VAT Increase In the Middle Of A Pandemic Shows Botswana Government's Disregard For The Poor

On 1 April, the government of Botswana officially put into effect a 2% increment of VAT (Value Added Tax), effectively increasing it from 12% to 14%. The VAT increase was just one of the numerous "fiscal balance restoration measures", as Minister of Finance Dr. Thapelo Matsheka referred to them in his 2021 Budget Speech, introduced by the government to try to tackle among other things, the P21 billion 2020/21 budget deficit, which is a whopping 11% of GDP, and to also to make up for the country's dwindling foreign exchange coffers which plummeted from P65 billion in 2019 to P58.7 billion at the end of 2020. Other "fiscal restoration measures" introduced on April 1st include fuel levy, withholding tax on company dividends, plastic levy, sugar tax as well as a levy on imported secondhand vehicles.

VAT is nothing new in Botswana. Initially introduced at 10% in July 2002 to replace the then "sales tax", the first increment occurred in April 2010 by 2% to 12% in response to the shock the country's economy experienced as a result of the 2008/2009 global financial crisis when the country's GDP contracted by 4.6%. Staying true to their habit of increasing taxes in the middle of a crisis, the government again decided to increase VAT in the middle of the COVID-19 pandemic when the people who are most going to feel the increment, poor households, have no idea where their next meal is going to come from.

The COVID-19 pandemic has already decimated the livelihoods of poor households as movement restriction measures including the lockdown and curfews meant the loss of jobs and other sources of income from informal employment. For the government to then add insult to injury by making survival even harder for the people it has failed dismally throughout the pandemic shows how inhumane, heartless and clueless the elitists who are at the helm of this administration are.

Regardless of how government or its advocates try to phrase it, the fact remains that increasing consumption taxes like VAT in the midst of sluggish economic growth cannot be justified as a reasonable "fiscal restoration measure" because VAT, by nature, is a regressive tax which will always take more from low-income earners compared to high-income earners.

VAT is a tax on the consumption of goods and services and when it is hiked, sellers almost always shift the burden of the tax to the consumer by increasing the prices of their goods and services. This is where the regressive nature of VAT becomes apparent. Because low-income households have a higher marginal propensity to consume (MPC),  meaning they consume a higher proportion of their income on these goods and services, they will feel the most impact of the price increments on these goods and services, especially food.

According to the Botswana Household Income & Expenditure Survey, low-income households spend between 30% and 43% of their income on food, compared to only 14% spent on food by higher income groups. This means that by increasing VAT and consequently prices of food, the government is literally starving the country's low-income groups who also happen to be the most vulnerable in these trying economic times. This of course does not come as a surprise from an administration whose Vice President said, in response to the VAT increment, that "...VAT increase ye gae kalo-kalo,gase e ka ntshang mokola...". The words of a man so clearly oblivious to the realities of most households in the country.

The VAT increase, together with increments in electricity tariffs and fuel levies among many others, is going to prove to be detrimental to the country's poor. Couple this with a ravaging pandemic and a government that could not care less for their welfare and you have a humanitarian crisis brewing in this country as more and more people fall on and below the poverty line.

By continuing to disregard low-income households when devising these ridiculous policies of theirs, the government is making it extremely expensive to be poor in this country.  It is the poor who lose most of their livelihoods when government imposes lockdowns and curfews. It is the poor who bear the brunt of tax and levy increases. It is the poor who suffer the most when public funds to build infrastructure are looted by high-ranking officials. But, on a brighter note, it is also the poor who make up most of the electorate in this country and have a chance to vote for a better life for themselves in 2024.