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2020/2021 Budget speech review: the tax thoughts

Publishing Date : 10 February, 2020

TUMELO RANNAU

Tax; the most basic source of revenue for government and often the first to be adjusted whenever there is pressure on government revenue due to expenditure being more than revenue has been one of the most talked about subject in the build up to the 2020/2021 Budget Speech (the Budget Speech).


The Budget Strategy Paper highlighted that the Ministry of Finance and Economic Development (MoFED) is reviewing taxes and there is possibility of increasing taxes to cover the government deficit. On Monday during the Budget Speech the Minister of Finance and Economic Development Dr. Thapelo Matsheka (the Minister) announced that there will be no tax increases during the next financial year but focus will be towards efficiency in tax collection. This approach might find some taxpayers in the bad side of the law and therefore calls for improved tax risk management for all taxpayers.


Botswana Unified Revenue Service (BURS) personnel have been working closely with African Tax Administration Forum (ATAF) and other tax authorities such as Kenya Revenue Authority (KRA) in attempts to improve efficiency in revenue collection. The announcement by the Minister that focus will be more on the maximization of revenue collection is not surprising as BURS recently issued a tender for appointment of a consultancy to establish Botswana’s tax gap.


A tax gap in simple terms is the difference between tax that should have been collected and the actual tax collected. The results of the tax gap will help BURS and the Ministry to come up with interventions (policy and other compliance measures) that are specific to the tax base risks and non-compliance trends and thereby improving efficiency in tax collection.


In relation to the initiatives or interventions that are already in place BURS is likely to increase frequency of tax audits for business through adaptation of sector focused audits. ATAF and KRA have been helping on that aspect and introducing revenue officers to various sector specific analytical tools. Financial services sector especially banks were subject of the audits in the past 2 to 3 years.


Therefore, it is important for tax teams in various companies in different industries to identify tax risks that are inherent in their industries and ensure they are attended to if identified to avoid incurring lots of interest and penalties. Companies that do not have internal tax teams should engage tax consultants for health check reviews to assess their tax gaps or risks. Though there is always room for pardon based on “just cause”, remember, ignorance of the law is no excuse.


Data has become a massive weapon for every industry and revenue authorities are starting to harness tender award data from various government agencies engaging private sector companies for their projects. This data is used to project Valued Added Tax (VAT), Income Tax and other taxes arising from such tenders and tender-preneurs that haven’t been compliant may find themselves in trouble if they do not improve on their tax compliance status.


Tax bills for defaulters can reach up to 200% of the original tax bill if it is discovered that such compliance was done to avoid taxes. Therefore, it is important that directors of these companies ensure whatever is filed on their behalf is accurate to avoid such catastrophes. Additionally, such companies and their directors may be blacklisted if it is discovered that they haven’t been compliant and tax hasn’t been recovered from them.  


African tax authorities usually mismatch their employees’ skills and end up having their best employees in departments that are irrelevant to their skills sets. Example, a good auditor may be placed in the assessing department or at the border while they’re supposing to be leading inspection in the field. A skills audit for better resource allocation may also be an exercise BURS may carry out to ensure their best human resources are well placed.


The imminent introduction of the Lekgetho Live system is also likely to increase efficiency as the business expects it to be user friendly and provide accurate tax liabilities (interest) especially for withholding taxes. The current system creates lots of inefficiencies for the business when they need to apply for tax clearances as the artificial liabilities created by the system makes them spend more time on reconciliations that are unnecessary and sometimes delays business transactions and processes.


Lastly, BURS may intensify their taxpayer education efforts as tax awareness has proved to be one of the efficient strategies in encouraging compliance. Improvement in updating their website may be among areas they may start in improving taxpayer education. The results of the tax gap analysis will likely provide more informed interventions in relation to BURS’ efficiency in collection and issues such as review of tax exemptions are likely to be covered by this.


In conclusion, as tax authorities work on improving their systems and becoming more aggressive in collection, tax risk management is becoming more than just a tax authority issue. Therefore, all stakeholders ranging from businesses, civil society and individual taxpayers should ensure that they have proper tax risk management policies/strategies in place to avoid unnecessary pitfalls.

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