The IMF has cautioned that Botswana needs to quickly diversify its revenue sources and curb expensive tax exemptions to stabilise its fiscal position within its latest Article IV mission report, as mineral income declines and recurrent spending stays inflexible.

“Measures to broaden the revenue base include streamlining exemptions on zero-rated VAT goods and services, replacing the CIT holidays in Special Economic Zones with less costly investment tax credits,” as per the IMF report.

SPEDU, responsible for managing Special Economic Zones designed to attract investment and diversify the economy, has traditionally promoted corporate income tax (CIT) holidays as a major incentive.

However, the IMF notes that these incentives often provide limited value, favouring companies that would have invested regardless, while reducing much-needed government revenue.

The Fund suggests replacing blanket tax holidays with investment tax credits, which are internationally recognised as more targeted, transparent, and easier to manage.

Unlike broad exemptions, these credits reward actual capital expenditures and help limit long-term revenue losses, Mmegi reports.

In addition, the IMF also expressed concern over Botswana’s broad VAT zero-rating system, recommending that exemptions be streamlined.

While zero-rating is often defended on social grounds, the Fund points out that it shrinks the tax base and can disproportionately favour higher-income households, reducing revenue without effectively protecting the poor.

Whereas on the personal tax front, the IMF urges greater progressivity in income tax, along with stronger taxation of passive income such as dividends and interest. The Fund believes Botswana can enhance fairness in its tax system without harming economic growth or competitiveness.

Property taxation is another key focus of the IMF’s recommendations. The Fund encourages the government to strengthen reliance on recurrent property taxes, seen as a stable and growth-friendly revenue source, while phasing out transfer duties on immovable property, which it considers distortive to land and housing markets.

Reflecting global trends, the IMF also recommends tackling international tax avoidance, introducing a carbon tax, and enhancing compliance enforcement, beginning with the large taxpayer unit.

It further suggests improving the revenue authority’s customer service strategy to encourage voluntary compliance.

These measures come as Botswana faces significant budget deficits, rising public debt nearing 40% of GDP, and falling diamond revenues.