How govt can use tax measures to stimulate the economy
With the local economy reeling from Covid-19’s disruptive blow, tax specialists have suggested measures the government can implement to counter the financial effects of the pandemic.
A report prepared by tax specialists at Aupracon, Jonathan Hore, and his colleagues, Tshiamo Badisang and Onalenna Rangale, suggest interventions that can create jobs, stimulate economic activity, cushion the underprivileged and relieve corporates of the burden created by Coronavirus.
Firstly, they propose an adjustment of Personal Income Tax (PIT) or Pay as You Earn (PAYE) in line with inflation.
They note that the current tax brackets used to determine PIT and PAYE were last reviewed in July 2011 and have since been surpassed by inflation.
Under the current regulations, persons who earn over P3, 000 a month pay tax at five percent. However, the tax specialists say using the National Cost of Living Indices, the non-taxable threshold of P3, 000 is now equivalent to P4, 500 per month in 2020.
Adjusting the tax rates to the figure suggested by the trio would mean that anyone earning less than P54, 000 a year would no longer have to pay tax – the current cut off rate is P36, 000.
Although govt’ would be collecting less in tax, low-income earners would have more money to spend, cash which would largely be pumped back into the economy anyway.
Additional, the reports suggest that contributions to the Covid-19 Relief Fund, which are currently non-tax-deductible, should be taxed.
Aupracon tax specialists also advised the government to consider applying tax amnesty on burdened taxpayers.
By the end of March, Botswana Unified Revenue Service (BURS) is reported to have been owed P3.3 billion in tax arrears. The bulk of this is attributed to tax interest. Indeed, in some cases, the interest can exceed the principal tax!
Given the negative effects brought by the pandemic, tax debts are anticipated to spike to P5.4 billion by the end of the 2021 fiscal year.
Taking this into account, tax experts say the authorities could consider ‘a blanket waiver of interest’ on anything over 70 percent of the principal tax.
The experts argue this would not only allow the taxpayers to survive in these tough economic times but also help them retain staff and preserve jobs.
The government has also been advised to introduce Sugar Tax, which is traditionally used to protect the public by discouraging the consumption of unhealthy food.
It is further suggested the authorities could implement the Sugar Tax on a wider range of products than those covered by other countries like South Africa, which only targets sugar-saturated beverages.
They say this will assist the authorities to raise revenue at a time when conventional revenue sources are drying up.
Other tax interventions proposed by Aupracon include introducing Securities Tax, which will be imposed on buyers of shares on both listed and non-listed companies, as well as higher Value Added Tax (VAT) for luxury goods.