The Botswana government is pushing its fiscal limits with series of concessions that are aimed at stabilizing the economy from adverse effects caused by some measures put in place to curb the spread of coronavirus.
The latest concession came through the Finance ministry, which has made provisions for taxpayers to defer part of their tax payments, in a development that will further supress the country’s recently revised revenue forecasts, with the economic costs of the measures taken against the virus piling up.
The Finance and Economic Development minister Dr. Thapelo Matsheka has amended the Income Tax Act to allow for deferment of paying taxes for individuals and companies. The amendment forms part of the Emergency Powers Covid-19 Regulations, which were amended and passed by parliament on Wednesday.
According to the latest change, taxpayers who are expected to make tax payments for the two quarters between March and September 2020, will now be allowed to make quarterly payment of 25 percent of the tax liability, while the remaining 75 percent of the instalment will be deferred to be paid next year, between March and December 2021, without incurring any penalty interest charges.
The deferments are part of the government’s efforts to offer relief to those adversely affected by the Covid-19 pandemic. Though the country has only 23 confirmed positive cases, business activities have been severely affected by President Mokgweetsi Masisi’s April decision to place the country under a nationwide lockdown to impede the spread of the pathogen. The decision was carried out through the declaration of state of emergency (SOE).
The tax deferments will apply to afflicted taxpayers that have an annual turnover of less than P250 million and a valid tax clearance certificate. The tax postponement is not automatic as the taxpayer has to make a formal application to the Botswana Unified Revenue Services’ commissioner general for request to defer part of their tax liability. Taxpayers who have an annual turnover greater than P250 million may apply for deferments through the Finance minister, who will assess if the taxpayer’ business has been affected by Covid-19 impact to warrant a deferment.
Though the tax deferments will offer reprieve to the affected individuals and businesses, it will create further pressure on the country’s dwindling projected revenue. Already, the finance minister has reduced Botswana’s forecasted revenue for the 2020/21 financial year from P62.4 billion to P48.8 billion.
Though the revision was largely caused by minerals royalties and taxes set estimated to decline from the projected P20 billion to P12 billion, while the value added tax (VAT) which was anticipated to increase to P8.6 billion has been revised to P7.6 billion. Though the non-mineral income tax, which is made up of individual and corporate taxes, was expected to increase by 7.6 percent to P14.2 billion, this is unlikely to be. Besides the tax deferment, companies are expected to register lower earnings, resulting in decreased tax liabilities.
On the other hand, some workers have been placed on half pay while others had to rely on the government wage subsidy programme, which paid between P1,000 and P2,500. There are also fears that many will lose jobs after the SOE that bans companies from retrenching elapses.
Furthermore, Botswana’s second top revenue earner, the customs and exercise taxes, which are paid into the Southern African Custom Union (SACU) revenue pool, are expected to plunge from the forecasted P15.4 billion. The regional body, made up of five member states, Lesotho, Namibia, Swaziland and South Africa, are required to pay all the collections of customs duties, excise duty and additional duties into a Common Revenue Pool (CRP), which is the shared among members.
Botswana gets the largest share of the revenue after economic giant South Africa, but with the pandemic hindering efficiency in clearing imports, economists have warned that the SACU revenue for this year will be greatly reduced, dealing another heavy blow to Botswana.
According to Finance ministry data, the projected budget deficits are expected to grow in size, down to the shrinking revenue against growing government expenditure. The budget shortfall for the 2020/21 is now estimated to be P10.8 billion, ballooning from the P7.9 billion over expenditure registered in 2019/20 financial year, which was a slight reduction from 2018/2019’s massive P8.8 billion budget shortage.
The government has been running budget deficits since 2017/2018, with that year’s deficit recorded at P1.9 billion. Another shortfall of P4.4 billion is expected in 2021/22 but will likely be revised too in the coming months.