Botswana is raising its VAT rate for the first time in a decade. The move aims to improve fiscal sustainability in the wake of the Covid19 pandemic. The pandemic has hit key sectors of the Botswana economy hard, notably mining and tourism.
The new Botswana VAT rate
Botswana Finance Minister Thapelo Matsheka announced the VAT rate increase during his budget presentation. Botswana’s VAT rate will increase from 12% to 14%, a figure Matsheka insists remains low by regional standards.
Despite the current economic strain, Matsheka remains confident of a strong recovery: “We however expect a robust recovery in 2021 to a growth of 8.8% mainly on the back of the expected recovery in the global economy as well as successful implementation of the policies we have put in place”.
The Covid revenue paradox
In response to the sharp decline in consumption due to lockdowns and social distancing, many governments instituted VAT relief and other financial assistance measures.
At the same time, the resulting fiscal pressure has placed limits on how much assistance states are prepared to offer.
For example, the UK’s hospitality industry has strongly called for an extension of VAT relief measures. However Treasury Minister Jake Norman told the House of Commons that “the relief comes at a significant cost, and while the government keeps taxes under review, it has no current plans to extend it further.”
Botswana’s neighbour South Africa was hard hit by a Covid-related downturn in consumption. Analysts expect the country’s finance minister to announce measures to restore fiscal stability in his next budget. However, many observers have expressed reservations about a potential VAT increase, owing to the regressive nature of the tax.
South Africa raised its VAT rate from 14% to 15% in 2018.
Cash flow tips for businesses
Ultimately, there is no silver bullet to overcome the global economic Covid-related downturn. Many analysts agree that effective coordination between business and government is paramount.
During the downturn, effectively optimising VAT compliance is more important than ever.
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