Botswana: 'Increasing Vat Will Hurt Economy'

25 November 2020

The decision to increase Value Added Tax (VAT) from 12 to 14 percent amidst the Covid-19 pandemic is a bad move as it will cripple further the bedridden economy, experts say.

As Covid-19 has compromised economic growth with massive jobs cuts looming due to business operations taking strain, government is optimistic that VAT hike is needed. Permanent Secretary in the Ministry of Finance and Economic Development Dr Wilfred Mandlebe told Parliamentary committee on government assurances (PCGA) on Wednesday that as part of economic recovery from Covid-19 shocks, VAT will be increased from 12% to 14% in the next financial year.

Secretary General of Botswana Federation of Trade Unions (BFTU) Thusang Butale said it is shocking that government moved swiftly to increase VAT despite the Covid-19 depression. Butale noted that BFTU as a private sector representative union is disappointed by the lack of vision by government noting that salaries in private sector remain stagnant amid VAT hike. "The prices for utilities such as water, electricity and transport continues to climb. This is bad because the private sector working class is highly disadvantaged compared to civil servants. Economic recovery should not be undertaken at the expense of Batswana," he whined, elaborating that during the pandemic countries like Namibia have reduced taxes and that for Botswana to hike taxes is suicidal as businesses would hike prices thus harming the lower working class.

To that end, BFTU warned that the private sector which is under heavy burden due to the pandemic onslaught will be heading for a total collapse as workers continue to lose jobs. Butale is of the view that more trouble awaits the government post State of Emergency as hundreds of private sector companies will retrench workers hence more room for poverty. Furthermore, he said government should ensure that there is collective bargaining structures for the private sector that would enable for salary increase negotiations as well.

Local Economist and Corporate Credit Manager at BancABC Botswana Pako Moshaga also concurred that VAT increase is another huge blow to the already strained economic operations. He said the reasons for increase by government is appreciated as government funds itself with taxes, duties and other streams revenue but hiking in this period is wrong move. "The VAT increase has surely thrown a spanner in the works. The economic tone is sluggish as it is, given that Covid-19 plaque has affected the free flow of people and goods across the border, and business income in certain sectors has therefore been impacted," said Moshaga.

He also said this is further compounded by the fact that during the SOE employers are not permitted to retrench staff and businesses now carry an increased financial loads despite them making losses.

In addition, he stated the businesses are likely to pass on the VAT increase to consumers through higher prices given the fact that some of consumers are already facing salary cuts.

"This becomes quite a strain on the average household. Let's look at all this along with the recent 22% hike in electricity tariffs, the cost of living will g even higher through this VAT increase. So the ultimate people that will pay are the households that make up Botswana," he added.

Such an increase, Moshaga buttressed, will force consumers to dig deeper into their pockets in order to purchase household goods something that may be burden to their salaries.

Christian Greeff

Botswana Democratic Party (BDP) MP for Gaborone Bonnington South Christian Greff has punched holes on the low salary wages earned by low working class calling for a review. Debating State of Nation Address (SONA) on Thursday, Greeff said it was very important for decent wages to be considered noting that P1200 salary wages equates to enslaving workers.

He bemoaned that government keeps to hike prices for electricity, water and transport but the minimum wage salaries were not reviewed urging government to free workers from this slavery.

Meanwhile, Butale said as BFTU they expect all the political leaders to have a will to ensure that the low wages are reviewed or abolished totally and be replaced by decent living wage. He said it is regrettable that Parliament once turned down living wage bill but it is crucial.

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