Botswana is losing billions of pula in potential tax revenue as businesses in the trade, transportation, mining and manufacturing sectors account for the largest share of a growing value-added tax (VAT) compliance gap, according to a new International Monetary Fund technical assistance report.
The report shows that while VAT collections have remained broadly stable as a share of the economy, an increasing portion of taxes owed to the government is not being declared.
Botswana’s overall VAT gap widened to 5.8% of gross domestic product in 2024 from 4.9% in 2017, with the deterioration driven largely by non-compliance rather than tax policy shortcomings, the IMF said.
The compliance gap alone increased to 3.5% of GDP in 2024 from 2.0% in 2017, indicating that a growing share of VAT liabilities went unreported or under-reported.
“The overall VAT gap has trended upward, driven by a growing compliance gap,” the IMF said.
Trade and transportation, together with mining and manufacturing, were identified as the sectors contributing most to VAT losses.
“The analysis indicates that VAT non-compliance is heavily concentrated in the ‘trade and transportation’ sector and the ‘mining and manufacturing’ sector. These sectors together generate a large share of the unpaid VAT,” the report said.
To address the problem, the fund recommended that BURS establish a dedicated VAT-gap analysis unit, improve data-sharing arrangements with Statistics Botswana, conduct annual VAT-gap assessments and use sector-specific intelligence to guide audits and enforcement efforts.
The IMF attributed the concentration of losses to activities that are more difficult to monitor and tax, including informal trading and complex supply chains within mining and manufacturing operations.
Financial services and construction recorded comparatively smaller compliance gaps.
The report said Botswana’s VAT framework is not unusually generous by international standards and that the main opportunity for raising revenue lies in stronger enforcement.
“These findings imply that Botswana’s VAT policy is not unusually generous; instead, the main opportunity for revenue gains lies in improving compliance,” the IMF said.
The largest source of revenue leakage stems from businesses failing to declare their correct VAT liabilities rather than from unpaid tax debts.
“The compliance gap’s largest component is the assessment gap — unreported or under-reported liabilities — which averaged over 90% of the compliance gap during 2017-2024,” the report said.
The IMF said the findings highlight the need for the Botswana Unified Revenue Service to strengthen audits, identify non-filers and target businesses that understate VAT obligations. It cautioned that focusing solely on debt collection would have a limited effect on narrowing the gap. VAT collections recovered to about 4.2% of GDP in 2024, returning to pre-pandemic levels after disruptions linked to Covid-19 and a temporary reduction in the VAT rate. However, the IMF warned that compliance trends continue to deteriorate.
To address the problem, the fund recommended that BURS establish a dedicated VAT-gap analysis unit, improve data-sharing arrangements with Statistics Botswana, conduct annual VAT-gap assessments and use sector-specific intelligence to guide audits and enforcement efforts.
According to the report, stronger analytical capacity and risk-based enforcement could generate additional revenue without raising tax rates by improving the collection of taxes that are already legally owed.
