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ATAF, World Bank partner to strengthen African tax system

African Tax Administration Forum (ATAF), a regional confederation of African countries tax collection bodies has penned down a memorandum of understanding with the World Bank to roll out the red carpet for collaborative engagements and partnerships on strengthening Africa’s tax systems.

The two organizations met in Washington DC last week to commence the partnership which will entail numerous technical assistance programs and frameworks. Key to this partnership will be leveraging on the World Bank is cutting edge expertise and resources  to assist African countries build a strong tax regime for the development of their countries. The African Tax Administration Forum has in many instances underscored that African countries’ biggest loophole in domestic revenue mobilization  was  that tax collection revenues lack capacity and thus were not fully effective and efficient in delivering their mandates.

The General Assembly of the Africa Tax Administration Forum (ATAF) held in Gaborone early this year underscored regulatory constraints and limited internal capacity of African tax collection bodies as key factors that continue to hinder effective and efficient domestic resources and revenue mobilization through tax by relevant authorities.

At the memorandum signing ceremony in DC ATAF Executive Secretary, Logan Wort and the World Bank Group represented by its Global Director Macroeconomics, Trade and Investment Global Practice, Marcello de Moura Estevão Filho noted that under the MoU, the two organizations intend to share knowledge, and pool their expertise and resources to jointly deliver technical assistance and build capacity across Africa.

Logan Wort said the World Bank is a traditional ally of ATAF, noting that the two organizations have in the past, cooperated on numerous projects, including AFTAF’s programs aimed at building the capacity of ATAF’s Members and improving their efficiency in tax revenue mobilization. “As we are about to step into the next decade of ATAF, consolidating ties with like-minded organizations such as the World Bank Group can only be beneficial to our membership across the continent,” he said.

The ATAF Head said African countries lose over $100 billion to illicit capital and illegal financial flows annually. He highlighted that building tax administration capacity was needed to help spur development in Africa. Tax revenues account for over a third of GDP in developed economies while contributing far less in developing countries, particularly in sub-Saharan Africa, where they correspond to less than a fifth of GDP.

Deliberations at  ATAF  forum early this year underscored that more tax revenue would not only help the African countries to function and pay for goods and services, but would open the way for other market and state reforms that would promote economic, social and environmental development.

“Raising tax burdens might seem like an odd proposition to policymakers, but when taxes account for 10 to 15% of GDP, a well-designed increase in tax is exactly what many developing countries need: just as an excessively heavy tax burden might crush activity, an excessively low one can starve an economy of the oxygen it needs to advance,” said Mr. Logan Wort Executive Secretary of African Tax Administration Forum.

Wort says institutional arrangements were another issue which can have an impact on the effectiveness of tax administration. He shared that revenue bodies in most African countries follow a relatively unified, semiautonomous model, meaning that they have considerable freedom to interpret tax laws, allocate resources, design internal structures and implement appropriate human resource management strategies. “At the same time, they are responsible for tax, customs and non-tax revenue operations, this can cause some resources stretch and result in gross inefficiencies,” said Logan Wort.

THE WORLD BANK ON AFRICAN TAX SYSTEMS.

The World Bank says mobilizing tax revenue is key if developing countries are to finance the investments in human capital, health and infrastructure necessary to achieve the World Bank Group’s goals of ending extreme poverty and boosting shared prosperity by 2030. “To achieve the Sustainable Development Goals, low-income countries face an estimated annual financing gap of half a trillion dollars, 0.5 percent of global Gross Domestic Product (GDP).”

According the Washington Based Global lender Sub-Saharan Africa remains the region with the largest number of economies below the minimum desirable tax-to-GDP ratio of 15%. At that level, revenues are inadequate to finance basic state functions. The Bank says relatively low tax collections in the region reflect weaknesses in revenue management, including widespread tax exemptions, corruption, and shortfalls in the capacity of tax and customs administrations.

Given the regions relatively large agricultural sectors and less open economies, the capacity to raise tax revenues is also lower. The maximum tax revenue potential for countries in the region is estimated to average 19.6% of GDP, which is 7.5 points lower than in the rest of the world. Experts say most African economies have the potential to mobilize more in taxes. This according to the World Bank can be done through better tax administration including value-added taxes, broadening the tax base by removing cost-ineffective tax expenditures, and increasing excise taxes including on alcohol, tobacco, and soft drinks.

“In addition, it’s important to introduce efficient carbon-pricing policies and effective property taxation while closing international tax loopholes that permit aggressive tax avoidance and evasion by multinationals and wealthy individuals,” proposes the global lender. The World Bank is also of the view that reducing structural bottlenecks is also part of suite of tools to consider in improving revenue outcomes, including by improving taxpayers’ trust and by moving tax administrations to the digital frontier.

