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Regulatory constraints impedes Africa tax revenue mobilisation

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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Choppies back to profitability

21st September 2021
Choppies CEO - RamachandaranOttapathu

Choppies Holdings Limited, Botswana’s largest Fast Moving Consumer Goods (FMCG) retail group, is back to its glory days of profitability.

On Wednesday, Choppies signalled its shareholders in a circular published on the Botswana Stock Exchange website that a massive comeback is in the offing. The retail giant, which trades on both Botswana and Johannesburg Stock Exchange, notified its investors that it is currently finalising its financial results for the 12 months ended 30 June 2021 (FY2021).

As per the Listings Requirements of the Botswana Stock Exchange (BSE) and the Johannesburg Stock Exchange Limited (JSE), that requires companies to publish a trading statement as soon as they become reasonably certain that the financial results for the period to be reported on next will differ by more than 10% (in the case of the BSE) or more than 20% (in the case of the JSE) from the financial results reported for the previous corresponding period, Choppies notified the market about the expected financials.

In the circular, Choppies said it expects the consolidated Profit after Tax, including discontinued operations for the period FY2021, to be between 106% to 126% better than the Loss after Tax of BWP 370.6 million reported for the period FY2020, representing a Profit after Tax of between BWP 22.6 million and BWP 96.7 million.

The Profit before Tax for FY2021 is expected to be between 1% and 21% higher (BWP 105.7 million and BWP 126.7million) than the Profit before Tax of BWP 105.0 million reported for the period FY2020. The Choppies come back is against the backdrop of a devastating past three(3) financial years where the company endured some of the worst headwinds ever since its establishment over two decades ago.

Following reports of internal boardroom wars, the crisis exploded to fireworks. The retail giant was suspended on both Botswana and Johannesburg Stock Exchange for failing to publish its audited financials as per the regulatory requirement for all publicly listed companies. Following suspension from trading, Choppies’s value deteriorated to record low levels, triggering massive governance restructuring before reconfiguring its portfolio, divesting and exiting some markets, retreating to regroup in its spiritual home ground of Botswana.

In the process, the retailer stayed on news headlines for all the wrong reasons, boardroom infighting, shareholder tussles and disagreements between founders and back to back conflicts with its external auditors. At some point, Choppies founder, Chief Executive Officer and talisman, Ramachandran Ottapathu, was suspended and later reinstated in a dramatic turn of events. Furthermore, the fallout saw the longest-serving Chairperson, former President Dr Festus Mogae, resign as board chair.

The delayed 2018 year-end financial results, released a year and a half later in December 2019, delivered a shock to shareholders, with many pundits announcing Choppies’s funeral. Choppies registered a whooping BWP 445 million loss for the full year ended June 2018. Another shocking loss of BWP170 million for 2017 was initially reported as a BWP 74. 6 million profit when KPMG was still the auditor.

The Choppies loss-making crusade spilt over to 2019, registering in loss BWO 428 million before drowning again into a loss of BWP 370.6 million for the full financial year ended June 2020. In July this year, Choppies biggest individual shareholders Ramachandran Ottapathu and Farouk Ismail, revealed they would be levelling a lawsuit against former Choppies auditors Price Water Coopers (PWC).

The duo blames the auditors for alleged lapses, incompetence, and deliberate sabotage that led to the company’s regulatory non-compliance and subsequent suspension from the Botswana Stock Exchange in 2018 and a massive deterioration in value. In the Annual Report for the financial year ended June 2020, released in November that year, newly appointed Board Chair Uttun Corea announced that Choppies had appointed new auditors, Mazars, regarding FY19 and FY20.

The new board further announced a massive reconfiguration strategy to return the company to glory. The Board Investment Committee recommended disposal of loss-making operations in South Africa and the closure of operations in Mozambique, Kenya and Tanzania, which according to Mr Corea, helped return the Group to profitability.

“Our other markets also proved economically challenging with a struggling and volatile Zimbabwean economy, currency devaluation in Zambia, and a lack of economies of scale in Namibia. However, we believe a focused approach in these regions and the numerous opportunities for growth in Botswana present the Group with solid prospects.

This conditions, together with the favourable conditions following the introduction of funds by the founding shareholders, together with additional security, and given the renegotiation of our banking facilities which will see our monthly payments lower, put the Group on a firm going concern footing,” the board Chair said last year.

