GOVT CANNOT AFFORD TAX CUTS- FINANCE MINISTER

MBABANE – The tax burden binds!

Minister of Finance Neal Rijkenberg yesterday said government had no alternative source of revenue to cut taxes in the face of gripping high prices in consumer goods and services that have forced many emaSwati to the brink. The minister said as a result of the unavailability of other sources of revenue, government would not be tempted into reducing its tax base as this would lead to a litany of other problems in terms of financing its ailing fiscus. Expectations were high that the minister would announce a wide array of tax cuts when he called a media briefing on the economic impact of the skyrocketing costs of goods and services.

Problems

The minister alluded that the problems faced by the country were a result of disruptions due to the political unrest that unfolded over the past year and negative off-shoots from the Russia/Ukraine war, which had resulted in a rampant increase in prices. Botswana, a close ally of Eswatini, recently cut its value added tax (VAT), which is the amount of tax being charged on the final retail prices of goods and services; from 14 per cent to 12 per cent. The Government of Botswana also zero-rated (entirely removed VAT) on cooking oil and gas prices over a period of six months. It sought to respond to the same economic shocks suffered by Eswatini.

Revenue

Asked what stopped the country from revisiting its VAT position,  Rijkenberg said taxes were very important in forming the revenue base of government. He said if government were to rush to cutting taxes, it was possible that it would run out of money to finance things like free primary education (FPE), civil servants’ salaries, and other important programmes.
“When the shock is external, it becomes very difficult to contain it because it may change again very quickly. What we have done is to cushion against the internal shocks and to allow the external shocks to flow through the economy,” he said. The minister further stated that government was banking on many factors that the situation would self-correct, including the fact that wage negotiations were likely to follow the rising rates of inflation.

“This way, it is possible that most people will end up affording some of these products,” he said. The minister stated that government would be compelled to consider its stance on VAT if the Government of the Republic of South Africa were to alter theirs. He said a change locally would be necessary to facilitate trade at the border gates given that the last time VAT was not at par between the two countries, it caused chaos at the borders.  “Our tax ratio in relation to gross domestic product (GDP) currently stands at 15 per cent. It is among the lowest in the region. In Africa, the average is 17 per cent, while in South Africa it is 21 per cent. We cannot afford to cut taxes at this point,” he said.

Inevitably

As an option, Rijkenberg said government would inevitably have to go out to borrow in the case it chose to cut taxes. He pointed out that this also had its limitations, even though the country had recorded some positive growth in recent months. “It is important to note that we are still well below our self-stated cap of 45 per cent to GDP. Internationally, we are bound at 60 per cent of GDP, but we decided we will keep it below 45 per cent to ensure that our debt is sustainable,” he said. Rijkenberg further stated that the country’s reserves were at an equivalent of E10 billion, which was equal to the country’s debt stock. He said this was a good thing, even though it did not mean government intended to use such reserves to service its debts.   “If we maintain our taxes where they are today, I believe we will remain on the right path. As our revenue stream increases in line with economic growth, we should be able to service our debts without a problem,” he said. Rijkenberg emphasised that government would continue to use its reserves to aid companies and government agencies when they needed to import specific goods to trade in the country.

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