returns and keeping records.

On the other hand, it is imperative to know that a person who has registered voluntarily can only apply for deregistration after two years of trading. Deregistration subsequently gives rise to VAT charges so voluntary registration should not be taken lightly.   

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 or know about our 9 Tax e-books, send me a text on the cell number below.