Botswana Central Bank Head: Review Tax System And Prepare For Diamond Depletion

The head of Botswana’s central bank has urged the government to overhaul the state's tax system and prepare its economy for declining income from diamonds.

Sales of rough diamonds account for 20 percent of Botswana’s gross domestic product and the country has used diamond revenues to finance the building of infrastructure.

However, diamond reserves will run down over the coming 20 years. With the nation's current and previous governments having largely failed to diversify the economy, it is likely to struggle to finance future investment projects.

The Bank of Botswana said in a study that is a part of its annual report: “There is recognition that growth in diamond revenues has flattened and might recede in the future. It is thus important to explore alternative and sustainable sources of financing for public infrastructure,” Bloomberg reported.

The bank pointed to specific tax reforms, such as removing large-scale exemptions on value-added tax and investor concessions. “We have recommended the expansion of the tax base through, among others, reducing the number of VAT-exempted items and replacing these with targeted social transfers,” said Tshokologo Kganetsano, director of research and financial stability.

Botswana's VAT exemptions include agriculture inputs, basic food items and medicine. It also has several long-standing tax concessions for investors, including the International Financial Services framework that provides for a 15% corporate tax rate, rather than the standard 22%, and conditional exemptions on capital gains tax, withholding tax and other rates.