On annual basis, the Organisation for Co-operation and Economic Development (OECD) compiles tax revenue data for countries around the world—including Botswana. The OECD data shows that the Tax-to-GDP ratios vary significantly across African countries. In 2018, for instance, Seychelles’s figure was pegged at 32.4 percent, Tunisia at 32.1 percent, and neighbouring South Africa at 29.1 percent. These were the countries that had the highest tax-to-GDP ratios in the continent while Botswana, listed amongst those with lower tax-GDP ratio had its figure at …..
In Economics world the Tax to GDP ratio is a tool used to measure a country’s tax revenue, relative to the size of its economy (measured by its Gross Domestic Product, or GDP). In Botswana, Finance Minister Peggy Serame says the computation of the tax to GDP ratio includes the customs receipts because they comprise of Customs and excise duties which are regarded as part of tax revenue.
His parliamentary counterpart, on the opposition side – MP Dithapelo Keorapetse of Selebi Phikwe West however looks at the computation differently.
“The UDC rejects Minister Serame’s recent answer in which she sought to self-praise her tax collection efforts by deliberately including customs revenues in calculating Tax-to-GDP ratio. Customs revenue is not part of Botswana’s GDP, which are goods and services produced in the country. Customs duties are based on imports into the country and imports are subtracted from GDP because they are not produced in Botswana”, says Keorapetse.
While Keorapetse believes that “this is a clear indication of the inefficiency and ineffectiveness of BURS tax collection”, Serame on the other hand says in terms of the BURS capacity and the prevailing economic conditions, the indicated Tax-to-GDP ratio corresponds to what the country’s taxman can currently achieve.
According to Serame, the methodology for computing Tax-to-GDP ratio used by Revenue Statistics in Africa excludes Customs Receipts in the calculation of Tax-to-GDP ratio.
“In light of this, the Revenue Statistics in Africa 2020 reflects Botswana’s Tax-to-GDP ratio as 12.6%, compared to an average of 16.6% for 30 African countries, and 18.6% for SADC countries”, Serame told Parliament this past week. In response, Keorapetse said that Serame’s figures which include customs are delusional. “The Revenue Statistics in Africa figure is the one we should confront and set targets against”, said Keorapetse.
Going digital
In the global village, the digitalisation of tax administration and tax reporting is already an important consideration towards achieving higher tax compliance and revenue collection. This is based on the premise that adoption of technology will enable a wider net to be cast to capture those that are required to not only pay taxes but pay the right amount too. In Botswana, Serame says there has been significant investment in ICT systems to enhance revenue mobilisation and service delivery by BURS.
BURS has in the last three years procured two major ICT systems: Customs Management System (CMS) and Lekgetho Live. The former is largely used by taxpayers and traders while the latter, “has also brought about some improvements, but experiences legacy problems resulting from data issues originating from the previous system”, according to Serame.
Serame also said that BURS will also introduce an electronic billing system for Value Added Tax payments that will help to improve compliance and revenue collection. “The type of the new system will be determined during the next financial year”, said Serame.
But while waiting for the next financial year for some of the changes, Keorapetse suggest that Serame should consider immediate structural changes but most importantly make an explanation on some administrative matters.
“There appears to be no significant increase on tax collection even when there was GDP growth, a clear indication that something is wrong. The Minister needs to set clear targets that are aligned to improvements being implemented at BURS. The Minister should indicate funding of BURS as % of GDP compared to other upper middle income countries and high income countries, which is where Botswana wants to be in 13 years. She should shed light on how companies that owe large sums in taxes (millions and tens of millions) are able to obtain tax clearance certificates without making any payments or paying very little. How does that happen?” said Keorapetse.
Is everyone paying their fair share of taxes?
At a recent press conference hosted to introduce the new BURS commissioner – Jeanette Makgolo, the taxman admitted that some businesses are tax avoiding. Perhaps this explains why Keorapetse suggest that paying the correct corporate and personal tax should be one of the conditions for renewal of work permits for foreigners.
“The solution is simple -link immigration and BURS. When an applicant applies for work and residence permit, the employee’s or investor’s salary should be reported to BURS. That’s how it’s done in other countries”, said Keorapetse.
Keorapetse further suggested that there should be capacity building for CIPA, BURS, FIA to clamp down on transfer pricing, tax avoidance as well as profit shifting by multi nationals operating in the country.
“This would help in reducing the taxes that have been passed on to the citizens”, Keorapetse said.
In response, Serame said that in 2021 the government of Botswana engaged the International Monetary Fund (IMF) to undertake a diagnostic assessment of the operations of BURS in a bid to compare its effectiveness with international best practice. Among the areas of concern for the government are: Accurate and reliable taxpayer information, knowledge of the potential taxpayer base as well as mitigation of risks through a compliance improvement plan.
Serame told Parliament that, “BURS is in the process of implementing the recommendations of TADAT and my Ministry is monitoring the implementation.
With the contribution of tax revenues to the total kitty being amongst the lowest in the region and continent, it is yet to be seen if the new changes at BURS that Serame spoke about in Parliament will plug the country’s tax leakages. As it stands, Botswana’s tax-to-GDP is at an abysmal low of 12 percent which keeps the national budget perpetually in a deficit — an uncomforting predicament for a country with high unemployment and inflation rates.
