IMF urges end of tax holidays

Lewanika Timothy | Wednesday January 14, 2026 06:00

In its latest Article IV mission report, the IMF argues that Botswana must urgently broaden its revenue base and rein in costly tax exemptions if it is to stabilise its fiscal position as mineral revenues soften and recurrent spending remains rigid.

“Measures to broaden the revenue base include streamlining exemptions on zero-rated VAT goods and services, replacing the CIT holidays in Special Economic Zones with less costly investment tax credits,” the IMF said in the report.

SPEDU, which oversees Special Economic Zones meant to attract investment and diversify the economy, has long relied on corporate income tax (CIT) holidays as a key selling point. But the IMF says such incentives often deliver poor value for money, benefiting firms that would have invested anyway while depriving the fiscus of much-needed revenue.

Instead, the Fund recommends shifting to investment tax credits, which are seen internationally as more targeted, transparent and easier to control. Unlike blanket tax holidays, credits reward actual capital spending and limit long-term revenue losses.

The IMF also raised concern about Botswana’s extensive VAT zero-rating regime, arguing that exemptions should be streamlined. While zero-rating is often justified on social grounds, the Fund notes that it narrows the tax base and can disproportionately benefit higher-income households, weakening revenue collection without adequately protecting the poor.

On the personal side, the IMF is calling for greater progressivity in personal income tax, alongside stronger taxation of passive income, including dividends and interest. According to the Fund, Botswana still has room to improve fairness in its tax system without undermining growth or competitiveness.

Property taxation also features prominently in the IMF’s recommendations. The Fund urges government to improve reliance on recurrent property taxes, widely viewed as a stable and growth-friendly source of revenue, while eliminating transfer duty on immovable property, which it describes as distortive to land and housing markets.

In a nod to global trends, the IMF further recommends countering international tax avoidance, introducing a carbon tax, and strengthening compliance enforcement, starting with the large taxpayer unit. It also calls for an upgrade of the revenue administration’s customer service strategy to boost voluntary compliance.

These proposals land as Botswana grapples with wide budget deficits, rising public debt approaching 40% of GDP, and declining diamond revenues.