Friday, September 25, 2020

Taxing times

The weight in the atmosphere inside the Parliament chamber was extraordinary. By the look on his face, the slope of his shoulders and the tone of his words, it seemed the Minister of Finance and Development Planning, Kenneth Matambo, was presenting his maiden budget speech under a hefty burden. Scores of invited guests seated in the public gallery must have lost count of the number of times the minister used the word “crisis.”
“It was like a funeral inside parliament,” intoned Gowenius Toka, The Telegraph reporter who covered the budget speech.

Not surprising, Matambo knew he would meet more howls of anguish than cheers of joy when he stepped out of the podium.

Behind high screen walls and manicured laws in the up market paved streets of Phakalane, legions of investors were probably sobbing into their caviar and glasses of single malt whisky as their plasma television screens beamed news of Matambo’s new tax structure.

Shareholders who have been paying 25% on a bumper year will see their taxes going up by 7, 5% even when they decide to declare a dividend of less than two thirds.

“I will also be tabling a proposal concerning the company taxes. The
current system of a company tax rate of 15 percent plus a 10 percent additional company tax rate is unnecessarily complicated as it requires companies to keep track of two types of taxes as well as the amount of the additional company tax that has not been off-set against the 15 percent withholding tax on dividends. I propose to abolish the two-tier corporate tax system, effective 1st July 2010, to be replaced by a final company tax rate of 25 percent. Companies designated as manufacturing and IFSC registered companies will continue to be taxed at a company rate of 15 percent. I also propose that the final withholding tax on dividends paid to residents and non-residents be reduced from 15 percent to 7.5 percent. The combined effect of these proposals will be an increase in non-mineral income tax revenue of about 5 percent,” said the minister.

There will be no squeals of joy from the government enclave either. Scores of civil servants will probably be scouring the “vacancies” advertising sections of local newspapers for jobs in the private sector after an apologetic Matambo announced that there will be no salary increases in the public service.

“The National Employment, Manpower and Incomes Council (NEMIC), whose mandate includes advising Government on remuneration of the Public Service, met on 1st February 2010 to consider a cost of living adjustment for the public sector. In making their recommendation, the Council took into account the tight budgetary outlook, as well as the need to maintain long term sustainability and jobs. Council has recommended that there be no Public Sector cost of living adjustment during the 2010/11 financial year. In light of the fact that Government’s revenues have not yet recovered to pre-recession levels, while public sector employment is not contracting, Government has accepted that there will be no cost of living adjustment during the 2010/11 financial year.

“The Public Service is no doubt one of the most valuable resources in
driving our economy. Public servants have contributed immensely in developing this country over the years.

As we continue efforts to further expand diversify and transform this economy, the role of the public service will become more critical. To that end, Government will continually engage with the relevant public and/or other employee representatives and stakeholders in developing and putting in place ways to improve the working conditions, including salaries, of the Public Service. All these factors, as well as the budgetary outlook and affordability are taken into consideration when Government considers public sector salaries. Should the economic situation improve, the adjustment of public sector salaries will be considered,” he said.

Most households will also have to review their month end shopping list following a 2% increase in Value Added Tax (VAT). Matambo told Parliament that, “I propose to increase the Value Added Tax rate from 10 to 12 percent, effective 1st April 2010 and to raise the threshold for VAT registration from P250 000 to P500 000.”

Matambo further explained that “a number of adjustments will be required. Several fees and levies that have not kept up with the costs of providing the associated services will be adjusted accordingly. The requirement that commercial parastatals pay 25 percent of their profits to Government will be strictly enforced.”

Matambo prefaced his maiden budget speech by introducing the theme: “Transforming our Economy after the Crisis: 2010 and Beyond”.

He explained that the theme “recognizes that, due to the recent global financial and economic crisis, Botswana experienced an unprecedented loss of national income. Global demand plunged, particularly for luxury goods such as diamonds, and so did Government revenue that we use to finance development initiatives. The crisis therefore threatens to stall the hard earned progress that we have made towards achieving the aspirations of Vision 2016 as well as the Millennium Development Goals.”

He further explained that this year’s budget is set within the framework of the tenth National Development Plan (NDP 10) which has been approved by Parliament and forecasts a cumulative deficit of P31.9 billion in constant prices.

“The deficit which I will propose for 2010/11 and that of the current financial year, will together absorb most of the approved NDP 10 deficit. It follows, therefore, that adjustments must be made to ensure that there is a net surplus for the remaining years of NDP 10. However, to achieve such surpluses immediately would place extreme strain on our public sector. I am therefore, instead, proposing to initiate changes in our NDP 10 budget forecast which will turn the situation around, and restore sustainability in our public finances over the medium term.”

He said that in moving the country’s development agenda forward, care needs to be taken not to overburden the future economic pathway with too much debt, which becomes the first call on future revenues.

“Therefore, Government must exercise caution in borrowing and in the use of accumulated cash reserves to finance development initiatives. Every project must more than pay for itself, in terms of current and future benefit, to justify the extra cost of borrowing.”


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