Monday, October 26, 2020

Covid-19 hits Batswana in the pocket

Botswana taxpayers are expected to bear the brunt of the COVID-19 as government announces a raft of cost recovery measures to mitigate the impact of the pandemic on the economy – a document prepared by the Ministry of Finance and Economic Development has revealed.

The document titled: “Economic and Transformation Recovery Plan (ERTP) 2020/21 – 2022/23, Final for Parliament July,” details how the government intends to rebuild the economy which is reeling from the effects of COVID-19 by raising funds among others hiking various kinds of taxes.

Among the proposals include adjustment of VAT proposed to increase VAT to 13 percent in April 2020/2021 and 14 percent in April 2022/2023, combined with a substantial scaling down of zero-rated and exempted items.

The government also intends “Increasing withholding tax rates (e.g. on dividends and interest payments received) from April 2021” as well as “Introducing Electronic Billing Machines (EBMs) for VAT-registered entities to improve tax compliance and collection efficiency.”

The government is also “Considering the introduction of carbon taxes; raising the fuel tax and other levies on road users, during the 2020/21 financial year, Electricity and Water tariffs to be progressively raised to market levels within a specified period (say 3 years).”

According to the document, this should reduce the need for government financial support and allow parastatals to raise funds in the market on the strength of their own balance sheets. Some of the identified corporations are cash strapped Botswana Power Corporation (BPC) and Water Utilities Corporation (WUC).

The document states further that “Cost-sharing and cost-recovery should be revamped post COVID-19 without compromising inclusivity. Those able to pay should bear a greater portion of the cost of providing public services by Government pay, through means-tested user fees.”

It shows that “Education is one area that could be considered, but the principle could be extended to some components of health care, Expand coverage of taxes (for example, unused land, updating of property valuations) and reduction of exemptions and Enhancing the ability of local authorities to meet more of their financial needs,

by generating more revenues or potentially by borrowing.”

The document says that a priority will be to extend the scope of property taxes (rates) and ensure updated and realistic property valuations and implement efficient collection procedures.

The financing gap can also be filled by reducing expenditures, such as rationalising subsidies to the agriculture sector to target support for medium and large-scale producers and cluster infrastructure and services (but ensuring that subsidies do not become indefinite or unsustainable), and away from subsistence farmers.

“More generally, subsidies should be rationalised and reduced, reducing subventions to parastatals following rationalization and rationalising and targeting social welfare schemes,” the document says.

The document further shows that overall expenditure for the ERTP will be more than P18 billion for the next financial year. It is proposed that an amount of P14.5 billion is allocated as additional fiscal resources for the ERTP.

“This amount is in addition to the P4 billion allocated to the short-term fiscal stimulus package already implemented. The total amount of P18.5 billion is equivalent to approximately 10 percent of 2020/21 GDP. ERTP spending will be spread over the remaining years of NDP 11, i.e. from 2020/21 to 2022/23,” reads the document in part.

Most of this amount will be devoted to additional development spending. The amounts allocated will be tentatively distributed as follows: P0.5 billion for2020/21, P7 billion for 2021/22 and for 2022/23 the cost will be P7 billion.

The document says an initial response to COVID-19 was to withhold some budgeted expenditure, to align with revenue flows that had been dramatically reduced by COVID. In the face of falling revenues in the current financial year (2020/21), the responsible Minister invoked Section 28 of the Public Finance Management Act to withhold spending warrants, to manage the emerging crisis.

“Since that time, there has been a slight improvement in projected mineral revenues for 2020/21. In addition, provision has been made for additional borrowing to finance the medium-term economic stimulus programme. Hence, the original expenditure for 2020/21, which was partially withheld in April 2020 as part of prudent financial management, has since been largely restored,” the document says.

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