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VAT increase to 14% could be split over two years

MBONGENI MGUNI
Higher levels: Consumers will have to pay more for goods next year PIC: MORERI SEJAKGOMO
A Finance and Economic Development ministry committee is scheduled to soon decide whether the increase in Value Added Tax (VAT) from 12% to 14% will take place over one or two years.

BusinessWeek is informed that the Taxation Review Committee will be meeting soon and give recommendations that will ultimately be considered by Cabinet ahead of the next budget.

The ministry’s permanent secretary, Wilfred Mandlebe said the VAT increase was in line with the Economic Recovery and Transformation Plan approved by the Winter Parliament.

“At this point it is accurate to say VAT will go up in the next financial year,” Mandlebe told BusinessWeek.

“What’s going to happen is that we have a committee that will guide government on whether it should be two percent in one financial year or over two years.

“Parliament has approved the increase to 14% and action on that is taking place now.”

VAT was introduced in 2002 and was pegged at 10% for years until its increase to 12% in April 2010. Since then, it has not changed, leading government officials to note that the country has one of the lowest VAT rates in the region.

In a year in which the budget is expected to

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suffer a deficit of P15.2 billion, followed by another next year of P12.6 billion, authorities have been under pressure to revise taxes, reduce exemptions and review subsidies.

“Botswana has one of the lowest rates of VAT in the world, and this may not be sustainable,” reads the final version of the approved mid-term NDP 11 document.

“Furthermore, the efficiency of VAT collection is low.

“Botswana also has the lowest personal and corporate income tax rates in SACU.

“Taxes on land and property are also low by international standards, and yet these present an easily- taxable asset class that would mainly raise revenue from those who can afford to pay more.”

However, government has also committed to reviewing personal income tax income bands and addressing ‘bracket creep,’ which it says would improve the “consumption spending power of tax-paying households”. Bracket creep is defined as a situation where inflation pushes income into higher tax brackets.

The result is an increase in income taxes but no increase in real purchasing power.



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