The untapped power of VAT refunds
*Tonderai Tsara
Botswana has long needed a VAT refund system for cross-border shoppers, a proposal made 21 years ago by former BOCCIM (now Business Botswana) President Iqbal Ebrahim. Since VAT is generally a tax on local consumption, it should not be applied to exports. Recently, a friend travelled from across the border and drove to Gaborone to service his 4x4 SUV because the high crime rate in South Africa discouraged him and the fact that he knows two people who lost similar cars at gunpoint, one in Gauteng and the other on the way there.
There has even been incidents of cross-border coaches being hijacked and passengers robbed of their possessions enroute to Gauteng. Despite this, South Africa has an advantage: if you buy goods to take across the border you can claim your VAT back when you exit. If you fix a foreign-registered vehicle there, the invoice can be zero-rated for VAT. On the other hand, Botswana limits VAT Refund as a benefit to diplomats, losing out on wider cross-border trade that would flow from making Botswana's 14% more price competitive. Botswana has established a solid record of stability and sound policies but has not maximised retail and service opportunities with Zimbabwe and Zambia.
Economies in towns like Kasane/Kazungula and Francistown would thrive if Botswana followed South Africa’s rebate template. Customers from adjacent countries would bulk purchase, buy clothing, lodge at local hotels, and eat at restaurants, stoking growth. This is standard practice around the world as a tourist; you can claim your VAT back in the UK, France, and Dubai. However, a defective system is prone to fraud (as the Aljazeera ‘Gold Mafia’ documentary has revealed). Botswana could mitigate some of these risks by adopting best practices and digitising claims. Although the government would then temporarily sacrifice some VAT income, increased sales, services, and jobs would, over time, more than makeup for the loss. A VAT refund scheme would be in keeping with Botswana’s push to diversify away from mining, attract regional buyers, and signal some commitment to promoting cross-border trade - just as Ebrahim envisioned years ago.
A local retail chain has already established new outlets less that 1 kilometres from both the Ramokgwebana and Kazungula border gates, cleverly positioned to tap into cross-border trade. A VAT rebate has the potential to spark explosive growth in our border towns and villages. Below is a direct excerpt from the National Business Conference Report, featuring Iqbal Ebrahim’s precise words from 2004: “The suggestion is that we should consider taking a leaf out of the development strategies of the likes of Dubai, Singapore and others. The greatest expansion in Botswana has been in the commercial sector, with shopping centres being built throughout the country. This has further fueled growth in the commercial sector. Could there be a message in this? Should we put industrialisation on the back burner and become a 'nation of shopkeepers'?
Singapore, Dubai, Malaysia, and many other such zones owe their success to retailing and being a trans-shipment centre for goods. Their trump card was duty-free shopping to the rest of the world. They did not have a raw materials base; Dubai wanted to diversify away from oil and Malaysia away from rubber. Clever planning and serious commitment drove their strategies. Ensuring Implementation of National Policies for Economic Diversification.”
The trading activities further fueled the industrial sectors, which developed stronger. We will need to closely study these countries’ strategies and convert their ideas to suit our own needs and conditions. An overlooked fact is that Botswana has lost much of its over the border customers from Zimbabwe because those shoppers are unable to or at least find it difficult to claim back VAT refunds at the Botswana border like they do at the South African side (South Africa has an immediate refund facility). The same applies to the loss of Zambian and Angolan customers as a result we have lost a valuable source of income from these shoppers who bypass us to shop in South Africa.”
While we frequently cite Dubai, Singapore, and Malaysia as benchmarks for Botswana, what the writer often finds lacking is a clear understanding or map of the steps they took to progress from circumstances much like ours in the sixties to where they are now. As an economy, we must master the fundamentals before aiming for larger goals. We need to sweat the small stuff. We need to be students of economics and “economic history”. Focusing on AFTCA, regional trade, and integration as we are doing now makes little sense while overlooking the essential elements of competitiveness - unless we want to “remain a nation of shopkeepers”, as Ebrahim so eloquently put it.
*Tonderai Tsara is an Economic Growth Activist & Entrepreneur who writes a monthly column called “Growth” - projects, ideas, and initiatives that could grow Botswana’s Economy.