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Why Should Pension Income Be Taxable?

Publishing Date : 18 September, 2017

Kesitegile Gobotswang (PhD)
BCP Deputy Leader

It is common knowledge that all living people will pass on in the future. In anticipation of this eventuality it is not uncommon for people to enrol in funeral schemes to ensure that when death eventually strikes, together with their beneficiaries they are accorded a decent burial.

Even low income earners such as people in the informal sector as well as peasant farmers are members of burial societies. Group funeral schemes are not uncommon among religious organizations.  Botswana Congress Party (BCP) may be the first political organization to introduce a group funeral scheme entitled “KGOLOLO Funeral Scheme” which was recently launched at the annual party conference in Francistown.

What is also a fact of life is that people progress from young to old age over time. Working people eventually become economically inactive. Unfortunately many fail to plan for the time when they are no longer economically active.  The absence of progressive pension legislation compounds the problem.   In the public service and state owned enterprises in particular, many employees are on a permanent and pensionable condition of service. For this reason a significant number of citizens will reach retirement age and live on a monthly pension income.

Employees who are pensionable pay income tax that is deducted from their basic salary. What they will realize upon retirement is that they will pay income tax if their annual income exceeds the P30 000 threshold. Tax rate increases with an increase in income reaching 25% of income earned.  This is tantamount to double taxation which is unfair. The main reason why pension is taxable is because it is treated as income earned disregarding how the income was earned.  In other words being a pensioner is an employment status.

The issue of taxation among pensioners should be of interest to every working person who is on permanent and pensionable employment.  Those who are already feeling the injustice of having to pay income tax from their hard earned pension are older people already on retirement. My recent conversation with one of the pensioners who is also an active member of the Public Service Pensioners Association suggested that the issue is also a serious concern to their Association.  Apparently the Association is addressing the matter with the relevant authorities.  The Association should be commended for the effort they have undertaken to reverse the obvious injustice.  

It is an issue that should be brought before parliament in the form of an urgent amendment to the current income tax. However, this will not happen if the voice of those affected is subdued. An element of militancy is required to mount effective pressure on government. A close examination of the leadership of the Pensioners Association shows that it is dominated by former senior officials whose views are predominantly conservative and tend to remain loyal to the political status quo. They would not like to rock the boat.

Most working people in Botswana are unable to save for the future when they would no longer be economically active. Maintaining quality of life among older people remains a challenge to many upon retirement. In future it is desirable to come up with a system that encourages all working people to be on pension. During the 10th Parliament Members of Parliament in their wisdom passed a motion to introduce a universal and mandatory pension scheme. The motion was presented by Hon Dumelang Saleshando former Member of Parliament for Gaborone Central and President of the BCP.

Subsequently the relevant ministry made a commitment to implement a broad-based occupational pension scheme during NDP 10. The then Permanent Secretary in the Ministry of Labour and Home Affairs promised “…..to work on time frame not pipelines.” Unfortunately government has failed to live up to its promise to implement such an important initiative that will go a long way in addressing poverty among older people. According to the mover of the motion working persons on short term employment would enrol on a pension program and be allowed to freeze it if employment comes to an end only to revive it when they are engaged again until they reach retirement age of 60 or 65 years of age.

Under the current situation not all workers are on pension, a scenario that puts them at a disadvantage upon reaching retirement age.  It is a system that impoverishes retired people. Many find themselves without regular income soon after retirement to the extent of competing for Ipelegeng “jobs.” Universal pension scheme was intended to address these challenges. Many Batswana were shocked to learn that until recently former BCL miners were not pensionable. A universal pension system would have compelled the mine to contribute towards the pensions of their employees.  This could have minimised the negative effect of the ruthless and abrupt closer of the BCL mine.

In addition to paying income tax, pensioners pay value added tax (VAT) like the general consumers.  Interestingly pensioners in other countries pay subsidised transport fares to avoid the erosion of their pensions.  They are often provided with special identity card to distinguish them from the general public.  This applies to people with disabilities. Why should Batswana pay income tax from their hard earned pension income? The less we talk about how tax paid by retired citizens is allowed to go to waste through official corruption the better.



Do you think the closure of BCL will compel SPEDU to double their efforts in creating job opportunities in the Selibe Phikwe?