3rd September 2024
Sello Motseta
Botswana has experienced its fair share of challenges despite registering strong economic growth, with a GDP growth rate of 3.3 % in 2023 (World Bank), such as the pressing need to diversify its economy away from its heavy reliance on diamond exports.
The fluctuation in global diamond prices reminded Botswana of the importance of building a resilient and diversified economy, supported by a robust and effective tax system. This was revealed during the 9th Annual African Tax Research Network(ATRN) Congress under the theme “Contemporary Taxation Issues in Africa,” highlighting critical role that efficient and effective tax systems play in development.
“The African Tax Outlook (ATO) states that Africa remains one of the most under-taxed regions globally, with tax-to-GDP ratios averaging at 14.5% compared to the OECD average of 34%. This underperformance in tax collection not only hampers our ability to fund essential public services but also represents a missed opportunity to drive inclusive development and reduce inequality,” said Thulagano M. Segokgo, Minister of Communications, Knowledge and Technology, Botswana.
He said, “According to the African Tax Outlook (ATO), Botswana’s tax-to-GDP ratio stands at approximately 16%, which, while above the African average, still falls short of what is needed to meet our development aspirations.”
According to officials, the digital revolution is a reality reshaping the way we live, work, and govern. Digital technologies such as artificial intelligence (AI) and data analytics offer unprecedented opportunities to enhance tax administration, improve compliance, and combat tax evasion.
Artificial intelligence, in particular, holds the potential to revolutionize tax administration by automating routine tasks, identifying patterns of non-compliance, and optimizing audit processes.
For example, AI can analyze vast amounts of data to detect anomalies in tax returns, flagging potential cases of evasion or fraud that would otherwise go unnoticed.
This not only increases the efficiency of tax administration but also helps to ensure that the tax system is fair and that everyone pays their due share.
In Botswana, we are already seeing the benefits of digitalization in our tax system. The Botswana Unified Revenue Service (BURS) has implemented an electronic filing system that has significantly reduced the time it takes to file taxes, improved accuracy in tax assessments, and enhanced overall compliance.
Since its introduction, the e-filing system has seen a significant increase in the number of taxpayers filing returns on time. I therefore implore BURS to explore the use of AI to predict taxpayer behavior, identify potential risks, and optimize audit processes.
These technological advancements are not without their challenges. Botswana, like many other African countries, faces the need to invest in digital infrastructure, ensure data privacy, and build the technical capacity of our tax officials. To address these challenges, we are working closely with international partners and investing in capacity-building programs that will equip our tax administration with the necessary skills and tools to fully leverage the benefits of digitalization.
One of the most pressing issues in African taxation is the challenge of integrating the informal sector into the formal tax net. According to the 2022 UNDP report, the informal sector is a significant part of Africa’s economy, contributing an estimated 55% of GDP and employing over 70% of the workforce in some countries. Yet, its contribution to tax revenues remains disproportionately low.
This gap in taxation not only limits revenue collection but also perpetuates inequality and undermines efforts to formalize the economy.
Botswana’s informal sector, while smaller than in some other African nations, still plays a crucial role in our economy, particularly in rural areas and within micro and small enterprises.
BURS has therefore implemented initiatives aimed at bringing more informal businesses into the tax net. These include the introduction of simplified tax regimes tailored for small and micro enterprises, as well as educational campaigns to raise awareness about the benefits of formalization
Another critical challenges facing African tax administrations is the issue of illicit financial flows (IFFs).
According to the United Nations Conference on Trade and Development (UNCTAD), Africa loses an estimated USD 88.6 billion annually to IFFs, equivalent to 3.7% of the continent’s GDP. These illicit flows, which include tax evasion, money laundering, and trade mis-invoicing, deprive our countries of much-needed resources for development.
Ms. Jeanette C. Makgolo, Commissioner General for the Botswana Unified Revenue Service(BURS), said “Botswana’s commitment to domestic resource mobilization is evident in our continued efforts to improve Tax and Customs revenue collection and administration.
In Financial 2023/24, Botswana recorded a 19.5% increase in revenue collection from 2022/23, bringing the total to BWP 59.4 billion (USD 4.8 billion). This achievement is a testament to our dedication to building a robust and transparent tax system that supports national development.
She said, “Our journey has not been without challenges, particularly in addressing the informal sector, which accounts for an estimated 30% of Botswana’s labor force.”
This year’s theme, “Contemporary Taxation Issues in Africa,” is particularly relevant as we continue to navigate the complexities of the global tax landscape.
