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Weak mining sector pulls down tax revenue

The 2016 Botswana Unified Revenue Services (BURS) Annual report has revealed that the weak performance of the mining industry plugged the tax revenue collection into a decline.

 

The BURS collected P35.335 billion during the 2015/16 financial year, although the collection exceeded the tax revenue target of P34,694 set by government by P641 million or 1.85% for the year under review, it was a significant drop in value terms. 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. 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.


Writing in his Commissioner General’s review, Mr Ken Morris states 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. 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,” he stated.


Tax Revenue as a Percentage of GDP

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. 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, the BURS annual report captures that for the 2015/16 financial year tax revenue as percentage of GDP went down to 23.5% from 25.4% in the previous year.

Comparison of Tax Revenue Collection with the Previous Year

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.

Income Tax Revenue Collection

Income tax revenue collection for the year is derived from different sources as shown in the table below. 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.

Value Added Tax Revenue collection

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

The total SACU Revenue Pool for Year under review was R88.898 billion. 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, which represents an increase of R763 million or 4%. SACU receipts continue to be an important source of revenue for the Government of Botswana.

Customs and Excise Duty Collections

As a member of SACU, Botswana like other SACU Members is expected to pay all the collections of customs, excise and additional duties into a Common Revenue Pool (CRP). During the year under review, Botswana collected and paid a total amount of
P451.1 million into the CRP compared to P330.5 million which was collected in the previous financial year. This represents an increase of P121.6 million. This substantial increase was mainly due to significant increases in Excise duty and Additional duty.

Collections on Behalf of Government Departments

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. 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.

 

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.

Customs and Excise Duty Collections

As a member of SACU, Botswana like other SACU Members is expected to pay all the collections of customs, excise and additional duties into a Common Revenue Pool (CRP). During the year under review, Botswana collected and paid a total amount of
P451.1 million into the CRP compared to P330.5 million which was collected in the previous financial year. This represents an increase of P121.6 million. This substantial increase was mainly due to significant increases in Excise duty and Additional duty.

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