The IMF said Botswana’s overall VAT gap increased from 4.9% of GDP in 2017, signalling a growing revenue compliance challenge for the government.
The assessment was conducted under the IMF’s Revenue Administration Gap Analysis Program at the request of the Botswana Unified Revenue Service (BURS). The exercise analysed VAT performance between 2017 and 2024 and sought to identify compliance-related and policy-related revenue losses.
According to the IMF, Botswana’s VAT collections remained relatively stable over the period, ranging between 3.0% and 4.2% of GDP. VAT receipts fell in 2021 as the COVID-19 recession hit tourism and diamond mining, while a temporary VAT rate reduction from 14% to 12% between August 2022 and March 2023 also weighed on revenue.
Collections recovered in 2024 to about 4.2% of GDP, returning to pre-pandemic levels. However, the IMF found that Botswana’s compliance gap deteriorated sharply. The compliance gap, which measures VAT that should have been paid but was not, rose from 2.0% of GDP in 2017 to 3.5% in 2024.
In relative terms, the gap widened from 36.5% of potential VAT collections to 47.7% over the same period.
By contrast, the policy gap, which reflects revenue lost because of exemptions and tax policy choices, remained broadly stable at around 3% of GDP. The IMF said this suggests Botswana’s main VAT challenge lies in taxpayer compliance rather than the structure of the tax system.
The report identified trade and transportation, as well as mining and manufacturing, as major sources of VAT non-compliance. The IMF said informal trading activity and complex supply chains may be making enforcement more difficult in these sectors.
Although Botswana’s VAT gap remains below levels recorded in many comparable African and emerging economies, the IMF warned that the worsening trend is a concern.
More than 90% of the compliance gap stems from unreported or under-reported liabilities rather than unpaid assessed taxes, meaning stronger audits and enforcement could deliver significant revenue gains.
The IMF recommended that BURS establish a dedicated VAT gap analysis team, improve data quality, strengthen cooperation with Statistics Botswana and use VAT gap findings to guide compliance risk management.
The Fund said regular monitoring and targeted enforcement in high-risk sectors would be critical to improving revenue collection and protecting Botswana’s fiscal position.
–IMF/ChannelAfrica–
