According to the 2024/25 forecasts from the Finance Ministry, mineral revenues were expected to provide about 27% of budget revenues for the financial year, at an estimated P25.2 billion. Mineral revenues comprise taxes, royalties and dividends on the various mining and mining-related activities taking place in the country.
As with other years, diamond mining was expected to provide the bulk of these revenues, with fiscal authorities hoping that the sector would shrug off the deep slump seen in the second half of last year.
As numbers from the first half of the year come in, it is becoming clear that the slowdown in diamonds and related activities such as cutting and polishing, has persisted into 2024, putting pressure on the revenue projections announced earlier in the year.
In the first three months of the year, Debswana, which produces more than 95% of the country’s diamonds, reported a 28% drop in production, while De Beers now expects to globally produce up to 29 million carats, from an initial forecast of 32 million carats.
“Production guidance for 2024 is lowered to 26–29 million carats (previously 29–32 million carats) in response to the higher than average levels of inventory in the market and the expected gradual recovery in rough diamonds through the rest of the year,” De Beers said in a first quarter production report.
The diamond giant, which equally co-owns Debswana with government, is due to release its half year results in coming weeks, but most analysts do not expect a marked turnaround in production.
Diamond sales have underperformed, with De Beers’ first five auction events of the year grossing $1.95 billion, compared to $2.42 billion over the corresponding period last year.
The Finance Ministry’s director of tax policy, Boitshoko Keabofe-Medupe, is amongst those watching the numbers come in.
The 2024/25 budget, described as transformational by its proponents and overly-ambitious by its critics, plans to spend a record P102.3 billion in the months to March 2025. Within that, the equally mammoth development budget of P29.8 billion is expected to propel various infrastructure projects such as roads, water, rail, ICT and others.
The intention, government said earlier this year, is to use the implementation of these projects to “unlock opportunities for sustainable jobs, improving the quality of life, reducing poverty, eliminating gross inequalities and ultimately achieving a high-income status.”
Keabofe-Medupe says while pressure is mounting on the mineral revenues required to deliver the planned spending, at present government’s position is not to squeeze more money out of taxpayers.
“We only just emerged from COVID-19 and everybody is under pressure,” she told Mmegi recently on the sidelines of a BURS briefing.
“If we are going to look to the same people who are paying right now and are under duress, maybe from a policy perspective, it won’t be that fair.
“One of the canons of taxation is fairness and the ability to pay.”
In the wake of COVID-19, government stepped up its domestic resource mobilisation efforts, which included increases in tax rates and levies in order to plug budget gaps caused by the pandemic and the contraction of other revenue streams such as mining.
“You will recall that after COVID, government introduced sugar levy, plastic levy, VAT increases and others and I think Batswana are paying.
“If we are going to look into something else, it should be something else other than individuals,” the tax policy director said.
For now, government’s options for raising the revenues required for the historic budget this year are limited and plagued by variables. One option has already been triggered, which was the increase in domestic borrowing, as the ceiling on how much government can raise was lifted from P30 billion to P55 billion in March.
While the bulk of government’s forecast deficit of P8.7 billion for 2024/25 is expected to come from domestic capital market borrowings, each thebe government receives comes with interest, raising the stakes for long-running issues such as the efficiency of public spending and project implementation.
The other option is for fiscal authorities to tighten their spending, particularly around wastefulness and leakages. However, this effort has met with limited success over the years, despite the various initiatives and pledges by successive finance ministers.
A counter-intuitive option fiscal authorities will be reluctant to admit is that the effect of the drop in mineral revenues could actually be helped the traditional slow spending of the development budget. While billions of Pula have traditionally remained unspent at the end of each budget, this comes at the cost of delivering projects and their associated opportunities or objectives, in a timely manner to Batswana.
Fiscal authorities will also hope that ballooning base metal production this year, will ameliorate the downturn in diamonds, to some extent. Exports of copper reached P2.3 billion in the first quarter of the year, continuing a runaway streak for a commodity globally in demand due to the energy transition. The first quarter exports are on track to beat the full year P7 billion figure recorded last year.
Keabofe-Medupe told Mmegi that in terms of tax policy, there were some alternatives government could explore going forward. One of these is the introduction of presumptive tax, a simplified type of tax based on estimates which is used globally particularly for small businesses.
“Those in the informal sector right now, there are those who are doing very well but they escape the tax net.
“Those are some of the issues that from a policy point of view we are considering, but we will see,” she said.
Taxation of business activities in the informal sector, which covers everything from passenger commuter services to hairdressers, has been raised previously in discussions within the fiscal policy space. The pressures on mineral revenues and the need to widen the tax base may catalyse these debates.
Keabofe-Medupe said the issue of how to identify informal sector players who could be tax liable, or how to ensure tax obligations are paid, would have to be ironed out.
“Those are some of the difficult topics that one has to look at but at the end of the day, there are countries who have gone ahead of us and have those taxes.
“If at the end of the day, it becomes a government decision that we have to go that route, there’s always room for benchmarking to see where they started.
“Because at the end of the day, everyone, even in the informal sector, they are licensed somewhere and there’s always somewhere to start and look to get everyone into the tax net.”
For now, however, the Finance Ministry’s focus is on balancing the numbers for the 2024/25 budget amidst the tremors continuing to rock the diamond sector.
