The Botswana Unified Revenue Service (BURS) says tax avoidance schemes such as transfer pricing, base erosion and profit shifting appear to be on the rise in the country.
Transfer pricing is regarded as a tax avoidance scheme in which multinational corporations shift profits to low tax jurisdictions and avoid taxes in countries where they have substantial trading operations.
On the other hand, base erosion and profit shifting refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations.In its latest annual report, BURS said there has been an increase in what it termed, “new generation tax issues”.
BURS commissioner general, Ken Morris said the bureau is continually upgrading its human resource skills as well as technology solutions to deal with these new trends.
He said during 2016, BURS participated in an international conference that focused on two topics, “Governance and Integrity in Tax Administration” and “Abuse of Treaties in Base Erosion and Profit Shifting” (BEPS).
“These topics were chosen on the basis of their increasing relevance in tax administration,” Morris said.
Currently, BURS monitors tax avoidance schemes under the general anti-avoidance provisions of the Income Tax Act.
Some taxation experts said Botswana faces the risk of losing out on tax revenue from cross-border transactions carried out by multinational enterprises if a transfer pricing legislation is not put in place soon.
In view of this, the government is understood to be considering proposals from the Taxation Review Committee that include the introduction of transfer pricing rules to address tax avoidance and to align Botswanaís tax system with international best practice.
Meanwhile, BURS’ tax and customs revenue collections for the 2015/16 financial years were P35.335 billion, exceeding the tax revenue target of P34, 694 billion set by government by P641 million or 1.85 percent. The tax revenue collected in 2015/16 reflects a decline of 5.75 percent when compared to the P37.489 billion that was collected in 2014/15.
Morris said the decline is due to weak performance across the mining sector, which resulted in a decline of income tax collections from P15.884 billion in 2014/15 to P13.832 billion in 2015/16.
“Despite surpassing the target by 4.66 percent, the VAT collection declined by 3.76 percent while SACU (Southern African Customs Union) receipts increased by 0.8 percent compared to the previous year,” he said.
For the financial year 2015/16, BURS spent P534 million to collect P35, 34 billion that translates into a cost to collection ratio of P1.00/P66.16. This means for every P1.00 that BURS spent, the benefit to the government in return was P66.16.
Compared to the previous year’s cost to collection ratio, which was P1/P79.85, this indicates a significant ratio decrease amounting to P13.69 collected per Pula spent.
“The decrease was due to the unsatisfactory economic performance, which yielded less revenue and to the increase in the cost of goods and services,” said the commissioner general.