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Cresta Marakanelo exits Zambia market 

21st September 2021
Cresta Marakanelo

Cresta Marakanelo Limited (CML), Botswana’s most prominent hotels and hospitality group, has decided to exit the Zambian market, the company announced on Wednesday. 

CML, a Botswana version of the larger Southern African Cresta Hotels Group, revealed in a circular to its shareholders on Wednesday that “it will not be renewing the lease agreement with Golfview Hotels Limited for the rental of Cresta Golfview Hotel in Lusaka, Zambia.” The Botswana Stock Exchange (BSE) listed hotels group explained it would be withdrawing from the Cresta Golfview Hotel operations on 30 September 2021.

CML explained in the circular that for continuity of operations, the landlord, Golfview Hotels Limited, will be taking over the management of the hotel and will endeavour to absorb the majority of the staff.

“The consideration to not renew the lease came after a review of the financial viability of continuing with the lease agreement. The decision to exit the lease is therefore in the best interests of CML shareholders,” Cresta Marakanelo Board explained on Wednesday.

For the year ended 31 December 2020, Cresta Golfview Hotel accounted for 5% of the CML Group’s revenue and 2% of the Group’s loss before tax. The company said it would continue to operate the 11 hotels in Botswana.

The Board of Directors of Cresta Marakanelo went on express gratitude to its dedicated staff at Cresta Golfview Hotel, “The men and women who personified our Cresta brand essence; Where One Smile Starts Another and lived our Cresta mantra of Hospitality with African Heart and Soul consistently over the years.” The Board further thanked its business partners in Zambia: the valued guests, suppliers, stakeholders, and the Zambian community at large during the time CML has operated in Lusaka.

“We look forward to welcoming you to our other properties under the CML portfolio,” the statement said. Early this year, Cresta Marakanelo attempted to expand its Botswana footprint, nearly taking in Phakalane Golf Estate & Hotels Property under its wing. In January 2021, Cresta Marakanelo announced that it had signed a 10-year lease agreement for the hotel and the golf course, located in the Gaborone high-end suburbs, with an option to renew for a further ten year period.

In addition, Cresta had planned to pay Phakalane P10.7 million as a once-off for moveable assets, including furniture, fittings and equipment, with the amount payable over 24 months. Two months later, CML directors told shareholders that the conditions necessary to finalise the deal had not been fulfilled, and as a result, the transaction could not materialise.

Cresta Marakanelo is the operating company for, until this Zambia exit, the 12 Cresta Hotels in Botswana and Zambia. The company was formed in 1987 with an initial portfolio of fewer than 290 rooms, and until this September end exit, Cresta Marakanelo has been managing over 1000 rooms in Botswana and Zambia.

Since its establishment, Cresta Marakanelo Limited (CML) has maintained its position as the largest hotel group in Botswana. The company was established in 1987 when Cresta Hospitality was awarded the Management contract for the Marakanelo Hotels in Botswana by the Botswana Development Corporation.

Cresta Marakanelo was listed on the Botswana Stock Exchange in 2010. Its largest shareholders are the Botswana Government, through the Botswana Development Company, at 30 percent and Cresta Holdings Botswana at around 29 percent, with other shareholders being Motor Vehicles Accident Fund Botswana, Botswana Insurance Company, amongst others.

Established in 1970, the Botswana Development Company is the investment arm of the Botswana Government. BDC’s main aim is to be the country’s principal agency for commercial and industrial development. The Government of Botswana owns 100 percent of the issued share capital of the Corporation. BDC has interests in industry, property development and management, agribusiness and services.

Cresta Holdings Botswana is ultimately owned by Masawara Plc, a Jersey Registered Company listed on the London Stock Exchange’s Alternative Investment Market, with an investment portfolio that extends from Botswana to Zambia, South Africa and Zimbabwe. The Group’s portfolio spans the Hospitality, Insurance, Investment Management and Agrochemical sectors.

Its hospitality arm, Cresta Hospitality Holdings, is one of Southern Africa’s largest hotel management groups, managing or operating hotels in Botswana, Zimbabwe and Zambia.  Cresta Hospitality started hotel operations as far back as 1958. Cresta Holdings is a hotel management company registered in Botswana.