From leveraging artificial intelligence for effective taxation and combating illicit financial flows to addressing the challenges posed by the digital economy and the taxation of informal economies, our discussions over the next few days will be crucial in shaping policies that foster economic resilience and growth in our respective countries.
Botswana, like many other African nations, has greatly benefited from the collaborative efforts spearheaded by ATAF. Our participation in the ATRN has not only enriched our understanding of tax-related issues but has also strengthened our capacity to implement effective tax policies.
“This congress presents yet another opportunity for us to engage with leading tax experts, researchers, and policymakers, and to share insights that will undoubtedly contribute to the advancement of tax systems across the continent,” said Makgolo.
The revenues collected in 2023/24 contributed to critical sectors such as education, healthcare, and infrastructure, with BWP 12.5 billion (USD 1 billion) allocated to these areas alone.
This allocation has been instrumental in achieving a literacy rate of 88% and improving healthcare outcomes, with life expectancy rising to 70 years.
Africa is home to over 1.3 billion people, with a combined GDP of approximately $2.6 trillion. In 2023, Africa’s economy showed mixed results, with an average GDP growth of 3.8%. While some countries saw strong growth due to commodity exports, others struggled with high inflation, political instability, and rising debt levels. Unemployment, particularly among the youth, remained a major issue. Despite these challenges, sectors like technology and renewable energy attracted increased foreign direct investment, indicating potential for future growth.
Mr Logan Wort, Executive Secretary of ATAF, said “espite our continent’s vast resources and the potential presented by the young population demographics (median age of 19 years old), we face significant challenges in mobilizing domestic revenue.”
He said, “We face significant challenges in our tax systems including: low tax compliance, a large informal sector, and challenges with taxing the digital and High Networth Individuals leading to underperformance of direct taxes. Africa loses over $80 billion annually to IFFs, a staggering amount that could otherwise be invested in critical sectors. Addressing these issues is crucial if we are to achieve our development goals and reduce dependency on aid.”
This disparity underscores the urgent need to address contemporary taxation issues to ensure that sufficient revenues are mobilized efficiently and equitably to support sustainable development on the continent. But these challenges can best be addressed with sufficient research.
Taxation is more than a fiscal tool; it is a catalyst for sustaining impactful development financing in Africa. The revenue generated from effective tax systems can transform our economies by funding essential services and reducing poverty. With the investment gap in SDGs now standing at $4 Trillion, the importance of domestically mobilised revenues can never be emphasised.
The proposed UN Tax Convention represents a significant opportunity for African countries to push for more equitable international tax rules. This initiative could help correct the current imbalances in global tax governance, ensuring that African nations receive a fairer share of tax revenues.
Professor Annet Oguttu, Chairperson of the ATRN Advisory Board and Professor of Tax law, Director of Tax law0-Africa Tax Institute, said “Over the past two years, the ATRN Advisory Board has been at the helm, guiding the strategic direction of our network with steadfast commitment to excellence. The Board which is composed of distinguished professionals from diverse backgrounds, has worked tirelessly to ensure that the ATRN not only achieves its mission but also exceeds expectations.”
She said, “As I stand before you today, I am filled with immense pride in the remarkable progress we have made together. Reflecting on our journey, I am reminded of the milestones we have achieved, and I am thankful for the dedication of this Board and out collective commitment to solidified ATRN’s position as a leading voice in African tax research.”
When the board was appointed its primary objective was to establish robust governance structures that would guide the ATRN’s work with precision and transparency. This purpose was realized through the development and approval of several key governance and policy documents; including ATRN Governance Instrument which is the foundational document that provides the framework to ensure that our operations are efficient, ethical, and aligned with the broader objectives of the African Tax Administration Forum (ATAF).
There was also an initiative to build stakeholder relations which can be seen in the growing number of collaborations, including partnerships with International Centre for Tax and Development (ICTD) and the United Nations Development Programme (UNDP), which are actively participating in this Congress. The Board’s decisions and recommendations have also made the ATRN more attractive highlighted by over 100% increase in paper submission since the Board was appointed exactly 2 years ago.
“Our efforts to streamline processes have also paid off,” said Ogutto.
There has been a significant increase in the number of paper submissions for our Annual Congress, with a remarkable jump from 46 submissions in 2022 to 120 in 2024. This almost two-fold growth in paper submissions is not just a statistic—it is a testament to the growing recognition of the ATRN as a credible platform for academic discourse and policy development in taxation.
