The obvious threat of hidden taxes

Mmegi Editor | Tuesday May 6, 2014 14:25

Faced with the prospect of diminishing diamond revenues and the need to diversify revenue streams, government has in recent times introduced a litany of extra budget Special Funds and levies.

As at 2013, 37 Special Funds were in existence, 19 of them financed through levies that the government imposes on different activities.

During the fiscal year 2012/13, the different off-budget levies generated over P995 million in revenue – an amount similar to the value of the entire expenditure budget for food and social welfare programmes in that year. It is irrefutable that some of these funds and levies are of critical importance to Batswana. One of them, the National Electrification Special Fund, has helped connect 67 percent of Batswana to the national electricity grid.

What is arguable though, is whether these levies, which are ostensibly additional taxes, are the most appropriate way of boosting revenues outside of the budgeting process. It is clear that the numerous ring-fenced off-budget “Special Funds and levies” provide room for exploitation as no legislative approval is required in making spending decisions.

The alcohol levy is a case in point, whose usage has digressed over the years, from paying for rehabilitation services for addicts, to financing youth owned businesses, to contributing a share to the general revenues. The budgeting processes prescribes that all money spent from the public treasury be subject to legislative authorisation.

Fiscal authorities need to bring these Special Funds and levies into the budget so that both the revenue raised and the expenditures made are subject to the standard public finance accountability.

Best practice in public finance dictate that all expenditures financed by taxes or levies and all revenues collected through taxes or levies should be in the budget in what economists term the universality principle. Prominent economist, Keith Jefferies says the levies are a form of a hidden tax and are generally frowned upon from a public finance perspective. We agree with Jeffries assertion that because the levies do not go through the normal budgetary process and legislative scrutiny, they compromise tax efficiency and transparency.

The Auditor General’s latest report also reveals that there has not recently been an audit of some of these Special Funds, with the Alcohol Levy’s audit backlogged to as far back as 2010.

It is undeniable that Botswana urgently needs to broaden its tax base, but we believe off-budget taxes are not the appropriate avenue, as they can potentially tarnish the country’s shining record of shrewd and transparent public finance management.

                                                        Today’s thought

“Such ring-fenced “special funds” are considered to be inefficient, especially when the expenditures benefit a different group from those who contributed the revenue.”

                                                       - Keith Jefferies