Although the industry and consumers have reservations about revision in Value Added Tax (VAT), experts say the move was expected as it is the only revenue stream that government has ‘hand in’.
Government relies on SACU revenues, cash cow diamond mining, income tax and VAT, but recession has dented mining GDP.
“Government has got handle only on the VAT,” said Dr Happy Fidzani, Executive Director of Botswana Institution of Development Policy Analysis (BIDPA).
The Minister of Finance and Development Planning, Kenneth Matambo, this week proposed to parliament to increase VAT by two percent from 10 percent to 12 percent April 1, 2010 when delivering his 2010 budget speech.
However, small businesses are still cushioned as the threshold has been moved from P250, 000 to P500, 000.
In the budget, because of the recession, the largest revenue source will be the non mineral income tax at 24.4 percent, seconded by mineral revenue at 23.9 percent while SACU or customs and exercise is at 18.9 percent.
Customs revenue for 2010/11 is expected to be significantly less than in the recent years.
Fidzani, of the government think tank, revealed to an FNBB sponsored post budget discussion this week that government has no handle on SACU and government is only a price taker.
However, he said the fiscal decision was surprising because it ‘is antigrowth’.
As expected, government did not adjust civil servants salaries, but the former University of Botswana lecturer said the decision to review VAT was surprising as it was tantamount to be anti economic growth.
“VAT and non salary increment; there is an element of penalty on the economy,” said Fidzani.
“These are difficult times; the belt tightening process is in order, but in some areas, we might penalise growth like consumer demand.”
The treasury decision is made worse because government did not review the list of zero rated products.
Matambo also proposed that the two-tier system of corporate tax will be abolished with effect from July 1, 2010 and will be replaced with a final company tax rate of 25 percent.
There is no change in corporate income tax while IFSC and manufacturing company’s final tax rate will be 15 percent.
Chandra Chauhan, Sefalana Holdings Managing Director said some aspects of the budget dents Botswana’s business climate especially the VAT increase in the difficult times like the current ones.
The giant retailer’s MD added that he felt a number of VAT exempted products could have been extended to help poor people.
He however said he does not expect the VAT to reach the rate of 14 percent as it is in South Africa.
“Botswana still has the lowest tax regime in the region.”