Rescind abolition of foreign exchange controls
Tax hike not a solution - Keorapetse
Member of Parliament for Selibe- Phikwe West, Dithapelo Keorapetse has opposed the increase of Value Added Tax ( VAT) to 14 percent. His reasons are that government is broke and has decided to go for the empty pockets of Batswana.
According to Keorapetse, there has been failure on the part of government to diversify the economy and generate wealth; there is no economic growth, and no job creation. He argues that VAT is not the answer to the state of declining revenues and COVID- 19 scourge.
In his response to Minister Thapelo Matsheka’s request to have VAT hiked by an extra two percent, Keorapetse said it is important to ensure efficiency and effectiveness in the collection of government revenues.
His view is that strengthening of BURS should be prioritised, as the agency lamented in the past, for example, in their 2016 annual report that they are under capacitated, in terms of human resources which renders it unable to carry out adequate enforcement activities to maximise revenue.
Further, that the inadequate capacity of BURS has resulted in some businesses’ tax evasion and avoidance going undetected. BURS has in part heeded the IMF advice that it should only require high income earners and those with additional income or jobs to submit personal income tax returns as this would free its staff to focus on more valuable tax collection endeavours.
Pleading his case, Keorapetse said: “Don’t increase Tax and VAT” because income tax is only payable by those who are earning more than P4000 a month and in the recent past 2/ 3 of employed Batswana did not pay tax because they earn too little or are in the informal sector”. He said some pundits had proposed increasing rates modestly to raise revenues because in their view the income tax rates are fairly low ( maximum 25percent). These calls must be treated with utmost caution to avert taxing the middle and or working
class heavily; they are already burdened by inter alia “black tax”, hidden taxes, levies and low pays.
The rumours of 14 percent increase from 12 percent have been there as far back as 2017/ 18. VAT is the only tax that everybody pays and contributes 4.6 percent of GDP, 15 percent of revenue and the increase will take it to 16.5percent. In monetary terms VAT increase will bring more than P1, 3 billion into the coffers.
“We are of the view that VAT should not be increased because it is a consumption tax borne by an ordinary Motswana who is the final consumer,” he said. Instead, he believes that government can raise the P1,3 billion through increase of corporate income tax from 22 percent to at least 30 percent.
Another tax Keorapetse said the Ministry of Finance should consider legislative improvements to deal with is Transfer Pricing and collection of donations and Inheritance tax.
There are problems with implementation of the latter because of insufficient information and control mechanisms to monitor such transactions.
He proposes that BURS should also consider financial transactions tax, nominal for small transactions and substantial for bigger transactions, for example, interbank transfers, mobile money transactions, swiping, bank withdrawals and deposits. These transactions are vast and nominal taxes on these can generate significant revenue.
A review of fuel/ vehicle taxes and road tolls should be explored for purposes of raising revenue for road construction and maintenance. The state should consider Employment Tax Incentives for companies that employ young people less than 35 years.
Keorapetse said the 1999 abolishment of foreign exchange controls must be rescinded or at least reviewed. It has enabled profit repatriation and illicit financial flows.
“The idea that the abolishment would attract FDI was inaccurate; instead Botswana is a haven for money laundering. We’ve lost a lot of would- be investment in profit outflows”.
The Companies Act and other related laws should make it illegal for entities that are incorporated in countries that have non- disclosure laws to own in part or in whole companies registered in Botswana.
It should make it mandatory for companies that sell services or products within Botswana to have the financial transactions go through the local banking system.
He gave the example of Reconnaissance Energy Botswana, saying they list Reconnaissance Oil and Gas Corporation ( 1850150) which is registered in Canada as their sole shareholder.
And then they supply a certificate of incorporation from the British Virgin Islands.
“CIPA on the other hand accepts all this as okay and even publishes on their website”, Keorapetse lamented.
He said transfer pricing remains fairly unregulated in Botswana, for example, a big corporation buys and uses services from many companies owned and controlled by its Directors or Executives.
He believes there is no how BURS verifies the true value of the goods and services rendered, therefore such entities can easily manipulate the value of taxable income, effectively paying tax of their choosing.
He said that similarly, in the luxury safari market in the delta, most of the corporations sell their packages through foreign based agencies that they directly control or own.
He said that BURS cannot verify the true value of these transactions, so, the locally registered arm of the tour operator can easily manipulate their taxable income.
One measure to combat this, he said, is through establishment of strict transfer pricing reporting legislation or regulations, the tax law can be amended to close that gap.
Keorapetse said the opposition strongly suggests an overhaul and revamping of the entire anti- graft strategy through formulation and codification of an Anti- Corruption Policy.
Government should reform all relevant anti- corruption statutes, starting with the Corruption and Economic Crime Act.
“We are of the view that particular attention be paid to Covid- preneurship, bribery, insider trading, trading in influence, conflict of interest, whistle- blowing, targeted lifestyle audits, corporate governance and freedom of information.
“We suggest strengthening of democratic oversight mechanisms and insulation from the executive of the DCEC, Auditor General, Ombudsman, DPP and Parliamentary Committees”, the MP submitted.