Multiple levies distort budget accountability
Brian Benza | Friday May 2, 2014 12:15
In a 2014 first quarter economic review report, Jefferies together with his Econsult colleagues Bogolo Kenewendo and Thabelo Nemaorani say that the levies are a form of a hidden tax and are generally frowned upon from a public finance perspective.
As at 2013, there were 37 special funds in existence, 19 of which are financed through levies that the government imposes on different activities.
During the fiscal year 2012/13, the different levies generated over P995 million in revenue, with the largest contributors being the National Electrification levy (P232 million), the Vocational training levy (VTF) (P215 million), the road collections levy (P210 million) and lastly the Alcohol levy (P162 million).
“Since the levies do not go through the normal budgetary process and legislative scrutiny, they compromise tax efficiency and transparency. Some stakeholders argue that the funds collected from the levies are utilised without fully involving those who contribute, such as the private sector, and as a result, channels of accountability have become blurred. The lax tax system and lack of transparency also provides an opportunity for exploitation, added the report.
Jefferies gave the example of retailers who applied a plastic ‘levy’ before it was legislated and have consequently collected revenue which is now lost to government.
According to the report, apart from the lack of transparency in expenditure related to these funds, there is a concern from the business community that there are too many levies, making it costly to do business in Botswana. For instance, the effective tax burden on individuals and non-mining firms, taking into account these levies are 12.8 percent higher than implied by income and profits taxes alone.
“Keeping the levies and associated expenditures ‘off- budget’ also distorts public finance figures, as both tax revenue and public spending are understated in the budget.
“Best practice in public finance is that taxation and expenditure decisions are separated, and that both should go through the budget rather than being handled through off-budget processes,” added the report. In other respects, Jefferies also questioned the quality of the national budget with the reliability of estimated under scrutiny.
According to the report, estimates of revenue for 2013/14 were not updated between the 2013 and 2014 Budgets, apparently due to problems in the Government Accounting and Budgeting System, which casts a doubt in the reliability of the overall 2013/14 budget figures.
There are also some odd classifications such as poverty relief spending on Ipelegeng and subventions to loss-making parastatals which are both classed as development spending, but neither meet the economic definition of investment that the development spending classification is meant to represent. “The result is that the economic development spending is overstated in the budget. The increasingly widespread use of levies and special funds means that there is an increasing amount of off-budget revenue and spending, which lacks transparency and accountability,” read the report.
The credibility of the Botswana national budget has previously been called into question with a 2013 assessment report exposing key deficiencies with regards to forecasting and implementation.
The European Union (EU) sponsored Public Expenditure and Financial Accountability (PEFA) Assessment report not only cast doubts over the ability of the budget to provide a reliable indication of the government’s resource envelope but also detects weaknesses in its usefulness as a tool for allocating scarce resources in line with policy priorities. According to the report, the level of variances between actual and budgeted revenues has significantly increased in the past three years of the review period. This, the report says, has dented the credibility of government ability to forecast revenues as both tax income and non-tax income consistently exceeded expectations.
“On the revenue side, actual revenue was consistently above budget, as it had been in the previous three years. The size of the positive variances has increased from five percent, six percent and seven percent in the previous three-year assessment period up to 2009 to 21 percent, 18 percent and 11 percent in the current three-year assessment up to 2012.
“Notwithstanding the mitigating factors associated with the international market for diamonds, the unpredictability of Botswana’s share of regional customs revenue and the uncertainty surrounding the speed of economic recovery after the global economic recession in 2008-2009, these results cause the credibility of the budget to be called into question - this time in terms of its ability to provide a reliable indication of the GoB resource envelope,” says the PEFA assessment report.
The report sought to identify changes in performance that have occurred in the financial management of central government since 2009, the date of the previous assessment.