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Why consumers may not benefit from tax relief

Traders could hike prices of affected products

The recent changes on the Value Added Tax (VAT) Act come as good news to the consumer as the zero-rating of basic foodstuffs is expected to make the goods more affordable as the 12% VAT component charged by suppliers has been done away with.


Good news as it may seem Tax experts are of the view that the benefits may not cascade down to the ordinary consumer due to a number of factors.


The zero rating of items is a mechanism by which any VAT included in the cost of an item can be removed to make it more affordable for the consumer. This is achieved by the seller levying VAT on the sales price at the rate of zero per cent, but the seller may claim any VAT incurred on the acquisition or manufacture of the product and related overhead costs as an input tax deduction.


Presenting the national budget last year, the Minister of Finance and Development Planning Kenneth Matambo said the objective of amending the VAT Act is to allow the intake of balanced meals for families.


With this new amendment a loaf of bread that was costing P9.00 should now cost P8.04.


The food stuff that have been zero-rated from VAT include Brown bread, Fresh vegetables (in natural state), Fresh fruits (in natural state), Rice (husked, milled, polished, glazed, parboiled or broken), Samp (not further prepared/ processed), Milk (cattle, sheep or goat milk not concentrated, condensed, evaporated ,sweetened, flavoured or cultured),Bread flour (white, brown or whole wheat).


Similarly, all businesses that are registered but have an annual turnover of less than P1, 000,000 should arrange with BURS for the necessary deregistration in compliance with the new amendments.


Tax experts have welcomed the amendment saying they make basic foodstuffs more affordable and this will also make VAT administration easier as the number of VAT registrants will decrease, allowing BURS to strategically channel its resources. However they highlighted that these benefits may likely not reach the consumer due to other factors.


Max Marinelli the Country Managing Partner with Deloitte & Touche  welcomed this move by the government saying the VAT  amendment brings Botswana into line with other countries that zero-rate VAT on basic foodstuffs.


“The zero rating of basic food stuffs is good news to the consumer however he said what’s more worrisome is that, apparently the milling companies have put their prices up plus the recent devaluation of the Pula may negate this benefit,” said Marinelli.


Matambo recently changed the weights in the Pula basket to 50 percent South African rand and 50 percent IMF’s Special Drawing Rights (SDR). The basket previously comprised 55 percent rand and 45 percent SDR. For 2015, the rate of crawl of the Pula against the basket will be zero.


Tax Manager with BDO an Accounting and Tax Advisory firm Watson Masikati said generally, the spirit behind the amendments is good however the benefit to the consumer is a debatable issue because other factors may come into pay.


“It remains to be seen though if the business people’s behavior will be in line with the intention behind these changes. Like in this case retailers can simply take away the benefit from ordinary consumers by increasing the prices of the affected products then they pocket the profit,” said Masikati.


 Furthermore, he said there is definitely a time lag between effective date of the law which is 23 January 2015 and practical implementation especially with these changes which are so immediate it’s not guaranteed that the benefits will filter to the consumer.


He added that the timing of the effective date of these changes is a headache to business people because they were not given enough time to change their systems in compliance with the amendments.


 “Some companies have sub-contracted maintenance of their systems to third parties who need time to appreciate the products affected and some of these systems people are not in Botswana which further complicates the implementation of the changes,” he said.


 Masikati also noted that there is a downside of deregistration though for those who may want to. He said the VAT that an unregistered vendor pays on the goods she sells becomes a cost to him/her because he got nowhere to claim the VAT charged by his/her suppliers. 

“Practically it follows that such a vendor upon de-registering their merchandise become more expensive compared to registered vendors who claim the VAT charged by suppliers against VAT they charge their customers,” said Masikati.


Generally, revenue to the government will definitely be reduced because consumers are no longer contributing the 12% VAT on these goods which have been zero-rated.


 “The biggest question though is to what extend does the government lose revenue which is difficult to quantify. We wait to see if there will be no unfavorable tax proposals when the Minister makes his budget speech in a few weeks hopefully,” said Masikati.


 The experts say from BURS side the increase in VAT registration thresholds will definitely reduce the burden of chasing after small enterprises whose contribution to the national revenue is small as such they can focus on major contributors.

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Debswana-Botswana Oil P8 billion fuel partnership to create 100 jobs

18th May 2022
Head-of-Stakeholder-Relations

The partnership between Debswana and Botswana Oil Limited (BOL) which was announced a fortnight ago will create under 100 direct jobs, and scores of job opportunities for citizens in the value chain activities.

In a major milestone, Debswana and BOL jointly announced that the fuel supply to Debswana, which was in the past serviced by foreign companies, will now be reserved for citizen companies. The total value of the project is P8 billion, spanning a period of five years.

