The taxman’s assignment

Botswana’s ability to raise P2.47 billion in additional revenue from its tax reforms will depend on whether the measures can broaden collections without further eroding a tax base already under pressure from declining diamond revenues. While the Botswana Unified Revenue Service (BURS) says the full revenue impact of key reforms will only become apparent in 2027, Moody’s Ratings warns that the measures will slow, but not reverse, the deterioration in public finances. Tax analysts say the gains will also depend on protecting the existing tax base and ensuring a smooth implementation process.

Moody’s said the reforms, which include higher corporate and personal income tax rates, an expanded value-added tax (VAT) base through the taxation of remote services and the narrowing of zero-rating, as well as stronger tax administration through electronic invoicing and compliance management, could help ease pressure on public finances.

However, weaker-than-expected revenue gains could add to the government’s debt burden. Even with effective implementation, Moody’s expects the fiscal deficit to remain large, narrowing only gradually to 5.8 percent of GDP in fiscal 2026/27 from 6.3 percent–6.4 percent in fiscal 2025/26.

Government debt is forecast to rise to 41 percent of GDP in fiscal 2026/27 and approach 50 percent by the end of the decade.

Debt relative to revenue is expected to deteriorate faster than debt as a share of GDP, as structurally lower mining receipts and limited growth in the non-mining tax base constrain revenue expansion.

Moody’s identified the possibility of smaller or less durable revenue gains than expected as a downside risk to Botswana’s credit profile. Conversely, stronger fiscal outcomes could emerge if the government responds more decisively to revenue pressures and builds on the reforms. Larger and more sustainable gains could support upward pressure on the country’s rating, while outcomes materially weaker than forecast could increase the risk of a downgrade.

For BURS, the period leading up to the enactment of the new revenue laws involved extensive preparations by both tax administrators and commercial taxpayers, according to Refilwe Moonwa , the service’s general manager of communications, who spoke to The Business Weekly & Review .

Under the Value Added Tax on Remote Services (VRS) regime, businesses were granted a four-month lead time following the law’s commencement to adjust their systems and notify customers. The collection of VRS began in October 2026, with the first tax returns from registered non-resident entities expected in January 2027.

“BURS will be in a position to say how much has been collected at the end of the 4th quarter of reporting, which is March 2027,” Moonwa said.

BURS estimates that the VRS regime will generate an additional P450 million in VAT revenue when fully operational.

To accommodate the increase in the top marginal personal income tax rate from 25 percent to 27.5 percent, employers were given until September 30, 2026, to align their payroll withholding systems. With returns for September due by October 15, BURS considers it too early to assess the effect on collections.

The rate adjustment is projected to contribute an additional P321 million to government revenue.

Corporate tax changes are expected to generate P1.79 billion. Taxpayers whose financial years do not follow the standard July 1 to June 30 cycle have been allowed to complete their reporting periods under the old rates before transitioning to the new regime.

BURS designed the transition to avoid overlapping reporting periods and the administrative complexity of apportioning earnings between two tax rates. The full fiscal impact of the higher corporate tax rate is expected to become apparent from October 2027.

The legislative amendments also require deputy sheriffs to register for VAT and levy the tax when executing property sales under court writs. Full registration was deferred to allow for training and onboarding, which took place on September 23, 2026. Registrations are still ongoing.

To encourage compliance, BURS has launched a nationwide taxpayer education campaign alongside an internal implementation roadmap. The roadmap prioritises direct revenue collection, while secondary administrative measures, including the formal registration of tax agents and a binding tax rulings system, are scheduled for rollout in April 2027.

Despite these preparations, tax analysts caution that policy changes alone cannot guarantee the expected revenue if longstanding compliance gaps persist.

The International Monetary Fund’s Revenue Administration Gap Analysis Program (RA-GAP) found that Botswana’s VAT gap widened from 4.9 percent of GDP in 2017 to 5.8 percent, representing approximately P13.1 billion in uncollected revenue. The IMF attributed the leakage primarily to declining tax compliance rather than policy changes or exemptions, with problems concentrated in complex sectors vulnerable to informality, including trade, transportation, mining and manufacturing.

Tumelo Rannau , a tax consultant at Rans & Associates, said closing these gaps through measures such as electronic billing machines would be essential to achieving the projected revenue gains.

“Electronic billing machines should get a grip on VAT fraud and related crimes,” he said.

Rannau said broader economic conditions would ultimately determine how much revenue the reforms generate. Weaker business activity, shrinking profit margins and fewer taxable transactions could undermine collection targets.

“A weaker-than-expected response from the reforms could be attributed to that there has not been much activity in the economy because most businesses have been heavily reliant on government tenders and other businesses that were in the diamond value chain have been affected by the reduced production in the diamond industry,” he said.

Compliance requirements could also undermine the reforms if taxpayers struggle to meet their obligations, potentially shrinking the effective tax base and weakening the durability of the gains.

“ Therefore implementation must be smooth and assess overall impact and fix any part that threatens the tax base,” Rannau said.

Botswana’s continued reliance on government spending and mining activity also limits the scope for sustainable revenue growth. Even as the new measures begin generating additional income, government must meet existing debt-servicing costs and other financial obligations before it can restore a more sustainable fiscal position.

“Gradual improvement comes by because the government has to first pay its debt and other obligations that have been sustaining the government before returning to normalcy,” Rannau said.

Despite these constraints, he identified the taxation of foreign digital service providers registering with BURS as one area with potential to generate additional revenue. The removal of certain VAT exemptions and zero-rated categories also brings previously untaxed or lightly taxed transactions into the VAT system.

Where demand for affected goods and services remains relatively inelastic, the government could collect VAT on transactions that previously generated little or no revenue.

“The measures will result in a significant increase as some of them are new sources altogether while some are introduced to close leaks like electronic billing machines,” he said.

Rannau expects the removal of exemptions and zero-rating, electronic billing machines and the taxation of remote services to have some of the most significant and sustainable effects on revenue. In his view, these measures either bring new transactions into the tax system or improve compliance, while higher tax rates may deliver more limited gains in areas where economic activity has weakened.

A key risk is that administrative bottlenecks could make compliance unnecessarily difficult, discouraging registration and payment and ultimately undermining the tax base the reforms are intended to protect.

Rannau said sustained growth in non-mining tax revenue would also require improvements in public financial management. Moody’s has noted that consistent growth in non-mining revenue could strengthen Botswana’s credit profile, an objective Rannau said had received insufficient attention when diamond revenues were abundant.

“We need to improve implementation of projects and have proper monitoring and evaluation tools in place. This is to ensure that every investment is justified and we are not spending money on projects just because the money is available. With diamond revenue not guaranteed it might be an opportunity to build that,” he said.

As implementation progresses, Rannau said early indications of compliance could be assessed through taxpayers’ willingness to register and pay, particularly those affected by the removal of exemptions and the new rules governing digital services.

Public announcements by global companies such as Meta about their obligations to collect domestic VAT could indicate growing voluntary compliance in the digital economy and encourage similar responses elsewhere in the market.