Botswana’s share from the regional SACU Revenue Pool declined significantly in the 2016/17 financial year due to the pool itself going down by 12 percent from the previous financial year. SACU Revenue Pool is another important revenue earner for government along with mineral revenues and other taxes such as income taxes.
The Southern African Customs Union (SACU) is a five-state member customs union made of Botswana, Namibia, Lesotho, Swaziland and South Africa.
All members of the Union are required to pay all the collections of customs duties, excise duty and additional duties into a Common Revenue Pool (CRP).
During the 2016/17 financial year, BURS Commissioner General Ken Morris says Botswana collected and deposited an amount of P417.5 million into the pool, a decrease when compared with P587 million collected and paid into CPR in the prior year.
The decline represents 40.6 percent or P169.5 million which is attributed to the general tariff reduction commitments made under the World Trade Organisation (WTO) as well as a drop in the production of excisable products such as alcoholic beverages and tobacco products.
This meant that the share of Botswana from the pool for the immediate past financial year stood at P12.6 billion, from P16.2 billion from the previous financial year. The revenue pool has itself seen a decrease of 12.1 percent, from P72.1 billion in 2015/16 to P64.3 billion in 2016/17 financial year.
Even though Botswana’s share from CRP dropped by a massive 29 percent from the pool, the country is the second largest earner from the regional revenue pool having taken 19.6 percent of the total percentage of the pool.
The largest earner from the pool is South Africa which P32.4 billion from CPR, representing 50.3 percent of the total revenue pool.
An expert in tax issues says the decline in the SACU receipts is primarily due to a dip in business confidence in South Africa mainly arising from the maladministration of former president, Jacob Zuma.
“Companies reduced spending, and consequently, imports were affected as they were uncertain of the future. Some of them were in fact taking money out of the country in readiness for the worst,” said Jonathan Hore, a managing tax consultant at Aupracon Tax Specialists.
Hore said in an interview that a decline in revenue for the Botswana government simply means that government’s capability to spend is restricted, which translates in reduction in the provision of public good to the ordinary man on the street, i.e. reduced spending on public infrastructure and provision of services such as health and education.
This therefore slows down economic growth and social amenities development, according to Hore.
“In simple, if government wanted to build 10 more hospitals, they may have to cut down to six or so, due to budgetary constraints. They have also been some calls for government to reduce the amount it spends on student sponsorships abroad, as a way of cutting spending. In summary, the citizen and resident of Botswana receives less of amenities from government,” he explained.
Hore said reduced income simply puts the Ministry of Finance and Economic Development under pressure to cover the budgetary deficit that arises from that reduction through any means possible.
“As a result, the Minister has over the past two budget presentations echoed the need to find other ways of increasing revenue”.
Hore said the Transfer Pricing legislation which is currently being crafted is expected to increase government collections. But this, he says is subject to other factors like BURS being able to capacitate its staff members to be able to carry out transfer pricing audits.
But the easy way to increase revenue he says would be to lift the rate of VAT from 12 percent to say 14 percent or 15 percent, just like South Africa did this year to cover its deficits.
“Such moves are however inflationary, and they mostly hurt the low income earners and are likely to hurt economic growth in the short term. Prominent economists and business leaders urged the minister to increase the VAT rate to cover for the pressures arising from declines in revenue”.
Whilst increasing the VAT rate is not desirable, Hore says it is slowly becoming a possible way of raising revenue mainly due to the campaigns made by prominent business experts.
SACU receipts are one of the key revenue streams for government and in the 2016/2017 financial year, minister of finance Kenneth Matambo cited SACU revenue as being the country’s second revenue earner, after diamond income.
In total, BURS which is tax collecting agency and collects on behalf of government collected tax revenue amounting to P35.9 billion during the year under review compared to P35.3 billion collected during the 2015/16 financial year.
“The collection exceeded the original target of P32.337 billion by P3.471 billion and the revised target of P34.787 billion meaning that the excess collection was reduced to P1.021 billion,” Commissioner General, Morris said.
Morris said the collection for 2016/17 also shows an increase of P473 million when compared to the previous year’s collection. The increase is attributed to the strong perfomance of Income Tax and Value Added Tax (VAT).
Income Tax increased by P3.864 billion from P13.832 billion to P17.696 billion and the good performance is said to be due to the improved performance of the mining sector.
VAT collections, on the other hand, went up from P5.685 billion in 2015/16 to P6.339 billion during the period under review, but despite the good performance, VAT collections were lower than the approved target for the year by P1.189 billion. The improvement of VAT, Morris said, was due to the increase in demand for goods and services, whilst the target shortfall was a result of refunds.
Figures show that since inception BURS has recorded a steady increase in revenue collection annually rising from P11.822 billion during the 2005/6 period to P35.808 billion for the year under review.
This is with exception to the 2015/16 financial year when tax revenue collection was P35.335 billion having dropped from P37.489 billion which is also the highest amount collected in the history of BURS.