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Taxing times

Taxing times

Tax debts anticipated to reach a record P5.4 billion

Due to the financial impacts of Covid-19, tax debts are expected to balloon to P5.4 billion by the end of the current financial year.

In its analysis of the pandemic’s probable effects on tax revenue, the tax specialist’s Aupracon noted that businesses’ cash flows will be negatively impacted. In turn, this will see their ability to pay creditors, including tax authorities, dwindle.

The report, prepared by Jonathan Hore, Tshiamo Badisang and Letlhogonolo Lebotse, warns that due to the economic drought created by the pandemic, the economy will likely experience an enormous jump in tax debts, way above the annual 22 percent recorded in recent years.

By the end of the 2016/2017 financial year, taxpayers owed a total of P2.7 billion – a 22 percent increase from the P2.2 billion in the prior year.

At the end of the following financial year – 2017/2018 – taxpayers owed authorities P3.3 billion, another 22 percent increase.

“We anticipate that the tax debt figure will climb by another 22 percent for the 2019/2020 financial year. However, considering the anticipated harsh economic conditions that are synonymous with Covid-19, the spike in tax debts for the 2020/2021 financial year could stand at a staggering P5.4 billion, putting on a much higher 35 percent annual increase,” predicts the tax specialist.

They believe taxpayers initially intent on reducing their current tax debts in the on-going financial year may now be constrained by financial challenges, resulting in further interest charges.

Already, due to the Covid-19 pandemic, domestic taxes and Southern African Customs Union (SACU) revenues are expected to fall to P37.96 billion – 14.5 percent below the initial target of P44.4 billion.

Another factor likely to impact on taxes is the suspension of investments and delay in planned projects that could have taken place during this period.

It has also been noted that when an economy contracts – experts predict Botswana’s will contract by 13.1 percent – some taxpayers’ ability to comply with taxes are hampered by financial constraints.

Another threat that tax experts feel could have an adverse effect on tax collection is re-registration of companies, which they believe might be abused by some taxpayers.

In 2018, the Companies Act was amended to compel all companies to register with Companies and Intellectual Property Authority (CIPA) or face automatic deregistration.

The deadline for the re-registration was initially slated for the 2nd of June this year. However, due to Covid-19, the deadline was extended to the 2nd of December.

Hore and his colleagues feel some tax-owing business owners may be tempted to abuse the process, as they could opt not to register and then cease to exist.

Should this happen, it is believed tax authorities may find it hard to collect owed taxes as a company liability does not ordinarily extend to shareholders or directors.

To curtail this possibility, tax experts have advised that it would be wise for government to intervene by way of law and get the re-registration regulations amended to stop the deregistration of companies which owe taxes, a move which could also save banks and other financiers.

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