“About 88 direct jobs will be created through the partnership. These include some jobs which will be transferred from the current supplier to the new partnership,” Matida Mmipi, Head of Stakeholder Relations at Botswana Oil, told BusinessPost.

“We believe this partnership will become a blueprint for other citizen initiatives, even in other sectors of the economy. Furthermore, this partnership has succeeded in unlocking opportunities that never existed for ordinary citizens who aspire to grow and do business with big companies like Debswana.”

Mmipi said through this partnership, BOL and Debswana intend to impact citizen owned companies in the fuel supply value chain that include transportation, supply, facilities maintenance, engineering, customs clearance, trucks stops and its support activities such as workshop / maintenance, tyre services, truck wash bays among others.

“The number of companies to be on-boarded will be determined by the economics at the time of engagement,” she said. BOL will play a facilitatory role of handholding and assisting emerging citizen-owned fuel supply and fuel transportation companies to supply Debswana’s Jwaneng and Orapa Letlhakane Damtshaa (OLDM) mines with diesel and petrol for their operations.

“BOL expects to increase citizen companies’ market share in the fuel supply and transportation industries, which have over the years been dominated by foreign-owned suppliers. Consequently, the agreement will also ensure security of supply for Debswana operations, which are a mainstay of the Botswana economy,” Mmipi said.

“Furthermore, BOL will, under this agreement, transfer skills to citizen suppliers and transporters during the contract period and ensure delivery of competent and skilled citizen suppliers and transport companies upon completion of the agreement.”

Mmipi said the capacitating by BOL is limited to providing citizen companies oil industry technical capability and capacity to deliver on the requirements of the contract, when asked on helping citizen companies to access funding.

“BOL’s mandate does not include financing citizen empowerment initiatives. Securing funding will remain the responsibility of the beneficiaries. This could be through government financing entities including CEDA or through commercial banks. Further to this, there are financial institutions that have already signed up to support the Debswana Citizen Economic Empowerment Programme (CEEP),” Mmipi indicated.

While BOL is established by government as company limited by guarantee, it will not benefit financially from the partnership with Debswana, as citizen empowerment in the petroleum value chain is core to BOL’s mandate.

“BOL does not pursue citizen facilitation for financial benefit, but rather we engage in citizen facilitation as a social aspect of our mandate. Citizen facilitation comes at a cost, but it is the right thing to do for the country to develop the oil and gas industry,” she said.

Mmipi said supplying fuel to Debswana comes with commercial benefits such as supply margins. These have traditionally been made outside the country when supply was done by multi-nationals for a period spanning over 50 years. With BOL anchoring supply for Debswana, this benefit will accrue locally, and BOL will be able to pay taxes and dividends to the shareholders in Botswana.

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VAT in Africa Guide 2022 – Africa re-emerging

18th May 2022

PwC Africa has presented the eighth edition of the VAT in Africa Guide – Africa re-emerging. This backdrop of renewal informs on the re-emergence of African economies and societies which have been affected by the COVID-19 pandemic.

In this edition, which has been compiled by PwC Africa’s indirect tax experts, covers a total of 41 African countries. It is geared towards sharing insight with our clients based on the constantly changing tax environments that can have a significant impact on business operations.

Within Africa, governments continue to focus on expanding the tax net by improving revenue collection through efficient compliance systems and procedures. PwC Africa has observed that revenue authorities also continue to take a keen interest in indirect taxes as part of revenue mobilisation initiatives.

Maturing VAT system and upskilling SARS 

“In South Africa, VAT is becoming more relevant as a revenue source for the government,” says Matthew Besanko, PwC South Africa’s Indirect Tax Leader. “Strides have been made to upskill South African Revenue Service (SARS) staff and identify VAT revenue leakages, particularly in respect of foreign suppliers of electronic services to people and businesses in South Africa.”

Broadening the tax base and digital economy

In the past year, South Africa, Mozambique and Zimbabwe saw updates to their VAT legislation, or introduced specific legislation targeting electronically supplied services (ESS), which is in line with the global trend of attempting to tax the digital economy. “The expectation is that Botswana will also introduce VAT legislation in due course, while the National Treasury in South Africa has also made mention of revising the rules to account for further developments in the digital economy,” Besanko says.

South Africa’s National Treasury has also drafted legislation with the intention to introduce a reverse charge on gold, which is expected to come into effect later in 2022. While in Zimbabwe, revenue authorities have introduced a tax on the export of raw medicinal cannabis ranging between 10% and 20%, which came into effect on 1 January 2021.

