Regulatory constraints impedes Africa tax revenue mobilisation
Business
The General Assembly of the Africa Tax Administration Forum (ATAF) held in Gaborone recently has 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 mobilisation through tax by relevant authorities.
The high profile meet by tax administration officials of African states which convened for the 5th time since inception in 2008 provides an avenue for member countries to share best practices on tax matters and discuss strategies for improving on tax administration in the Africa region. When officially opening the forum held under the theme,“Moving Africa beyond Aid through Tax Revenue Mobilisation”, Minister of Finance and Economic Development Kenneth Matambo said Africa’s funding gap for its infrastructural development was estimated into hundreds of billions of United States dollars by International finance institutions such as the African Development Bank and the World Bank.
He observed that historically, Africa has depended on Overseas Development Assistance (ODA) to finance its development. “However, for many countries, including Botswana, this source of development financing has declined over the years” shared Matambo who explained that the decline in ODA has spurred many of the developing countries including in Africa to turn to domestic resources for financing their development needs.
Matambo shared that while governments take the lead in making policy decisions for mobilising domestic tax revenue to finance infrastructural development the responsibility of actually pulling the act together was bestowed upon revenue authorities. “As governments, we are cognisant of some of the challenges that our revenue authorities face in mobilising domestic revenue for development, which range from regulatory constraints to limited internal capacity” he said.
Matambo added that it would bear little fruits for African countries to address some of these challenges within the confines of their individual boarders as they spread to inter boarder’s trade dealing and customs collection operations. “It can be overwhelming, hence, the need for a fora such as the African Tax Administration Forum to brainstorm on these issues,” he added.
At the forum which ran for more than 3 days revenue authorities with the host Botswana Revenue Service (BURS) leading discussions, shared experiences in the areas of good governance in the running of their organisations, articulation of tax policy reforms, building of internal systems and processes to improve efficiency and effective revenue collection, and in designing training programmes to improve capacity within the revenue authorities.
Late last year the African Tax Administration Forum launched “Toolkit for Transfer Pricing Risk Assessment in the African Mining Industry” an instrument that seeks to guide African Countries on dealing with issues of illicit financial flows, the achievement was underscored at this year’s meet as a significant milestone considering the challenge faced by the African countries in dealing with multinational organisations. Just a fortnight ago the Africa Mining Summit held in Gaborone at the very same venue revealed the African was losing over $100 billion to illicit capital and illegal financial flows annually.
It was 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 the forum 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 percent 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. Logan Wort noted that 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” he said proposing for further dialogue on tax administration reform.
Botswana’s proposed tax administration reform
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, Matambo underscored as very competitive among the Sub-Saharan countries.
He explained that despite the relatively high tax to GDP ratio, the Government of Botswana remains concerned about the country’s narrow domestic revenue base, and volatility of the two main sources of mineral revenue and customs receipts.“In this regard, the Government of Botswana is working on further reforms to improve the tax landscape. These include the development of a new Tax Administration Bill to consolidate the administration of various domestic taxes and improve on their implementation,” he said.
Deliberating on the new proposed bill Matambo said this overarching tax administration law will result in the consequential amendments to other revenue laws such as the Income Tax and the Value Added Tax Acts to synchronise and harmonise them. Government has made a policy decision on the funding model for BURS, whereby unlike with other state-owned enterprises, which are funded through a grant subvention from Government, BURS has been allowed to retain part of its tax collection in order to fund its operational and development requirements. However, for good governance, the budget of BURS is still subject to the normal approval by the BURS Board and the Ministry of Finance and Economic Development.
Matambo observed that the change in the funding model has enabled BURS to address challenges relating to capacity and skills development, as well as funding its infrastructural projects, such as the ICT systems and construction of border posts. “Through the technical assistance from the Forum, my Ministry has developed the Transfer Pricing legislation, which is due to be laid before Parliament next month. The transfer pricing legislation buttresses the message that everyone should pay taxes when they become due, without fail or manipulation.” He said
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Grit divests from Letlole La Rona
Grit Services Limited, a member of the pan African real estate group, London Stock Exchange listed Grit Real Estate Income Group is divesting from Letlole La Rona Limited (LLR), a local real estate company established by government investment arm Botswana Development Corporation over a decade ago.
The Board of Directors of Letlole La Rona Limited this week announced in a statement to Unitholders that Grit Services Limited (‘Grit’) has informed them of its intention to exit its investment in the company.
Grit has been a material shareholder in LLR since 2019. On 07 March 2023, Grit sold 6 421 000 linked units, representing 2.29% of the Company’s total securities in issue, at a market value of BWP 22 537 710.
This trade follows previous sales of 6.79% in December 2022, as communicated to Unitholders on 10 January 2023, as well as a further sale of 4.78% (representing 13 347 068 linked units) on 24 February 2023 to various shareholders.
In aggregate, Grit has sold 13.9% shareholding in the Letlole La Rona between December 2022 and March 2023, resulting in current shareholding of 11.25% in the Company.
Letlole La Rona said in the statement that the exit process will take place in an orderly manner so as to maintain stability of the Company’s share price.
The statement explained that Grit’s sale of its entire shareholding in LLR is in line with its decision to exit investments where it does not have majority control, or where it has significant exposure to currencies other than US dollar, Euro or hard-currency-pegged revenue streams.
“Grit has announced similar decisions pertaining to certain of its hospitality assets in Mauritius recently. The Company would like to advise Unitholders that it remains focused on long-term value delivery to all stakeholders” LLR said
In July last year as part of their Go-to-Africa strategy Letlole La Rona acquired an initial 30% equity stake in Orbit Africa Logistics, with an option to increase this investment to 50%. OAL is a special purpose vehicle incorporated in Mauritius, owning an industrial asset in a prime industrial node in Nairobi, Kenya.
