A Fiscal Reckoning Citizens Become the Revenue Base

Government decision to expand Value Added Tax (VAT) to private healthcare, foreign digital services and additional consumer goods has triggered debate over the balance between raising government revenue and protecting households from higher living costs.

The reforms, which came into effect on 1 July , widen the VAT base by bringing services such as online streaming, cloud storage and remotely supplied professional services into the tax system, while reversing the 2023 VAT exemption on private medical services and reducing relief on selected consumer goods.

Government says the changes are part of a broader effort to modernise the tax system, expand domestic revenue sources and reduce reliance on volatile diamond earnings.

However, while tax experts have welcomed the taxation of digital services, healthcare providers and retailers have warned that VAT on essential goods and services could ultimately increase costs for consumers.

Finance Minister Ndaba Gaolathe described the reforms in the 2026/27 Budget Speech as "a collective investment in our shared development", while the Botswana Unified Revenue Service (BURS) said the measures were intended to create a modern, fair and trusted tax system.

Tax and advisory specialist Nigel Dixon-Warren said the reforms had been under development since 2016 and were not simply a response to Botswana's current fiscal pressures.

Botswana's Income Tax Act, he said, had not undergone a major review since 1995 and had become outdated.

"The new tax legislation is more modern, fair and transparent," Dixon-Warren said.

"But not necessarily more competitive, as the rates have been increased and the tax net has certainly widened to bring new sources of tax which were absent in the previous legislation."

Digital economy gains support

One of the most widely supported aspects of the reform is the decision to tax foreign digital suppliers.

Under the new framework, overseas providers of remotely supplied services are required to register and account for VAT in Botswana.

BURS estimates the measure could generate about P450 million annually .

Tax expert Tumelo Rannau said the move was overdue after years in which global technology companies generated revenue from Botswana consumers without fully participating in the domestic VAT system.

"Taxation of the digital economy has been part of the global conversation for the past decade, and we have since caught up," he said.

"Expanding VAT to these services was long overdue and will expand the tax base."

Dixon-Warren also backed government's approach of using the existing VAT framework rather than introducing a separate digital services tax.

"Other countries have established separate digital transaction taxes over and above their normal tax systems. My preference is the Botswana model, which is more cost-effective," he said.

Healthcare becomes the biggest battleground

The most contentious part of the reforms has been the return of private medical services to the VAT system.

In 2023, the previous administration removed VAT from private healthcare services in an effort to improve affordability and access.

That exemption has now been reversed.

Rannau said the policy created an inconsistency because prescribed medicines remain zero-rated while the medical professionals who diagnose patients and prescribe those medicines are subject to VAT.

"The best solution was to also move private medical services to zero-rated so that there is alignment in policy stance for affordability in health," he said.

Healthcare organisations have also criticised the move.

In a joint statement, the Botswana Doctors Union, Botswana Dental Association and Medical Practitioners Group warned that VAT could increase the cost of private healthcare, push up medical scheme contributions, reduce benefits and discourage patients from seeking treatment.

They argued that delaying medical care could result in patients presenting with more serious and expensive conditions, increasing pressure on the public health system.

The Botswana Nurses Union described VAT on medical services as anti-social and said vulnerable households would bear the greatest burden.

Dixon-Warren, however, argued that removing the exemption could eventually lower some underlying costs for healthcare providers.

Under a VAT exemption, medical providers cannot claim back VAT paid on inputs such as equipment, utilities and other operating expenses. Those costs, he said, are ultimately reflected in patient charges.

"The fundamental concept of the VAT system is that it is a highly effective way to collect significant revenues with little effort by authorities, as it is completely self-assessment," he said.

He argued that the 2023 exemption increased costs for providers because input VAT could not be recovered.

Returning healthcare to the VAT system means providers can again claim input VAT, although he acknowledged that these savings would not fully offset the 14 percent VAT charged to patients.

"From a policy perspective, it is normal for private medical services to be vatable when the state also provides access to public services," he said.

Retailers warn of pressure on consumers

The removal of VAT relief on some consumer goods has also raised concerns among retailers.

Speaking at the launch of the World Bank's Botswana Economic Update , Sefalana Group Managing Director Chandra Chauhan warned that consumers may not yet fully appreciate the impact of VAT changes on basic commodities.

"There are very few zero-rated goods now remaining," he said.

Choppies Chief Executive Officer Ramachandran Ottapathu was more critical, warning that the changes would place additional pressure on ordinary consumers.

He highlighted bananas as an example, describing the VAT change as a direct impact on affordable food choices.

"They imposed VAT on banana. This is a direct hit on a man walking in the street getting energy through this most affordable fruit," Ramachandran said.

He also raised concerns about VAT on fresh milk and said government had not sufficiently consulted businesses with regional retail experience.

However, he said it was too early to determine the full impact.

"Give us the month of July. We can do a full like-for-like study and report back," he said.

Limited impact on inflation

Despite concerns over higher prices, economists expect the VAT reforms to have only a limited effect on headline inflation.

Annual inflation stood at 10.7 percent in June , unchanged from May, before the VAT measures took effect.

Transport accounted for 7.3 percentage points of annual inflation, while food and non-alcoholic beverages contributed 0.9 percentage points and health contributed 0.1 percentage points .

Economist Keith Jefferis said the VAT changes were unlikely to significantly alter the overall inflation rate.

"The VAT changes are too small and affect very few items to have any noticeable impact," he said.

Jefferis forecasts inflation of about 10.3 percent in July and August.

However, limited impact on headline inflation does not mean households will escape higher costs.

Medical consultations, digital subscriptions and some grocery items are expected to become more expensive, meaning the reforms could place pressure on specific household budgets even if the overall Consumer Price Index remains largely unchanged.

Rannau said this was the nature of VAT.

"VAT is borne by the final consumer, so ordinary citizens will bear the cost," he said.

While supporting electronic billing and taxation of remote services, he believes government should reconsider VAT on healthcare and essential goods such as milk and sugar.