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ABSA posts improved results  

21st September 2021
Keabetswe Pheko-Moshagane

Absa Bank Botswana released their condensed consolidated interim financial statements for the period ended 30 June 2021. Profit before tax grew significantly by 125% against the previous year, a material recovery from the June 2020 position.

According to the company directors, the performance was driven mainly by the positive performance of the impairment line together with the positive momentum on cost lines. Pre-provision profit has also grown year on year by 9%.

Consequently, the bank’s Return on Equity (ROE) went up to 19%. Total revenue declined 1% year-on-year. Net interest income fell 8% due to margin compression driven by interest rate cuts in 2020. However, the sales and transactional banking franchise realised impressive recovery rates with volumes going up to almost pre-COVID-19 levels, and fee revenue grew 20% year on year.

Absa boasted that their operating costs remain well contained, on a reducing trend compared to the prior year. On a statutory basis, operating expenses totalled P460 million, representing a 7% decrease year-on-year. This was achieved by an overall reduction in spending as the bank continues to leverage on a leaner, rotational and digitally-led operating model.

Costs in the current year have benefited from the absence of the Voluntary Staff Separation exercise that happened in the first half of 2020, together with a significant reduction in separation expenses as the rebranding exercise has been completed. Cost-to- income ratio declined 4% and ended at 58% for the period under review. On a year-on-year basis, our credit losses decreased materially by 74%.

This significant drop was driven primarily by the better-than-expected performance of the macroeconomic variables, predominantly GDP, which carries a higher weighting in the bank risk models. With improved and stable portfolio performance, the loan loss rate improved to less than 1% for the period ended 30 June 2021.

Absa balance sheet continued on its growth trajectory with an overall growth of 14%. Customer loans and deposits remained key. components of the balance sheet and the key drivers of balance sheet growth. The balance sheet position remains solid at a total financial position of P21.5 billion. Customer loans grew by 9% year-on-year to P14.8 billion.

“We have seen increased momentum in our loan conversion rates, especially in RBB where growth was driven by scheme loans, mortgage loans and Enterprise Supply-chain Development (ESD) loans,” the bank said in a commentary that accompanied the financials.

Directors explained that growth is in line with their strategy to continue to lend a hand to the bank customers who need support during this period and support the initiatives around citizen economic empowerment and economic diversification. Customer deposits have registered good momentum growing 15% compared to last year, reaching P16 billion as of 30 June 2021.

“Although we have seen tightening liquidity in the market, our client penetration, acquisition and retention strategy has borne much fruit, especially in our CIB segment. We have noted a stable upward trend in our deposit book, a momentum which is expected to last into the rest of the months of 2021,” Directors observed.

Directors further noted that the solid balance sheet position and recovery in profitability had further strengthened the bank’s capital position, which stands at P2.9 billion and represents a capital adequacy ratio of 18% against a regulatory requirement of 12.5%. The liquid assets ratio stood at 14.6%, well above a regulatory limit of 10%.

Zooming deep into segmental performances, corporate and Investment Banking (CIB)closed off the first half of 2021 with a year-on-year decline of 3% on total income; this is on the back of the slow recovery in economic activity felt in crucial economic sectors which have previously contributed positively to revenue.

Business sentiment and confidence remain subdued even in 2021 as uncertainty continues due to the impact of COVID-19. However, the profitability of CIB is on the move, on an upward trajectory with 36% growth year-on-year. This performance was supported by the non-funded income lines’ resilience and the impairment lines’ performance.

For the Retail Banking segment the first half of the year, both loans and advances and deposits due to customers grew by 14% and 16% year-on-year, respectively. Overall revenue has remained flat year-on-year. Growth was realised from non-interest income. This is in line with the bank’s strategy to become the go-to transactional and digitally-led bank.

In the future, Absa directors noted the volatile, unpredictable environment that continues to prevail due to the COVID-19 pandemic, which comes with new waves of infections and variants, restricted movement and trade.

” However, we remain resolute in executing our refreshed strategy and focus on offering our employees and customers support in collaboration with the various stakeholders that we have partnered with.

As part of our strategy to provide customer-centric transactional banking solutions, we will continue to roll out enhancements to our existing digital platforms and develop new solutions that offer our customers convenience and safety.” For the period, Absa Bank Botswana Limited Board approved an interim dividend of 9.74 thebe per share, amounting to a total dividend of P83 million.

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