Serame concedes VAT Reductions are unsustainable

VAT went down from 14% to 12% in August Cooking oil and cooking gas zero-rated Finance minister says the measures are proving unsustainable The Minister of Finance and Economic Development Peggy Serame has cast doubt on her own ministry’s wisdom in temporary measures aimed at reducing certain VAT rates to combat the effects of inflation on households and the economy. The announcement, which includes a reduction in the standard VAT rate to 12 percent from 14 percent and zero-rated VAT for cooking oil and liquified petroleum gas, was made in July this year and prompted criticism from some quarters. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="1,2,3,4" ihc_mb_template="3" ] At the time, the government was accused of failing to devise measures to make the basic needs of Batswana more affordable in the face of galloping inflation. In a rare public admission by a cabinet minister, Serame told a Budget Pitso for Local Authorities recently that the measures were proving unsustainable for the government. “As much as these measures are meant to cushion households against inflationary pressures and other economic shocks, I wish to highlight that the government cannot sustain these high level of subsidies and as such this calls for efficiency in spending,” she said. The minister explained that reducing the VAT rate from 14 percent to 12 percent beginning August 2022 until January 2023 and zero rating cooking oil and Liquefied Petroleum Gas were measures aimed at cushioning Batswana and the businesses against economic hardships caused by rising prices of fuel and food prices. She added that while the government may be “willing to consider more measures, it is important to note that any intervention that requires financial outlay has potential to erode the country’s fiscal buffers and may not be sustainable”. “In this regard, rather than calling for additional measures with financial implications, we should complement the current measures by focusing on efficient management of expenditure and cost savings,” Serame said. She noted that local authorities have a major role to play to ensure that government services are delivered in the most cost-effective manner, that government projects are implemented within time and budget, and that government revenues are collected when they are due. “It is therefore crucial that the valuation of properties’ initiative that was allocated a generous budget of P100 million in 2020/2021 and P89 million in 2021/2022 be accelerated to provide critical data that will be used to catalyse enhanced revenue generation in the Local Authorities,” she said. Doing so will create fiscal space and provide room for the government to adopt more measures to assist in the current economic challenges faced by the people. Serame said the Budget Pitso came at a time when some of the world’s major economies face the risk of recession due to the continued impact of the Russia-Ukraine conflict, which has resulted in unprecedented increases in prices of fuel and food worldwide. The domestic economy has not been spared from these economic shocks, as evidenced by domestic inflation rising rapidly to reach 14.6 percent percent in August 2022. “Additionally, the recovery of the domestic economy from the impact of the COVID-19 pandemic has been interrupted by the outbreak of the Foot and Mouth Disease in Botswana, among others,” Minister Serame noted. Citing the latest data from Statistics Botswana, she said the unemployment rate stood at 26.0 percent in the fourth quarter of 2021, up from 24.5 percent in the corresponding period in the past year, while youth unemployment stood at 34.4 percent in the fourth quarter of 2021. “Similarly, income inequality as measured by the Gini coefficient stood at 50 percent, according to the UN development report of 2020,” Serame said. “Government will therefore continue to direct financial resources by putting in place appropriate programmes, policies and initiatives that will address these concerns.” [/ihc-hide-content]

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Serame concedes VAT Reductions are unsustainable

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