The proposed blanket exemption from income tax for the Botswana Meat Commission (BMC) could boost the state processing body which currently faces cashflow and debt problems.
At present, BMC is taxable at 15% on its taxable income that is the net of its gross income and some deductible expenses. The commission owes farmers huge amounts due to a costly short term financing model which is worsened by delayed sales proceeds.
BMC’s debt currently stands at P769million as well as the P569 million that was accrued during the EU delisting. The meat commission made a loss of P302 million in 2012 and a profit of P30.11 million in 2013. Meanwhile parliament has approved a P300million supplementary fund to boost the meat commision.
The highly contested bill as soon as it becomes law, which could be anytime from now, it, will exempt BMC from tax retrospectively.
“Providing BMC with a blanket income tax exemption simply entails that it will be able to retain more of its net earnings than before. It could then use the amount that it would otherwise pay as tax to finance its investments or operational activities. This should come handy to the company at a time when it has been reported that it was facing serious cash flow challenges,” highlighted Fungai Gore a tax expert.
Gore highlighted that the 15% tax that’s being paid by BMC had increased its costs and ultimately affecting its bottom-line profits. “The bill is designed to cushion BMC as it breaks into profits. BMC can now keep the money for tax and plough it back,” he said.
The bill seeks to introduce a 4% withholding tax on payments made by any person in business to any farmer who sells livestock for slaughter or where such livestock will be fed before being slaughtered. Therefore BMC will deduct withholding tax from all those who supply it with livestock for slaughter.
“The deduction of the withholding tax on BMC would have otherwise worsened its cashflows, further compounding its challenges, noted Gore.
As per the proposed bill, BMC will be exempt from tax; it will not ideally suffer the withholding tax if it sells livestock for slaughter to third parties. “This simply means that whilst BMC will deduct 4% withholding tax from those who supply it with livestock, it should not suffer the tax when it sells to its clients,” he added.
With Gender Based Violence (GBV) cases worsening by the day, cabinet is still moving at a snail’s pace in setting-up an Inter-Ministerial Committee (IMC) as agreed by parliament last month.
Parliament made a resolution that the President should set-up a Special Inter-Ministerial Committee of inquiry on GBV, rape and other sexual offences as a matter of urgency. The establishment of the IMC is aimed at dealing with GBV by gathering information and making recommendations that would assist in amending the current laws.
Stanbic Bank Botswana Quarterly Economic Review indicates that Botswana will fail to meet some of its Vision 2036 targets, particularly unemployment reduction and reaching high-income status.
The report says this is mainly due to the slow economic growth that the country is currently experiencing. This Quarterly Economic Review focuses on the 2020 Budget Speech.
The first paper reviews the entire budget with its key observations being that this budget is prepared as prescribed by the Public Finance Management Act; the priorities it seeks to address are drawn from Vision 2036 and the eleventh
The 2020 budget Speech, which was the maiden speech by the Minister of Finance and Economic Development, Dr. Thapelo Matsheka, and the first after the 2019 general elections, was delivered to Parliament on the 4th of February 2020.
It has been well received by the labour unions, business community, and the public at large as well as international organisations such as the International Monetary Fund (IMF).
It mainly derived its support from key facets including, emphasis on changing the business-as-usual approach to development; outlining the transformation agenda; fiscal reform that minimizes the negative impact on economic development and human welfare, competiveness and the decision to implement the 2019 negotiated and agreed public sector.
The budget’s progress review shows that economic growth was consistent with the NDP 11 projections, with growth of around 4 percent. At this growth rate, the country would neither ascend to a high-income status nor reduce unemployment towards the Vision 2036 target of a single digit.
Simple calculations of this review confirm that the economy will need to grow the Vision 2036’s target of 6 percent over the next 16 years for per capita income to increase from around USD 8,000.00 to above USD 12,000.00 in current prices.
Further, the population is anticipated to grow by only 2 percent per annum.
For this reason, the focal areas for the forthcoming FY’s budget include measures to increase economic growth towards an average of 6 percent per annum.
Economic diversification is reportedly progressing fairly well. The report says, the share of the non-mining private sector in value added has risen to 66 percent in 2018 from to 63 percent in 2015.
The sectoral pattern of growth showed that the performance of services sector (particularly transport & communications, trade, hotels & restaurants, and finance & business services) has been the silver lining and that of mining sector was subdued whilst the utility sector disappointed.
The drive towards the service sector of the economy, especially to low-productivity activities (tourism, public administration, wholesaling and retailing) does not bode well for the country’s development aspirations.
In the previous versions of this Quarterly Review, it was noted that there is need for the rethinking of economic diversification. Since the country’s domestic market is small, it is inevitable that economic diversification not only focus on broadening the product mix, but also the composition of exports and markets.
This understanding of economic diversification has not been embraced by this year’s budget. Consequently, Botswana’s exports are still overwhelmingly diamonds, which means that the rest of economic sectors are still highly dependent on foreign-exchange earnings from diamonds. Thus, “the transformation programme requires a review of the country’s entire ecosystem”.
The budget review of the economic context also depicts that an economy with positive medium-term prospects, with growth expected to recover to 4.4 percent in 2020 from the expected growth of 36 percent in 2019 largely due to faster growth of services sectors and, thereafter, to slow-down to 4 percent in 2021.
These projected growth rates are comparable to those of the IMF staff’s baseline scenario of 4.2 percent in 2020 and 4 percent in 2021. Thus, the business-as-usual scenario produces growth rates that are still too low to achieve Botswana’s development objectives and create enough jobs to absorb the new entrants into the labour market.
Trade tensions between the two major markets for diamond exports, viz., the United States of America and China, is one of the factors that are cited as contributing to, indeed, undermining not only the domestic growth, but also the fiscal position.
Another notable downside risk to both global and domestic growth is outbreak of the coronavirus in China around January 2020. This has been declared as a global health emergency. In an attempt to contain the spread of the novel coronavirus pneumonia, the Chinese authorities have ordered city lockdowns and extended holidays, of course, at the expense of near- term economic growth, according to the new Stanbic Bank Botswana report.
According to Nomura Holdings Inc., fewer migrant workers returned for work than in previous years and business activities have been slow to pick up. The havoc wreaked by the virus on the world’s second largest economy is likely to spill over to the global economy. In fact, it has resulted in a glut in crude oil and, thereby placed oil markets into a contango, i.e., a market structure where near-term prices trade at a discount to future contracts.
It also presents significant risks one of Botswana’s main drivers of economic growth, diversification and foreign exchange earnings. According to the Financial Times (February 13, 2020), Chinese tourists spent $130 billion overseas in 2018. Regardless of whether the growth materializes, the projected domestic growth rate would not transform the economy to a high-income one.
Progress towards reduction of unemployment, to a target of single digit, and poverty and achieving inclusive growth has also been relatively slow, the Stanbic Bank Botswana Review says.