Thursday, October 28, 2021

Matambo throws Keorapetse’s wealth tax proposal out of the Parliamentary window

The time to impose taxation on the country’s wealthy inhabitants has not come, so says the minister responsible for Finance and Economic Development ÔÇô Kenneth Matambo.

Matambo was responding to a question in Parliament recently which was asked by Selebi Phikwe West Member of Parliament Dithapelo Keorapetse.

Keorapetse had wanted to know of the government will consider introducing wealth tax in the foreseeable future to curb the rising inequality boosting tax revenue.

In response, Matambo said Botswana’s tax regime is a progressive tax system, meaning that those who earn more are subjected to higher tax rates.

“This is one way of ensuring that wealthier tax payers contribute more to government revenue than the less wealthy ones,” the minister said. “In addition, rates that are paid to local authorities by those who own immovable properties are a form of wealth tax, even though they are currently paid only in urban areas.”

Matambo further said that the ministry considers the current taxation of wealth through taxing of income to be sufficient to generate revenue for government without overburdening taxpayers.

“There are therefore no plans to further charge more tax on the wealth of Botswana taxpayers than we are currently charging,” he said.

The difference between income and wealth tax is that income tax is a direct tax charged on the income earned by the individual while wealth tax also called capital tax is tax charged on the value of assets possessed which include bank deposits, real estate, ownership of businesses, financial securities and personal trusts.

Matambo indicated that there are other ways of adequately addressing inequalities without using the tax system. He gave an example of government subsidies and funds availed to finance underprivileged members of the society such as the youth and women. The minister’s prescription for reducing inequality is in contrast with views of proponents of wealth tax who see it as a tool to correct inequalities. Thomas Piketty, a French economist, caused a major debate with his bestselling book titled “Capital in the Twenty First Century” whose central theme is that economic inequality was worsening and proposes wealth taxes as a solution. Piketty proposed a global system of progressive wealth taxes to help reduce inequality and avoid the vast majority of wealth coming under the control of the tiny minority.

Oxfam, a top international organisation that seeks to end poverty and inequality, has recommended that to end extreme poverty, there is a need to end extreme wealth. They proposed that governments should use regulation and taxation to radically reduce levels of extreme wealth, as well as limit the influence of wealthy individuals and groups over policy making. Oxfam calls on prioritization on taxes that are disproportionately paid by the very rich, such as wealth, property, inheritance and capital gains taxes

Under Botswana’s tax regime, all individuals whose annual gross income exceeds P36, 000 are required to register as taxpayers. The progressive tax charged ranges from a minimum of 5 percent to 25 percent. The first P36, 000 is tax free, while highest marginal tax rate of 25 percent is applied to taxable income in excess of P144, 000. The country’s tax regime allows for exemption from tax for capital gains on disposal of specified assets. The exemptions apply under certain conditions.

There is no tax on capital gains realised by an individual on property, except land and buildings, which is owned by a business and on which a capital allowance under the Income Tax Act of Botswana has been granted. Tax exemption also applies to the principal private residence of an individual where such property has been owned for at least 5 years. This applies only where no similar exemption was granted during the five years immediately preceding the date of disposal. There is no tax charged on capital gains realised through sale of shares and debentures held for at least 1 year in a Botswana resident public company or traded in the Botswana Stock exchange.

While the country’s tax regime ensures that through progressive tax, those who earn more pay more, there is contention that it does little to stifle the rising inequality. In 2015 the Botswana Poverty Assessment report revealed a decrease in inequality although with a Gini coefficient of 60.5 percent, Botswana remains one of the world’s most unequal countries. The level of inequality in Botswana is the world’s third highest, after South Africa and Seychelles. But between 2002/03 and 2009/10, inequality, the Gini fell from 64.7 percent to 60.5 percent. Most of the decline occurred due to welfare improvements in rural areas, while inequality in cities increased.

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