BOTSWANA‘S TAX ADMINISTRATION

Like many African countries, the taxation structure in Botswana was basic at the time of its independence in 1966 comprising mainly of the Income Tax department. However, five decades later, the country’s fiscal landscape has transformed, guided by orderly legislative reforms and institutional transformation.

 Over the past five decades, a number of tax laws were put in place aimed at improving the country’s tax regime. In addition to the review of the old Income Tax and Customs Act, the Government adopted the Value Added Tax Act of 2002, and Botswana Revenue Service Act of 2003. The latter culminated in the establishment of the Botswana Revenue Service (BURS).

As a result of these measures, Botswana is currently financing over 60 percent of its budget from the domestic tax revenue, while the balance comes from the customs duties and other revenues. The contribution of ODA to the budget is less than one percent. The tax to gross domestic product (GDP) ratio is around 20 percent, which, though lower than in OECD countries, Botswana boast of it as very competitive among the Sub-Saharan countries.

OEDC ON AFRICAN TAX SYSTEM

Organization for Economic Cooperation & Development (OEDC) has in the past noted that African countries tax system was one of the weakest in the world going on to name some African countries such as Botswana in the past ‘tax haven’. Botswana has since cleansed itself off the tag. However the OECD  still maintains that  tax exemptions such as IFSC fiscal framework  in the case of Botswana and many Africa countries has little impact on investment attraction but only cripple the country‘s revenue collection vehicles

“Under pressure to offer internationally-competitive tax environments, developing countries offer generous tax breaks that undermine their domestic resource mobilization efforts with little demonstrable benefit in terms of increased investment,” says OECD. Botswana has been cited as one good example for such. The underlying concern by OECD is that low income countries often face acute pressures to attract investment by offering tax incentives, which then erode the countries’ tax bases with little benefit even after running for several years. OEDC is of the view that these arrangement do not output significant and desirable results but only cripple the country‘s revenue collection vehicles.

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Dark days as Aviation industry collapses

22nd November 2020
Air Botswana

As the Aviation industry takes a COVID-19 pummeling, for Africa the numbers are staggering, Chief Executive Officer of the International Air Transport Association (IATA), Alexandre de Juniac has observed.

Speaking recently at the African Airlines Association (AFRAA) has been hosting an Annual General Assembly, de Juniac said traffic is down 89% and revenue loses are expected to reach $6 billion. And this figure is likely to be revised downwards in the next forecast to be released later this month. “But the impact is much broader. The consequences of the breakdown in connectivity are severe,” he surmised.

According to de Juniac, five million African livelihoods are at risk while aviation-supported GDP could fall by as much as $37 billion. That’s a 58% fall.

“We have a health crisis. And it is evolving into a jobs and economic disaster. Fixing it is beyond the scope of what the industry can do by itself.”

He said they need governments to act, “And act fast to prevent a calamity.”

“We are in the middle of the biggest crisis our industry has ever faced. As leaders of Africa’s aviation industry, you know that firsthand. Airline revenues have collapsed. Fleets are grounded. And you are taking extreme actions just to survive. We all support efforts to contain the COVID-19 pandemic.  It is our duty and we will prevail. But policymakers must know that this has come at a great cost to jobs, individual freedoms and entire economies,” he said.

de Juniac used the AFRA general assembly platform to amplify IATA’s call for governments to address two top priorities: “The first is unblocking committed financial relief. Airlines will go bust without it. Already four African carriers have ceased operations and two are in administration. Without financial relief, many others will follow.”

Over US$31 billion in financial support has been pledged by African governments, international finance bodies and other institutions, including the African Development Bank, the African Union and the International Monetary Fund.

Unfortunately de Juniac pointed out, in his words, “Pledges do not pay the bills. And little of this funding has materialized. And let me emphasize that, while we are calling for relief for aviation, this is an investment in the future of the continent. It will need financially viable airlines to support the economic recovery from COVID-19.”

The second priority, according to IATA is to safely re-open borders using testing and without quarantines.

“People have not lost their desire to travel. Border closures and travel restrictions make it effectively impossible. Forty-four countries in Africa have opened their borders to regional and international air travel. In 20 of these countries, passengers are still subject to a mandatory 14-day quarantine. Who would travel under such conditions?” de Juniac quizzed rhetorically.

He suggested that countries should adopt systematic testing before departure provides a safe alternative to quarantine and a solution to stop the economic and social devastation being caused by COVID-19.

He admitted that it’s a frightening time for everyone, not least the millions of people whose livelihoods depend on a functioning airline industry. Right now, de Juniac said there essentially is no airline industry. He cited the example that China’s largest airlines sound optimistic, but in a vague way. “They gave no hard data about current yields, loads, or forward bookings, discussing only developments in 2019. Boy, does that seem like ages ago.”

