Tax changes put pressure on wages, hiring and labour costs

Botswana’s proposed Income Tax Bill 2025 carries significant implications for the labour market, forcing employers to rethink retention strategies for scarce skills as they race to ensure operational readiness and compliance with the new tax framework. Speaking to this publication, Aupracon Tax Specialists’ Jonathan Hore said the reform is expected to restructure personal income tax brackets. Under the proposal, annual earnings between P156,000 and P400,000 would be taxed at 25 percent, while income above P400,000 would attract a 27.5 percent rate. Hore said the bill will affect individuals in executive positions and could reduce disposable income, with potential ripple effects across compensation structures. From an employer's perspective, the Human Resource Professionals Society of Botswana (HRPSB) cautioned that the bill is likely to increase the cost of managing employees in the short to medium term. “Employers may incur additional expenses related to payroll system upgrades, external advisory support, internal training and compliance monitoring,” HRPSB said. The society noted that indirect pressures could also emerge through increased employee queries, recalculations of net pay and the need for stronger internal communication to maintain trust and workplace stability. It warned that the reforms may influence talent attraction and retention, particularly in sectors competing regionally for scarce skills. “Any reduction in disposable income, particularly for critical and scarce skills segments, could place pressure on retention strategies,” HRPSB said. As a result, employers may be compelled to revisit remuneration structures, benefits packages and retention incentives in order to remain competitive — a move that carries additional financial and policy implications. A central concern for employers is operational readiness. HRPSB said organisations may be required to reconfigure payroll systems, update tax calculations, reassess the treatment of employee benefits and retrain HR and finance personnel, often within tight implementation timelines. “Smaller employers and those using legacy or manual payroll systems may face particular pressure, increasing the risk of errors, non-compliance and employee disputes if adequate guidance and lead time are not provided,” the society said. It added that such adjustments could affect productivity, labour mobility and private-sector wage dynamics, underscoring how fiscal policy decisions extend beyond revenue collection into workforce stability and economic competitiveness. “The success of the Bill will depend on the practicality of its implementation, the adequacy of transition arrangements, and engagement with employers and payroll practitioners,” HRPSB said. Echoing these concerns, labour economist Abel Mpango of the Institute for Labour and Employment Studies said the most immediate risk lies in the potential impact on talent retention and remuneration structures. Mpango warned that reduced flexibility in taxing bonuses and employee share schemes could weaken incentives traditionally used to retain skilled workers. He said employers attempting to preserve competitive net pay may be forced to increase gross remuneration, pushing overall labour costs higher. Where firms cannot absorb these costs, Mpango said adjustments could emerge through slower hiring, restrained wage growth or redesigned incentive structures — outcomes that may dampen employment expansion over the medium term. He added that effective implementation will require stronger coordination between tax policy and labour-market objectives, supported by structured tripartite dialogue among government, businesses and unions. Offering a contrasting view, the Small Business Association (SBM) said the proposed bill is likely to have minimal impact on small enterprises. While acknowledging that higher taxes on top earners could slightly reduce disposable income and marginally dampen consumer demand, SBM finance executive Lone Kgathi said the effect on small business operations is expected to remain indirect. Kgathi said any impact on hiring, expansion or day-to-day decision-making would likely be limited. “Operational decisions are expected to remain largely unchanged, with businesses continuing to focus on maintaining stability and growth,” he said. However, Kgathi said small businesses may require government support to manage minor fluctuations in demand. “This could include guidance materials and workshops to help businesses understand potential market effects, plan effectively and make informed decisions about pricing, inventory and investment,” he said. Labour unions, however, remain firmly opposed to the proposal in its current form. BOPEU general secretary Ketlhapeleng Karabo argued that increasing personal taxes will have a limited impact unless the government first addresses revenue leakages and strengthens collection mechanisms. From the union’s perspective, fiscal reform should begin with tighter expenditure control and improved financial governance rather than shifting additional burdens onto workers. Karabo said implementing the bill without resolving underlying structural weaknesses would be premature, raising concerns about fairness, purchasing power and the broader social contract between the state and the workforce. Speaking at the FNBB Budget Review 2026, Tumelo Rannau, managing consultant at Rans and Associates, said increasing tax rates does not necessarily guarantee higher revenue, particularly where systemic weaknesses in revenue collection persist. Rannau argued that revenue collection systems, especially those linked to digital services, must become fully digital rather than partially manual. He said uploaded documents are not always visible to officials and routine administrative changes can take days due to paperwork. “We have the best online system, but it’s not fully digital. When you attach the documents that they require, on the other side they cannot see them,” he said. Rannau said concerns about whether tax revenue is used efficiently remain central to public confidence. “Are they using it the right way that it’s supposed to be used?” he asked. He also warned that higher tax rates could backfire if company downsizing reduces the taxable base for both corporate and personal income tax. “The government has also reduced its budget when it comes to capital projects, so that means the tax revenue is going down,” he added. These dynamics, he said, challenge optimistic projections of increased tax revenue and underscore the importance of strengthening administration rather than relying on higher rates. He argued that digital transformation will be key to improving compliance, reducing inefficiencies and strengthening tax administration. Rannau pointed to initiatives referenced in the budget speech — including e-procurement systems, digital identification and expanded e-services — which, if fully implemented, could curb revenue leakages. Vice President Ndaba Gaolathe echoed a similar stance in the 2026 Budget Speech, arguing that improving Botswana’s revenue performance is less about raising tax rates and more about strengthening systems and institutional capacity to collect taxes more effectively. Gaolathe noted that Botswana’s tax-to-GDP ratio fell to 13.4 percent in 2023, below both the African average of 16.1 percent and the SACU average of 20.5 percent, highlighting weaknesses in domestic revenue mobilisation. He said comprehensive tax reform is now urgent to modernise tax systems, improve compliance, broaden the tax base and sustain a competitive economy while keeping tax rates relatively low.

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Tax changes put pressure on wages, hiring and labour costs

As the government moves to broaden the tax base, experts caution that employers may need to revisit remuneration structures, benefits and retention incentives to remain competitive, as the changes could weaken traditional tools used to attract and retain skilled workers. LARONA MATHO writes.

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Tax changes put pressure on wages, hiring and labour costs

As the government moves to broaden the tax base, experts caution that employers may need to revisit remuneration structures, benefits and retention incentives to remain competitive, as the changes could weaken traditional tools used to attract and retain skilled workers. LARONA MATHO writes.

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