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‘Botswana’s domestic resources mobilization is weak’

Publishing Date : 10 February, 2020

Author : REARABILWE RAMAPHANE

Botswana‘s domestic resource mobilization has been labeled weak and behind times, inefficient and unable to fully finance the country‘s developmental and transformative agenda. This is according to Keith Jefferis, a renowned economist, Founder and Director at Ecosult Botswana.


Jefferis who is former Bank of Botswana Deputy Governor was speaking at the Budget Review seminar for the 2020/21 financial year organized by First National Bank Botswana in Gaborone last night. The Economist noted that over the years Botswana‘s tax base has not been expanding at a broadening rate enough to finance the country‘s much needed infrastructure development and increasing government spending.


“On a long term assessment government revenue have been declining while on the other side expenditure ballooned, and the contribution of resources gathered domestically has been flat or even reducing,” he said.  Jefferis warned that in the wake of vulnerable diamond market which is affected by global economic uncertainties Botswana might find itself in serious fiscal imbalance.  “In that situation then we will need to expand our domestic resource mobilization, if not government spending will have to shrink significantly, the latter will then negatively affect our basic services such as health and education,” he said.


Citing that currently the country’s revenue profile is by in large dependent on Mineral income predominantly diamond export, the Macroeconomic expert says Botswana’s domestic revenue   is very low when compared to other developing countries. Jefferis is of the view that in the midterm to long term there will be inevitable and un avoidable need for new and higher taxes “Our domestic revenue are relatively low, that is your VAT, income tax, corporate tax and others, they only account for about 35 % of total government expenditure, this is because Batswana we are under taxed,” he said.


According to Jefferis to realize exponential growth while maintaining fiscal stability, Batswana consumers, business people, companies and multi nationals should finance the country’s budget more than any other revenue channel. On his part Botswana Unified Revenue Service (BURS) Acting Commissioner General Segolo Lekau noted that Botswana’s domestic revenue collection is currently faced with inefficiencies s of which some are a result of lack of resources for BURS, lack of technical capacity and personnel.


“ We do acknowledge that there are instances where we run short as the country ‘s tax body ,however we plead for every citizen’s support , paying and complying to  tax obligation is a patriotic responsibility  and requirement for everyone staying in Botswana or doing business in Botswana,”  he said. Lekau added into Jefferis’ views noting that if diamond revenue continues on an unstable wave heighted by global markets volatilities government will  have to increase and or further broaden  the country’s tax base.


The International Monetary Fund (IMF) has also spoken against Botswana weak domestic resources mobilization vehicles. In its 2018 report on Sub Saharan Africa the IMF urged Botswana to reform its entire revenue collection system and framework.  “It would be important to remove many tax exemptions, increase property taxation, and consider making the personal income tax regime more progressive,” reads the report which was released in June 2018.


This recommendation by IMF and many other organizations opposes what Botswana is currently doing, in its investment wooing basket, tax exemption and incentives are underscored as key nectarines in attracting foreign capital to set up business in Botswana. IMF advised Botswana that tax was vital in boosting the country‘s administrative, fiscal and institutional capacity adding that tax revenue was very essential for any developing country to function.

TAX EXEMPTIONS

Highlighting some of the country‘s tax exemptions extended to the business community and private sector, Lekau explained that Botswana will have to revisit some of the incentives to asses and see if they still benefit the country. It has been underscored that some tax incentives and exceptions were a window for exorbitant tax dodging, money laundering and illicit financial flows, under this sentiments Botswana was accused of having a secretive tax system with tax haven jurisdictions that bleeds the country’s public funds.


Botswana was  reported  to loss over 80 billion pula in 10 years ,  citing from 2003- 2012 due to corporate tax dodging and money laundering , that is according to Oxfam  which noted that this was sometimes encouraged by arrangements such as tax exemptions. One of tax arrangements that Botswana was previously strongly discouraged for is the International Financial Services Centre (IFSC) regime under which IFSC accredited and qualifying firms enjoy a 15% corporate tax rate while other companies face the normal 22 % tax. The package encompasses of amongst others conditional exemptions on Capital Gains Tax, Withholding Tax and other rates.


Botswana adopted this predominantly to accelerate economic diversification by encouraging growth of the financial services sector. Local IFSC accredited firms include amongst others retail giant Choppies, Letshego Holdings, Motovac, as well as a number of capital and assert management firms. Other tax exemptions in Botswana are the SPEDU revitalization incentives, and Special Economic Zones packages. Some of the incentives under SPEDU are 5 % corporate tax for the first five years and 10 % thereafter.


Organization for Economic Cooperation & Development (OECD) has strongly spoken against some of Botswana‘s tax exemptions and incentives. OECD is of the view these arrangement do not output significant and desirable results but only cripple the country‘s revenue collection vehicles.  “Under pressure to offer internationally-competitive tax environments, developing countries offer generous tax breaks that undermine their domestic resource mobilization efforts with little demonstrable benefit in terms of increased investment,” says OECD.


Botswana has been cited as one good example for such. The underlying concern by OECD is that low income countries often face acute pressures to attract investment by offering tax incentives, which then erode the countries’ tax bases with little benefit even after running for several years. However after blacklisting Botswana as a tax haven OECD countries led by France last month lifted the tag after the country put up some reforms and improved efficiency and transparency in its tax system.

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