Aviation’s darkest days

The IATA CEO said these are the darkest days in aviation’s history. “But as leaders of this great industry I know that you will share with me continued confidence in the future.

Our customers want to fly. They desire the exploration that aviation enables. They need to do international business that aviation facilitates. And they long to reunite with family and loved ones.”

He said the industry will, no doubt, be changed by this crisis, but flying will return. “Airlines will be back in the skies. The resilience of our industry has been proven many times. We will rise again,” he said.

de Juniac said Aviation is a business of freedom. “For Africa that is the freedom to develop and thrive. And that is not something people on this continent will forget or lose their desire for.”

 

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Inflation increased to 2.2% in October 2020

22nd November 2020

Headline inflation increased from 1.8 percent in September to 2.2 percent in October 2020, but remained below the lower bound of the Bank’s medium-term objective range of 3 – 6 percent, and lower than the 2.4 percent in October 2019.

According to Statistics Botswana, the increase in inflation between September and October 2020 mainly reflects the upward adjustment in domestic fuel prices {Transport (from -3.9 to -2.5 percent)}, which is estimated to have increased inflation by approximately 0.29 percentage points.

“There was also a rise in the annual price increase for most categories of goods and services: Alcoholic Beverages and Tobacco (from 6.2 to 6.6 percent); Clothing and Footwear (from 2.5 to 2.7 percent); Communications (from 0.6 to 0.9 percent); Housing, Water, Electricity, Gas and Other Fuels (from 6.4 to 6.6 percent); Recreation and Culture (from 0 to 0.2 percent); Miscellaneous Goods and Services (from 0.7 to 0.9 percent); Food & Non-Alcoholic Beverages (from 4.2 to 4.3 percent); and Furnishing, Household Equipment and Routine Maintenance (from 2 to 2.1 percent). Inflation remained stable for: Education (4.7 percent); Restaurants and Hotels (3 percent); and Health (1.5 percent). Similarly, the 16 percent trimmed mean inflation and inflation excluding administered prices rose from 1.8 percent and 3.1 percent to 2.2 percent and 3.4 percent, respectively, in the same period.”

[Source: Bank of Botswana]

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BDC injects further P64 million into Kromberg & Schubert

22nd November 2020
BDC

Botswana Development Corporation (BDC) has to date pumped a total of P100 million into the expansion of Kromberg and Schubert, a car harnessing manufacturing company, operating from Gaborone Old Naledi.

At the official ground breaking ceremony of the company‘s new warehouse today, BDC Managing Director, Cross Kgosidiile revealed the wholly state owned investment corporation has pumped P64 million into the expansion which entailed building of the new warehouse.

Kgosidiile explained that this follows another expansion project which was successfully launched in 2017, in which BDC invested P36 million, bringing the total investment into Kromberg at P100 million. The MD also acknowledged Botswana Investment and Trade Centre (BITC) as a partner in the project and for having facilitated the acquisition of the land.

 

Giving a keynote address, Minister of Investment, Trade & Industry, Peggy Serame highlighted the importance of infrastructural development in growing the local manufacturing sector and transforming the economy of Botswana.

Serame underscored the value of strategic partnerships between Government and the private sector, noting that when the two work together and pull together in one direction results will be evident and jobs will be created.

“With the prevailing conditions of depressed economy occasioned by COVID-19 pandemic, government is reliant on entities like BDC to bring in revenue and acceleration of private sector development in line with its mandate and strategic plan. This plan is supported by the need to invest in growth sectors and accelerate the implementation of the Economic Diversification Drive,” Serame said.

Minister Serame noted that the partnership between BDC and Kromberg & Schubert begun in 2017 when the P36 million, 4100 square metres factory expansion for the company was launched.

 

She said the launch of the 7320 square meters factory expansion, to be built at the tune of P64 million signals the continuation of the good partnership between the two companies.

 

“I must commend BDC for their continuous efforts to build partnerships with the private sector geared towards contributing to economic development of this country.”

 

Minister Serame also added that BITC through its robust investor aftercare programme continues to provide value added and red carpet to Kromberg and Schubert under their One Stop Service Centre.

 

“In this regard BITC facilitated acquisition of land to enable this expansion. I therefore would like to commend BITC for their timely facilitation to make this expansion possible,” the minister said.

 

Kromberg & Schubert was incorporated in Botswana in 2009; The Company has grown to asset its position as a significant player in the regional automotive industry value chain.

 

The company is also a critical player in the economic development of Botswana, it currently employs 2100 Batswana across its operations. Kromberg exports on average P2.0 billion worth of goods annually, contributing significantly to foreign exchange.

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