Task teams mandated with reviewing the Southern African Customs Union (SACU) revenue sharing formula will this month (August) resume the negotiations, which were suspended several years ago.
Ahead of SACU Council of Ministers meeting in September, the world’s oldest Customs Union has already assembled a team from individual countries to look into the sharing formula which has been a hot topic among members for more than five years. The review, sources have said, has divided the world’s biggest Customs Union, which is based in Windhoek, Namibia.
This week, Dr Taufila Nyamadzabo, finance ministry’s secretary for financial and economic policy told Botswana Guardian that negotiations on the review of the sharing formula will start after it was stopped four years ago.
“Once negotiations start, it will take two years before a decision can be reached,” said Nyamadzabo. He was speaking on the sidelines of a Wednesday press briefing that was meant to discuss the agenda of the two-day African Caucus Meeting on World Bank and International Monetary Fund (IMF) which ends today (Friday).
Before the meetings on the review of the sharing formula were suspended, it is understood that South Africa, Africa’s most advanced economy, had stopped attending for various reasons.
Nyamadzabo said the revenue sharing formula is among the key priority areas which the SACU Council of Ministers will deliberate on when they meet in Pretoria, South Africa in the coming month. SACU has in the past commissioned an Australian company, Centre for International Economics Consultants, to undertake the revenue sharing review, but it was agreed that the report was not convincing, which led to an agreement that each of the five members come up with their own proposals.
Over the years, the SACU revenue pool has contributed significantly to Botswana’s national budget. According to Botswana Unified Revenue Service annual report for 2015/16, the SACU Revenue Pool stood at R88, 8 billion. From the above pool, Botswana received R20 billion, compared to R19 billion the year before, which represents an increase of 4 percent on a yearly basis.
The SACU revenue sharing formula was implemented for the first time in December 2004 to calculate 2005/06 revenue shares for Member States. In practice, Member States’ annual revenue shares are determined and approved by Council in December for distribution during the subsequent year.
The current revenue sharing formula has three components; namely the customs component, excise component and the development component. The customs share is allocated on the basis of each country’s share of intra-SACU imports. The excise component is allocated on the basis of each country’s share of Gross Domestic Product (GDP). The development component, which is fixed at 15 percent of total excise revenue, is distributed according to the inverse of each country’s GDP per capita.
The structure of the Revenue Sharing Formula is such that member states get a significant share of their revenue from the Customs component whilst South Africa gets more than 90 percent of its share from the Excise component.
The Development component, whilst meant to compensate the least developed economies, is distributed more or less in equal shares among all the Member States. The implementation of the current Revenue Sharing Formula has a number of challenges, associated with the data that informs the variables in the formula. Furthermore, the recent global financial crisis has exposed some weaknesses in the structure of the Revenue Sharing Arrangement.