IMF Looks For Botswana To Expand Tax Base

by Lorys Charalambous, Tax-News.com, Cyprus

17 July 2014

At the conclusion of its 2014 Article IV Consultation with Botswana, the International Monetary fund (IMF) recommended that, in order to achieve its medium-term fiscal consolidation objectives, the Government will need to broaden the country's tax revenue base.

The IMF considered that the Government's gradual fiscal consolidation strategy – to bring Botswana's non-mineral primary balance closer to what is considered its long-term sustainable level of about 5 percent of non-mineral gross domestic product – is appropriate given the uncertain external environment. However, it said, that would require, for example, the implementation of concrete measures to broaden the tax base.

While the change in the value added tax (VAT) registration threshold, from BWP500,000 (USD56,450) to BWP1m, introduced in the 2014/15 budget will support the objective to simplify the existing tax system, the IMF suggested that the further VAT exemptions (on all farming equipment and additional basic food items) therein could also undermine the Government's objective of broadening Botswana's tax base.

The IMF saw a general need for the Government "to rationalize existing tax incentives and avoid granting unwarranted preferential tax regimes for businesses. Given the recent improvements in Botswana Unified Revenue Service's information technology system, it believed that a comprehensive study on tax expenditures, that would inform policymakers about the magnitude of tax revenue that is lost through tax incentives, can now be done easily and should be of high priority for the Government."

"The estimated value of the forgone tax revenues of the existing tax incentives," it added, "should also provide a solid foundation for future policy decisions on net reductions in tax expenditures."

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