ESG and carbon tax 

Key strides have also been made within the Environmental, Social and Governance (ESG) space. “ESG leadership, strategising and reporting is essential now for organisations that wish to flourish and remain relevant,” Kabochi says. He adds that companies need to consider how ESG and tax intersect, since tax is a significant value driver when businesses need to deliver on their ESG goals.

In South Africa, a carbon tax regime, which is being implemented in three phases, has been adopted. The second phase was scheduled to start in January 2023, however phase one was extended by three years until 31 December 2025.

Until then, taxpayers will enjoy substantial tax-free allowances which reduce their carbon tax liability. At the beginning of 2022, the South African government increased the carbon tax rate to R144 (about US$9), which is expected to increase annually to enable South Africa to uphold its COP26 commitments.

With effect from 1 January 2023, carbon tax payers in South Africa will also be required to submit carbon budgets and adhere to the provisions of the carbon budgeting system which will be governed by the Climate Change Bill. Where set carbon budgets are exceeded, the government plans to impose penalties. “At PwC, we are continuously focused on our renewed global strategy, ” The New Equation,” Kabochi says. “Through this strategy, a key focus area for PwC Africa is to support clients in adding value to their ESG ambitions and building trust through sustained outcomes.”

The New Equation is also an acknowledgement of the fundamental changes in the business environment in which PwC’s clients and other stakeholders operate. PwC continues to reinvent and adapt to these changes as a community of problem solvers, combining knowledge and human-led technology to deliver quality services and value.

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Economists project lower economic growth for Botswana

18th May 2022
CBD

Local and international economists have lowered their projections on Botswana’s economic growth for 2022 and 2023, saying the country is highly likely to fail to maintain high growth rate recorded in 2021 hence will not reach initial forecasts.

Economists this week lowered 2022 forecasts for Botswana’s economic growth rate, from the initial 5.3% to 4.8% and added that in 2023 growth could further decline to 4.0%. The lower projections come on the backdrop of an annual economic growth that recovered sharply in 2021 with figures showing that year-on-year real Gross Domestic Product (GDP) growth increased to 11.4%, up from a contraction of 8.7% in 2020.

Economists from the local research entity, E-consult, this week stated that the 2021 double digit growth that exceeded projections made at the time of the 2022 budget may be short lived due to other developments taking place in the global economy. E-consult Economist Sethunya Kegakgametse stated that the war in Ukraine has worsened supply problems in the global economy and added that before the war, macroeconomic indicators were seen as improving and returning to pre-COVID levels.

According to the economist the global economy was projected to improve in 2022 and 2023. Recent figures show that global growth projections have been revised downwards from the initial forecast of 4.9% in 2022 with the World Bank’s new estimate for global growth in 2022 at 3.2%.

The statistics also shows that International Monetary Fund revised their growth projections for 2022 and 2023 down by 0.8% and 0.2% respectively, falling to 3.6% for both years. “The outbreak of war has severely dampened the global recovery that was under way following the COVID-19 pandemic,” said the economist.

She stated that despite Botswana being geographically removed from the conflict, the country has not and will not be exempt from the disruptions in the global economy. “The disruptions to global supply chains resulting from the war will have a negative effect on both Botswana’s growth and trade activities.

The economic sanctions against diamonds from Russia will add uncertainty to the market which will have knock on effects to Botswana’s growth, exports, and government revenues,” said the economists who added that the disruptions are driving prices up and result with very high inflation in the local economy.

Kegakgametse projected that in an attempt to limit inflation Bank of Botswana will be forced to raise interest rate “Should the sharp increase in both global and local inflation persist, Bank of Botswana much like other central banks around the world will be forced to raise interest rates in a bid to control rising prices. This would mean an end to the expansionary monetary policy stance that had been adopted post COVID-19 to aid economic growth,” she said.

In the latest projections, the UK based economic research entity Fitch Solutions lowered 2022 real GDP growth forecast for Botswana from 5.3% to 4.8% “In 2023, we see economic growth rate decelerating to 4.0%,” said Fitch Solutions economists who also noted that the 2022 and 2023 economic growth projections may come out lower than the current forecasts, as it is possible that new vaccine-resistant virus variants may be identified, which could result in the re-implementation of restrictions. “In such circumstances, we cannot rule out that Botswana’s economy may post weaker growth than our baseline scenario currently assumes,” said the economists.

According to the projections, Fitch Solution stated that there is limited scope for Botswana government to increase diamond production and exports, following the economic sanctions imposed on Russian diamond mining companies operating in Botswana. The research entity added that De Beers is unlikely to scale up diamond output from Botswana in order to prop up diamond prices.

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