This thesis is the first research study into tax compliance costs in Botswana, a
diamond rich developing country in southern Africa. The author is not aware of any
major comprehensive research study on tax compliance costs in the context of
Botswana. The only available studies are those that have been conducted by the
International Finance Corporation (IFC). The IFC studies estimated the tax
compliance time of a hypothetical medium-sized business. This study thus qualifies
as an original contribution to the tax compliance costs literature.
Value Added Tax (VAT) was first introduced in July 2002 at a rate of ten per cent,
and this was increased to twelve per cent in April 2010. This study analyses the
composition and distribution of gross and net VAT compliance costs and sets the
findings in an international context. The VAT recurrent compliance costs for
businesses in Botswana are derived for the financial years 2009/10 and 2010/11
based on questionnaire surveys. Average (gross) compliance costs are estimated to
be P6,902 and P7,201, and aggregate compliance costs at P110 million and P169
million, for 2009/10 and 2010/11, respectively. Indicatively, these estimates are
roughly around US$1,000 per business and US$17–23 million in aggregate. Overall,
VAT compliance costs represent around 0.1 per cent of Gross Domestic Product
(GDP) for both years and approximately 2.9 per cent and 3.6 per cent of VAT
revenue in 2009/10 and 2010/11, respectively.
The research confirms the findings of international studies that the VAT compliance
costs are inversely related to the business size. As a proportion of annual turnover,
the average VAT compliance costs range from around 0.02 per cent for large
businesses to 0.93 per cent for smaller businesses in both financial years. The VAT
compliance costs of small businesses in Botswana are around 45 times those of larger
businesses in both years. When the small business category is segregated further, the
VAT compliance costs fall from 3.17 per cent for small enterprises (with an annual
turnover below P500,000) to 0.02 per cent for larger ones (with an annual turnover
above P5 million) in 2009/10, and range from 0.02 per cent for large businesses to
3.30 per cent for small businesses in 2010/11. In this case, the VAT compliance costs
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of small businesses in Botswana become 159 and 165 times those of large businesses
in the financial years 2009/10 and 2010/11, respectively.
Aggregate cash flow benefits are estimated at P61 million and P69 million for the
financial years 2009/10 and 2010/11, respectively. These estimates represent around
0.6 per cent of GDP and about 1.6 per cent of VAT revenue for both years.
Aggregate managerial benefits have been estimated at P79 million for 2009/10 and
95 million for 2010/11 representing around 0.8 per cent of GDP and about 2 per cent
of VAT revenue for both years. After considering offsetting benefits, net VAT
compliance costs for businesses in Botswana are estimated at negative P30 million
for 2009/10 and P5 million for 2010/11. The findings of the study confirm the usual
regressive pattern of tax compliance costs.
As regards policy recommendations, the government of Botswana should consider
introducing an online VAT filing system to reduce queuing time and associated
costs. In addition, the Botswana government should increase VAT return filing
centres, especially in the outskirts of Gaborone, in order to reduce taxpayer travelling
costs and congestion at the main Gaborone office. The frequency of VAT filing in
Botswana is also a concern, especially for small businesses. Thus, a reduction of
VAT filing frequency for small businesses, from bimonthly to quarterly would
reduce their VAT compliance costs. Further, an increase in the registration threshold
from its current P500,000 (US$61,500) could be considered by policy-makers if
reducing VAT compliance costs still further is seen as a policy priority, although the
effects of such a measure on VAT revenue would have to be carefully assessed.