Botswana Unified Revenue Service (BURS) is likely to miss its P46.33 billion tax revenue collection target for the 2022/2023 financial year.
This is because of inflation relief measures announced by Minister of Finance and Economic Development, Peggy Serame, last month. The measures include a reduction of 2 percent in Value Added Tax (VAT), from 14 to 12 percent. In addition, Liquefied Petroleum Gas (LPG) and cooking oil have been VAT zero-rated.
These measures, as Minister Serame announced, will be in place six months end of January 2023, having come into effect beginning of August. But this is more likely to come at a cost to the government revenues whose sources were broadened only two or so years ago. In February 2021, Serame’s predecessor Dr Thapelo Matsheka announced a number of changes to the tax regime that were aimed at increasing domestic revenue generation for the government.
The change in taxes included increasing VAT from 12 to 14 percent, an increase of P1 per litre on the fuel levy while the withholding tax rate on dividends was raised to 10 percent from 7.5 percent. The government also introduced a levy on sweetened beverages (sugar tax) related to their sugar content at a rate of 2 thebe per gram of sugar above the 4g of sugar per 100 millilitres. This particular measure was meant to generate revenue for the government and at the same time to address health issues associated with consumption of sugar such as diabetes and obesity.
Whether this tax is serving its health aspect of reducing sugar intake by consumers is yet to be established but what is known is that it generated P80.5 million in revenue for the government in the first year of implementation. All these changes led to BURS collecting P45.3 billion in tax revenues during the 2021/2022 financial year, surpassing its target of P44.4 billion. This was also more than the P38.3 billion in tax revenues collected in 2020, a year before the new tax changes came into place.
Buoyed by the recent performance in collection of tax revenues, the tax agency this year set a slightly higher target of P46.33 billion. But this is likely to be jeopardised by the recently introduced measures to cushion consumers against unrelenting inflation. VAT is one of the most important taxes collected by BURS. According to the tax agency’s 2020 annual report, it amounted to P7.3 billion during that year, coming third after income tax and customs receipts. General Manager Communications at BURS, Mable Bolele, told The Business Weekly & Review in an interview that the initial target of P46.33 billion may be affected but hastened to add that they are still working on the exact amount of revenue that could be lost or gained.
“We will continue to monitor developments in VAT with a view of strengthening compliance and collection,” Bolele said in an interview. “Any development in the economy, whether positive or negative, has the potential to affect the set target. We continue to monitor such developments and their likelihood to impact the target.” While the inflation relief measures came in during the course of the financial year, Bolele said BURS had already collected P12.9 billion by end of June, representing 28 percent of total revenue.
“This is against the target of P11.6 billion, which shows an over-performance of 11.34 percent,” she pointed out. “The good performance is attributed to interventions that BURS has put in place to optimise performance.” The amount lost in the set target, if any, would not only come from the reduction in VAT but also from the zero-rating of cooking oil and LPG in VAT. According to an LPG market study undertaken by Botswana Energy Regulatory Authority (BERA) in 2021, Botswana consumes on average 21,000 tons of LPG annually. The relief measures mean that BURS will not be collecting any tax revenue from this commodity for the next six months.
Similarly, there will be no tax revenue from cooking oil, a common household consumer commodity whose price has more than doubled in the last 12 months. Figures from Statistics Botswana indicate that in 2021, Botswana imported cooking oil of various types worth P533.9 million. Revenue collected by BURS plays an important role in the government’s budget. On average, 77 percent of the government revenues (and grants) come from the revenue collected by BURS. The P46.33 billion that it expected to collect in the current financial year represents 68 percent of the P67.87 billion revenue needed to finance government projects.