BURS exceeds targets: Is everyone carrying their fair share?

BURS Commissioner-General, Jeanette Makgolo, is adamant that compliant taxpayers are not being penalised for being compliant.

It is an uncomfortable conversation to have in a week where the BURS is in celebratory mode after recording their highest-ever collections in history. The BURS raked in a total of P59.6 billion for the 2023–2024 financial year that closed on March 31, surpassing their target by P367 million.

The funds comprise the bulk of revenues remitted to government’s Consolidated Fund, the main platform for budget spending.

The fact that the record revenues came in a year when economic growth slowed to 2.7 percent from 5.5 percent in 2022 weighed down by a slump in diamonds, made the BURS’ celebrations even sweeter. And the conversation was slightly awkward.

“I wouldn’t agree to the fact that we are making the burden more for those who are compliant,” Makgolo told Mmegi.

“Tax is all about fairness.

“You have to pay your share for whatever you have done.

“Yes, those who are non-compliant it’s unfortunate but whenever we catch them, they have to pay.

“There are consequences for avoiding tax.”

There is a good reason why questions about tax fairness have endured over the years and seem to rise when the BURS announces how much it has collected in any particular year. The BURS’ own tax gap study from a few years ago showed that up to 60% of those who should be contributing were not.

The BURS study, from the 2021–2022 financial year, indicated that the tax losses could measure up to five percent of the country’s Gross Domestic Product (GDP), an economic indicator that for 2021 was estimated at just under P200 billion.

“We did a tax gap study in the past financial year and it shows that between 40% and 60% of those who would otherwise be paying tax across the spectrum are not paying,” BURS’ Commissioner of Operations, Phodiso Valashia, said at the time.

While the majority of tax dodgers involve small businesses who are generally unaware of their obligations or fly below the BURS’ radar, tax experts have singled out some Asian retailers and the import vehicle industry as being amongst the major sources of untapped tax revenue.

The situation can also be inferred from the increasing use of cash in the economy, as those involved find gaps in the system to circumvent their tax obligations.

Last October, the Financial Intelligence Agency shared data showing that regulatory cash transaction reports – or those involving amounts of P10,000 and above – jumped to P61.7 billion in 2022–2023, from P25.5 billion in the prior year. By way of context, the cash transaction reports were measured at just P7.9 billion six years ago.

Cash is the preferred payment method for illicit financial activities, which include money laundering and tax evasion, as it bypasses checks and balances at institutions such as banks and is more difficult to trace for authorities.

Makgolo told Mmegi that while a review of the last tax gap analysis is yet to be done, she believes the BURS has been able to close the net in on defaulters.

“Although we have not done a review, I believe probably we have done a lot towards covering that 60% gap. “Look at the initiatives we have been coming up with and the progress that we have been making, engagements with Batswana on why it’s important for them to pay tax and the increase in tax registrations.

“It’s also probably the reason why despite the economic challenges that are going on, we were able to hit the targets.

“Our nets have been spread.”

There are challenges for those monitoring issues around tax fairness, especially in accurately gauging what factors are driving the record collections at the BURS.

When the BURS announces that it has surpassed its collection targets, questions are asked about who the burden was on. Was the tax base broadened, with more taxable activities brought in? Were taxes raised or were new types of taxes introduced?

Or were the compliant squeezed harder, shedding blood and tears, while the non-compliant continued to sit ringside?

BURS officials say the higher collections were due to a ‘boots on the ground’ operation across various regions, pushed for timely filing, as well as, follow-up on outstanding PAYE and VAT returns, while also conducting targeted revenue-generating audits.

The authority also squeezed its customs collections through targeted post-clearance audits, recoveries from outstanding deferred accounts debts, combating undervaluation, mounting anti-smuggling roadblocks and other initiatives.

The BURS does, however, acknowledge that there are efforts by some taxpayers to avoid their fair share of the tax burden. In fact, by mid-February, BURS was lagging behind its targets due, in part, to concerted efforts by some taxpayers to avoid their obligations.

Makgolo told Mmegi that in the fourth quarter, the BURS stepped up its efforts to recover all the Pay As You Earn (PAYE) tax owed by employers.

