Botswana faces P5bn drop in SACU revenues

Custom revenues will decline due to reduced cross boarder trade volumes
Custom revenues will decline due to reduced cross boarder trade volumes

Falling regional trade volumes may result in Botswana suffering a significant drop of up to 30 percent in SACU revenues next year amid a fresh valiant campaign by South Africa to review the revenue sharing formulae.

SACU revenues, which normally contribute 30 percent to Botswana total revenues, are estimated at P16.3 billion in the 2015/16 fiscal year.

 A 2015/16 budget review statement tabled in  the South African parliament by finance minster Nhlanhla Nene last month revealed that payments to the other four members in to Union are estimated to drop by 30 percent from R51.7 billion in 2015/16 to R36.5bn in 2016-17 due to falling trade and the lower collection of customs duties.

This will result in Botswana customs receipts falling by as much as P5 billion in 2016 to P11 billion.

SACU member states, which comprise of South Africa, Namibia, Lesotho, Swaziland and Botswana;  assess, collect and pay all customs, excise and additional duties into a common revenue pool. The funds are then shared among the five member states using a revenue sharing formula, which is currently being renegotiated.

Secretary for Economic and financial policy in the Ministry of Finance Dr Taufila Nyamadzabo said that government is aware of the possible significant   decrease in customs revenue but a clear picture of the drop would be known in December.

“South Africa, as the managers of the common pool, have indicated in their budget estimates about the possible drop in customs revenues next year due to reduced trade volumes. But we are only going to know the exact figures at our annual meetings in December. If the drop turns out to be close to the estimates then obviously it will have a significant impact on our developmental plans,” he said.  

SACU revenues are estimated to contribute to 29.5 percent of the national budget in 2015 behind minerals at 34 percent and a 30 percent cut in customs receipts will not only affect development projects but the budget balance as well.

Botswana has managed to achieve a budget surplus in the past four financial years.

The anticipated reduction in SACU revenues also come at a time when there is a fresh wave of recharged calls in South Africa to revise to the revenue sharing formulae as the “country could not longer afford to subsidise the other countries”.

In his budget speech last month, Nene called for “a revised and improved revenue-sharing arrangement” to stabilise and safeguard the flow of resources. He noted that there had been a “considerable variation” in customs union receipts because of fluctuations in regional trade.

“The period ahead will also see large shifts in customs receipts, with potentially adverse implications for our partner countries,” he said.

According to BusinessDay, PwC head of tax technical Kyle Mandy estimates that SA is paying about R30 billion a year more than it should in the redistribution of customs revenue because of the way the formula works. He said SA contributed about 97 percent of the revenue pool and received only 45 percent of this, and only about 17 percent of the customs pool.

The customs duty formula is based on the imports within the Sacu region. Excise duties are shared on the basis of the relative shares of the gross domestic product (GDP) of each of the SACU members, while the development component of the excise revenue is based on the relative GDP per capita, with the poorest countries getting the most.

According to Nyamadzabo, there has been very little progress towards the renegotiation of the revenue sharing agreement, which Botswana is very much open to. “There is need for a retreat to further discuss the issue. Previous scheduled meetings did not materialise because officials of certain countries failed were not available,” he said.

Nyamadzabo also shot down the notion that South Africa was subsidising Botswana through the revenue payments, arguing that its bigger contribution is because the country owns the ports through which all the regional countries import goods. 

While the anticipated customs revenue decrease will impact hard in Botswana budget, it would be disastrous for other member as SACU funds provide 44 percent of Lesotho’s, 35 percent of Namibia’s and 50 percent of Swaziland’s. While many in South Africa’s economic and political circles view SACU as a budgetary burden, other analysts say there is another side to the story.

“SACU is pictured as a burden. But, it is an important destination of South African exports, services and investment. Recent South African Revenue Service trade data show that Botswana and Namibia feature in SA’s top 10 export destinations.

“SACU can be improved. The present agreement promises several additional building blocks, including common policies on agriculture, industrial development and unfair trade practices. Other states argue that these policies have not been adopted and the Sacu Tariff Board remains a dead letter because SA wants to control Sacu tariff policy to support its industrial development.

There is another side to this story,” said Gerhard Erasmus and Trudi Hartzenberg of the Trade Law Centre.

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