Tax Increases raise Govt Revenue to P64.6bn
Matsheka puts accent on a need to “fund our own development” to ward off criticism that widening the tax base and increasing taxes is effectively punishing the poor. He revealed that government will make an estimated P64.6 billion in revenue, as a result of tax increases effective April 2021.
Responding to MPs’ debate of the 2021 budget, Dr. Matsheka said government is duty bound to collect revenue from its citizens through public finance principles.
“Overall, we anticipate to raise P64.6 billion in total revenues and grants in the 2021/2022 financial year,” he told Parliament. “The role of government is to collect revenues and distribute it through provision of public services and funding the running costs of government.”
Matsheka said the money collected through tax will be allocated efficiently. Allaying fears after the decision to increase taxes and widen the tax base, Minister Matsheka explained that the budget is made up of three components, namely revenues, expenditure and financing.
He added that the structure of Botswana’s revenues largely been “dependent on external sources” and therefore vulnerable swings beyond the country’s control as shown by the budget outturn in the 2019/20 financial year when revenue from minerals and SACU was P28.5 billion, which accounted for 52.5 percent of total revenues and grants for the financial year that is just ending.
“In the 2020/2021 original budget estimates, we anticipated to raise P35.4 billion or 56.7 percent from those two external sources,” Matsheka said. “The revised estimates for 2020/2021 financial now show that we are likely to raise only P23 billion from the two external sources.”
The 2019/20 financial year was such a blighted one that mineral revenue alone fell from the original estimate of P20 billion to P6.5 billion in the revised estimates (2020/2021). The finance minister said the tendency of depending on external revenue sources is unsustainable, hence the decision to mobilise domestic revenue in the form of taxes.
“This trend is unsustainable, and necessitates enhanced efforts towards domestic revenue mobilisation, including increases in taxes,” he emphasised. “Given this scenario, with external revenue sources expected to fall significantly, we had no other option but to look at domestic sources so that we fund our own development.”
Minister Matsheka’s extensive tax increases include VAT, the fuel levy and withholding tax on dividends. New taxes include a sugar levy, a plastic bag levy, and a tax on second-hand vehicles. The finance minister said Botswana’s VAT rate is the lowest in the SADC region and dismissed criticism that this budget for 2020/22 was crafted for the rich because basic food items are exempted from VAT.
”The income tax system in Botswana is progressive, meaning that higher income earners pay a higher tax as per the 8th Schedule of the Income Tax Act,” he argued, adding that a tax amnesty to relieve the burden on companies and individuals has been introduced.
He disclosed that the government is owed P7.8billion comprising P3 billion in principal tax amounts and interest and penalties of P4.8 billion. “P4.8 billion is the amount to be foregone by government through this dispensation,” he said. “Just like the adjustment of the income tax threshold, this directly leaves money in the pockets of taxpayers.”