Saturday, February 27, 2021

Too many Gov’t levies distort public finance figures ÔÇô Economists

Independent economists at Econsult, a private economic and development consultancy firm┬áhave questioned the logic behind some of the government levies and funds describing them as a ‘distortion’ of public finance figures.

Lead by the former deputy governor at Bank of Botswana, Keith Jefferies, Econsult economists, Bogolo Kenewendo and Thabelo Nemaorani note in their quarterly economic review that since most of the government levies do not go through the normal budgetary process and parliamentary scrutiny, they compromise tax efficiency and transparency.

“Keeping the levies and associated expenditures “offbudget” also distorts public finance figures, as both tax revenue and public spending are understated in the budget,” Jefferies, Kenewendo and Nemaorani note.

Available statistics show that as at 2013, there were 37 special funds in existence, nine of which are financed through levies that the government imposes on different activities. Amongst the key levies and funds that the government has set up are the alcohol, Road Collection, The National Electrification Special Fund and the Vocational Training Levy.

Econsult experts say that apart from the lack of transparency in expenditure related to these funds, there is a concern from the business community that there are too many levies, making it costly to do business in Botswana.

“For instance, the effective tax burden on individuals and non-mining firms, taking into account these levies is 12.8 percent higher than implied by income and profits taxes alone,” the Q3 economic review states.

The Econsult think-tanks further noted that while it may be a valid social objective for government to choose to subsidise rural electrification, this should be financed from general tax revenues, having compared the merits of this spending against other demands on the public purse.

The economical experts are of the view that financing rural electrification through a tax on industrial users and urban households is inappropriate, and further undermines the competitiveness of businesses in Botswana.

The Econsult economists, who are well known as experts on the domestic economy, and as well have extensive experience in the SADC region advised that, “At a minimum, the existing levies should be brought into the budget so that both the revenue raised and the expenditures made are subject to normal public finance accountability.”

The review further notes that, in general, such ring-fenced “special funds” are considered to be inefficient from a public finance perspective, especially when the expenditures benefit a different group from those who contributed the revenue.

“Best practice in public finance is that taxation and expenditure decisions are separated, and that both should go through the budget rather than being handled through off-budget processes.”

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