Botswana Considers Tax Hikes as Budget Deficit Seen Widening
Botswana Considers Tax Hikes as Budget Deficit Seen Widening
Botswana’s Finance Ministry is proposing increases in corporate and personal tax rates, and doing away with some exemptions, to combat an expected widening of the budget deficit due to dwindling income from mineral reserves and pay increases for government workers.
The gap is forecast to grow to a cumulative 11.1 billion pula ($1.02 billion) in the fiscal year through March 2023, according to a draft of the mid-term review of the National Development Plan handed to reporters Thursday in the capital, Gaborone. The plan is the basis for all recurrent and development spending.
Previous deficits were funded mostly by drawing down on reserves and domestic borrowing, but the ministry said this may be no longer possible. The reserves are held in the Government Investment Account, which the central bank manages together with the country’s sovereign wealth fund.
“There is a limit to how much more can be drawn down from the GIA before it becomes too small to be a useful buffer against shocks and hence more finance will need to be raised from the domestic capital market through issuance and possibly through foreign borrowing,” the draft plan states.
‘Under-Taxed’
Companies and individuals “are under-taxed relative to the value of the public service and benefits they receive,” while land and property taxes “are also low by international standards and yet these present an easily-taxable asset class that would mainly raise revenue from those can afford to pay more.”
The proposals are part of a series of recommendations by the ministry, alongside lowering development expenditure, freezing public service recruitment in the next fiscal year and tightening the management of public finances.
“We need new sources of revenue and if it means increasing our tax rates, let it be so,” Kelapile Ndubano, the ministry’s deputy secretary for macroeconomic policy, told reporters.
Botswana has been reluctant to increase taxes as it pushes for foreign direct investment. A drive to diversify the economy away from diamonds, the Treasury’s biggest source of earnings, has seen growing tax exemptions in non-mining activities.
The draft plan will be discussed by the Cabinet and other government departments before it is put to lawmakers next year.
To contact the reporter on this story: Mbongeni Mguni in Botswana at mmguni@bloomberg.net
To contact the editors responsible for this story: Gordon Bell at gbell16@bloomberg.net, Hilton Shone, Michael Gunn
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