“That is actually a crime and they are not supposed to be doing that but we find that some employers collect PAYE and reinvest it into their businesses which is a serious crime. “They are not paying until we go to them and say ‘please, we are very aware that you have employed this many people and this is what you have withheld’.

“We are doing a lot to ensure that no one avoids paying their PAYE.

“Once you start, when the following year you are not coming forth, we have to go back to you and say what happened?

“You had so much staff and you used to remit so much. We expect you to go higher as inflation goes higher and salaries go higher.”

Beyond the question of who is carrying the burden, the record collections also touch on the debate around tax policy and how it either improves or worsens the country’s world-famous income inequality.

Are the country’s wealthiest paying their fair share?

In January 2022, a report by World Inequality Lab indicated that the richest one percent of people in the country earned more than 20 times the average income of the rest of Batswana in 2021.

According to the report, the top one percent wealthiest in the country earned at least P142,601 per month in 2021 before tax, while Statistics Botswana’s last report on incomes indicated that formal sector workers earned an average of P6,014.

Income tax rates in the country start at five percent for those earning P4,001 per month. The maximum tax rate is 25% and starts with anyone earning more than P13,000 meaning even those in the one percent of the country’s wealthiest are paying the same rate.

A tax expert who spoke previously to Mmegi said while the country’s rates were often hailed as amongst the lowest in the region, the tax brackets employed did not fairly distribute the income tax burden.

“It does not appear fair that someone earning P13,000 per month is taxed the same as someone earning P200,000,” said the expert, who requested anonymity for professional reasons.

“Even if that P13,000 is classified as high income, it is not really high for this country.

“In South Africa, the highest tax rate is around 45% to 50% and there, tax is paid on a global basis, meaning you have to pay tax for any income you earn anywhere in the world.

“In Botswana, tax is only paid on incomes earned in the country, meaning wealthy people may have other earnings from rentals, investments and others around the world.”

The debate on burdens becomes more emotional when it is extended to the blanket subsidies government provides for health, education, water, electricity and others. Even the VAT exemptions provided last year used the scorched earth approach, meaning the super-rich benefited as much as the desperately poor.

In fact, the Bank of Botswana has for years been recommending that government rein in spending on its blanket subsidies and simultaneously broaden the tax base, amongst other urgent reforms.

“The government has a social register and we have also advocated for a digital or biometric Omang where we can load everyone’s profile and say this person is an orphan, or this person is earning less than P5,000 and when they go to Marina (Hospital), they are the ones that can be allowed to come in without paying,” former central bank governor, Moses Pelaelo told Mmegi previously.

“But there are those of you who are seeing private doctors every week, month, paying a P270 consultation fee, and you also pay P100,000 for being hospitalised in a week at a private hospital.

“In Marina, that number is P60 a day, I think.

“We need cost recovery of some kind to deal with this question of fiscal consolidation.”

These debates are at levels beyond the domain or control of the BURS. They are also not the gloomy types of discussions the tax collector would want to have in a week of celebration.

But Makgolo did tackle the question. According to the Commissioner-General, the BURS does advise government on tax policy and does give feedback on areas of interest or concern.

“We actually have that as part of our mandate in the law,” she told Mmegi.

“We advise the ministry on tax issues.

“Because we are the implementers, we are aware of what’s happening on the ground and we are aware of how policies or our laws can be improved for us to perform the best as a country.

“We always do that because we have more knowledge as we interact with other revenue authorities and we know better how our countries can perform much better as far as domestic revenues are concerned.”

Makgolo believes more work needs to be put into educating Batswana on why paying taxes is important. That approach is seen as the broad-based solution to ensuring everyone pays their fair share.

“Tax is a social contract between the government and the taxpayers.

“You are willing to pay your part of the tax as long as you can see the benefits from the government.

“So, I want to believe that as Batswana for now, their knowledge on the need for them to pay taxes has not been really up to standard and that is why as BURS in our transformation journey, we have prioritised engagements with the community leadership, with the taxpayers, such that they understand.

“We tell you, you see that bridge out there, you should be proud to say I did my part and this infrastructure stands here because I did my part.

“That is the education we are trying as much as possible to take to Batswana.”