Tuesday, January 26, 2021

Levies increase the cost of doing business

The most common complaint about the unprecedented number of levies in Botswana (which are in effect a form of taxation) is that they hit consumers in the pocket. An analysis done by Imani Development (International), a South African consultancy, adds another dimension – that they are driving up the cost of doing business in the country.

To be clear, the country has always had levies but the current administration put them under controversial focus when it introduced the alcohol levy in 2008 as part of its crusade against alcohol (ab)use. This year alone has seen the introduction of two more levies – one on tobacco, another on cellular network companies.

After interviewing local stakeholders and representatives from Botswana Confederation of Commerce, Industry and Manpower (BOCCIM), Imani found that the levies are increasing the cost of doing business. There is likelihood that this will affect the country’s Doing Business rankings. In the 2014 rankings, Botswana was at position 56, an improvement from its 2013 ranking when it was nine places down.

The effectiveness and economic wisdom of the levies has been questioned by some people. A 2014 first quarter economic review from Econsult Botswana says that since the levies do not go through the normal budgetary process and legislative scrutiny, they compromise tax efficiency and transparency.

“Some stakeholders argue that the funds collected from the levies are utilised without fully involving those who contribute, such as the private sector, and as a result channels of accountability have become blurred. The lax tax system and lack of transparency also provides an opportunity for exploitation,” Econsult said.

When a 30 percent levy on tobacco was introduced in February this year, the CEO of the Tobacco Institute of Southern Africa, Francois van der Merwe, had a lot to complain about. He said that this action would enable illicit operators to sell their products at substantially lower prices than the legal products on which the levies and taxes are paid.

“The playing field becomes uneven with government losing revenue and the legal tobacco industry losing market share. Illicit trade already accounts for more than 30 percent in the South African market which costs the South African fiscus R5 billion per year,” said van der Merwe. He added that this would have a direct impact on the income received by Botswana in terms of the Revenue Sharing Agreement of the Southern African Customs Union.

A study conducted by Anja Mirkovic of the Associated Colleges of the Midwest, Lake Forest College, Lake Forest, Illinois and the University of Botswana, found that the alcohol levy was not working as intended. Paired with the levy was reduction in the trading hours of places that sell alcohol, namely bars and nightclubs. The study found that “Batswana tend to consume the same amount of alcohol regardless of the price and working hours of liquor stores.”

The Imani study also found that Botswana’s lack of skilled labour is costly to business: “Across all sectors there are insufficient skills and graduates are not job-ready. This, therefore, requires companies to train the employees on even the basics such as basic computer skills.”

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