The co-investment was done alongside a wholly owned subsidiary of London listed Grit. The Orbit facility is situated on a prime industrial site on Mombasa Road, the principal route south of Nairobi center, serving the main industrial node, the port of Mombasa and the industrial town of Athi River and is strategically located 11 kilometers south of the international airport and 9.6 kilometers from the Inland Container Depot.
Grit shareholding in Letlole La Rona was seen as strategic for LLR, for the company to leverage on Grit’s already existing continental presence and expand its wings beyond Botswana borders as already delivered by Kenya transaction.
Media reports have however suggested that LLR and Grit have since late last year had fundamental disagreements on how to go about the Go-to-Africa strategy amongst other things, fuelled by alleged Botswana government interference on the affairs of LLR.
Government through LLR founding shareholder – Botswana Development Corporation has a controlling stake of around 40 percent in the company. Government is the sole shareholder of Botswana Development Corporation.
Letlole La Rona recently released their financial results for the six months ended December 2022, revenue increased by 4% to P50.2 million from P48.4 million in the prior comparative six months, whilst operating profit was up 8% to P36.5 million. Profit before tax of P49.7 million was reported, an increase of 8% on the prior comparative six months.
“We are encouraged by the strong results, notwithstanding a challenging economic environment. Our performance was mainly underpinned by annual lease escalations, our quality tenant base and below average market vacancy levels, especially in our warehouse portfolio,” Kamogelo Mowaneng, Letlole La Rona Chief Executive Officer commented.
LLR reported a weighted average lease expiry period of 3.3 years and escalation rates averaging 6.8% per annum for the period ended 31 December 2022.Its investment portfolio value increased by 14% year-on-year to close the period at P1.4 billion, mainly driven by the acquisition of a 30% stake in OAL in July 2022.
The Company also recorded a significant increase in other income, predominantly due to foreign exchange gains on the OAL shareholder loan. “We continue to explore pipeline opportunities locally, and regionally in line with our Go-to-Africa strategy and our interest remains on value-accretive investments,” Mowaneng said.
An interim distribution of 9.11 thebe per linked unit was declared on the 6th of February 2023 for the half-year period to 31 December 2022, comprising of a dividend of 0.05 thebe and debenture interest of 9.06 thebe per linked unit which will be paid to linked unit holders registered in the books of the Company at the close of business on 24 February 2023.
Business
Stargems Group establishes Training Center in BW
Internationally-acclaimed diamond manufacturing company StarGems Group has established the Stargems Diamond Training Center which will be providing specialized training in diamond manufacturing and evaluation.
The Stargems Diamond Training Institute is located at the Stargems Group Botswana Unit in Gaborone.
“In accordance with the National Human Resource Development Strategy (NHRDS) which holds the principle that through education and skills development as well as the strategic alignment between national ambitions and individual capabilities, Botswana will become a prosperous, productive and innovative nation due to the quality and efficacy of its citizenry. The Training Centre will provide a range of modules in theory and in practice; from rough diamond evaluation to diamond grading and polishing for Batswana, at no cost for eight weeks. The internationally- recognized certificate offered in partnership with Harry Oppenheimer Diamond Training School presents invaluable opportunities for Batswana to access in the diamond industry locally and internationally. The initiative is an extension of our Corporate Social Investment to the community in which we operate,” said Vishal Shah, Stargems Group Managing Director, during the launch of the Stargems Diamond Training Center.
In order to participate in this rare opportunity, interested candidates are invited to submit a police clearance certificate and a BGCSE certificate only to the Stargems offices. Students who excel in these programs will have the chance to be onboarded by the Stargems Group. This serves as motivation for them to go through this training with a high level of seriousness.
“Community empowerment is one of our CSR principles. We believe that businesses can only thrive when their communities are well taken of. We are hoping that our presence will be impactful to various communities and economies. In the six countries that we are operating in, we have contributed through dedicating 10% of our revenues during COVID-19 to facilitate education, donating to hospitals and also to NGOs committed to supporting women and children living with HIV. One key issue that we are targeting in Botswana is the rate of unemployment amongst the youth. We are looking forward to working closely with the government and other relevant authorities to curb unemployment,” said Shah.
Currently, Stargems Group has employed 117 Batswana and they are looking forward to growing the numbers to 500 as the company grows. Majority of the employees will be graduates from the Stargems Diamond Training Center. This initiation has been received with open arms by the general public and stakeholders. During the launch, the Minister of Minerals and Energy, Honorable Lefoko Moagi, stated that the ministry fully endorses Stargems Diamond Training and will work closely with the Group to support and grow the initiative.
“As a ministry, we see this as an game changer that is aligned with one of the United Nations’ Six Priority Sustainable Development Goals, which is to Advance Opportunity and Impact for Diversity, Equity, and Inclusion (DEI). What Stargems Group is launching today will have a huge impact on the creation of employment in Botswana. An economy’s productivity rises as the number of educated workers increases as its skilled workmanship increases. It is not a secret that low skills perpetuate poverty and widen the inequality gap, therefore the development of skills has the potential to contribute significantly to structural transformation and economic growth by enhancing employability and helping the country become more competitive. We are grateful to see the emergence of industry players such as Stargems Group who have strived to create such opportunities that mitigate the negative effects of COVID-19 on the economy,” said the Minister of Minerals and Energy.