The Botswana Unified Revenue Service (BURS) collected P35.335 billion during the 2015/16 financial year. The collection exceed the tax revenue target of P34,694 set by government by P641 million or 1.85% for the year under review.
These figures emerge from the BURS 2016 annual report tabled by the Minister of Finance and Economic Development, Kenneth Matambo this week for the Botswana Unified Revenue Service (BURS) Annual Report for the financial year ended 31st March, 2016. According to the report, the tax revenue collected in 2015/16 reflects a decline of 5.75% when compared to the P37.489 billion that was collected in 2014/15. It states that this decline is due to weak performance across the mining sector which resulted in a decline of income tax collections from P15.884 billion in 2014/15 to P13.832 billion in 2015/16. Furthermore, the report suggests that despite surpassing the target by 4.66%, the VAT collection declined by 3.76% while SACU receipts increased by 0.8% compared to the previous year.
Cost of Collection up
For the financial year 2015/16, BURS spent P534.079 million to collect P35.335 billion which translates into a cost to collection ratio of P1.00/P66.16. “This means for every P1.00 that BURS spent; the benefit to the Government in return was P66.16. Compared to the previous year’s cost to collection ratio which was P1/P79.85, this indicates a significant ratio decrease amounting to P13.69 collected per Pula spent. The decrease was due to the unsatisfactory economic performance which yielded less revenue and to the increase in the cost of goods & services.”
Tax Revenue as a Percentage of GDP
The report of the Commissioner General, Ken Morris informs that as a percentage of GDP, tax revenue collections showed an upward and consistent growth from 2010/11 from 20.9% to 25.4% in 2014/15. It further states that over the period since inception tax revenues as a percentage of GDP have been hovering around an average of 25%, generally indicating that the collections are roughly following the growth of the Gross Domestic Product (GDP). However, for the 2015/16 financial year tax revenue as percentage of GDP went down to 23.5% from 25.4% in the previous year.
Tax Revenue Collection declined
According to the report, tax revenue declined from P37.489 billion to P35.335 billion for the period under review. The decline in revenue collection is attributable to income tax which fell from P15.884 billion in 2014/15 to P13.832 in 2015/16. VAT also contributed to the decrease of the collection by falling from P5.907 billion to P5.685 billion as depicted in Figure 4.
Income Tax Revenue Collection
“Income tax revenue collection for the year is derived from different sources. The major source of the tax collection is from the Assessed tax whose contribution to the total collection was 50.12% followed by deducted tax which contributed 35.97%. Assessed tax registered a significant decrease of 27% due to the poor performance of the Mining sector which resulted in lower tax revenue assessed than in 2014/15,” states the BURS annual report.
Value Added Tax Revenue collection
The 2016 BURS annual report indicates that the gross VAT collection for the reporting period was P8.495 billion while the total VAT refunds paid to taxpayers amounted to P2.810 billion resulting in the net collection of P5.685 billion. “The major contributor to the total VAT is Import VAT since Botswana is a net importer. For the period under review import VAT and Internal VAT increased by 1.03% and 0.71% respectively while all other sources went down with penalties going down by a significant margin implying an improvement in compliance. The refunds went up by 9.67% compared to a 12.6% decrease in the previous year.”
SACU Revenue Shares
One of the biggest revenue earners for Botswana is the SACU revenue shares. The BURS annual report records that the total SACU Revenue Pool for Year under review was R88.898 billion. It notes that this was a slight decrease from the 2014/15 Pool which amounted to R89.201 billion. Despite this decrease, Botswana’s share from the Pool stood at R20.039 billion in 2015/16 compared to R19.276 in 2014/15, represents an increase of R763 million or 4%. SACU receipts continue to be an important source of revenue for the Government of Botswana, reports Commissioner General, Ken Morris.
Collections for Government Departments
The 2016 Annual report informs that during the period under review, BURS collected P507.9 million on behalf of Government departments and agencies compared to P475.4 million in the previous year as shown in Table 5 below. It further shares that a larger part of the collections came from the Alcohol Levy and Transport Permits which accounted for 64.1% and 23.8% respectively (compared to 62.8% and 22.4% respectively in 2014/15).
“Tobacco Levy which was introduced in the 2014/15 financial year contributed 9.4% in its first year of collection which was more than the 7.8% it contributed during 2015/16. The increase in Alcohol levy collection was occasioned by a change in the formula for calculating levy by including Excise duty on locally produced alcoholic beverages and therefore resulting in an increase in the tax base and hence an increase in levy collections,” reads the report. The BURS report states that the other contributing factor was the increase of the levy rate from 50% to 55% for alcohol beverages with an alcohol content of more than 5%. In case of Transport Permits, the increase was a result of an increase in the volume of foreign registered vehicles which entered Botswana during the reporting period
The state of the economy
The chairman of the BURS, Dr Taofila Nyamadzabo, in his Chairman’s Report indicates that for the period under review, the economy continued to face challenges, emanating from lower external demand for Botswana’s mineral exports mainly due to the continued weak recovery of the global economy and lower commodity prices.
“As a result, the country continued to experience slower growth in Gross Domestic Product (GDP). Nominal GDP recorded an increase of 0.3% from P148.0 billion in 2014/15 to P148.4 billion in 2015/16 driven mainly by General Government (12.6%), Finance and Business Service (11.6%), Transport and Communication (11.5%) and Construction (10.4%). As a consequence, the proportion of tax revenue to GDP slightly decreased from 23.6% to 23.5%,” he writes. Dr Nyamadzabo says real GDP declined by 2.0% from P88.2 billion in 2014/15 to P86.4 billion in 2015/16 mainly due to a drop in the performance of the Mining sector by 21.3% and Trade, Hotels and Restaurants sector by (3.3%).
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Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”