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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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The Bulb World starts operations in South Africa

8th April 2021

Homegrown LED light manufacturing company, The Bulb World, has kick started operations in South Africa, setting in motion the company’s ambitious continental expansion plans.

The Bulb World, which was partly funded by Citizen Entrepreneurial Development Agency (CEDA) at the tune of P4 million, to manufacture LED lighting bulbs for both commercial and residential use in 2017, announced last year that it will enter the South African market in the Special Economic Zone (SEZ) of North West province under the auspices of North West Development Corporation (NWDC).

The company has already secured a deal with South Africa authorities which entails production factory shells and tax incentives arrangements.

The company founder and Chief Executive Officer, Ketshephaone Jacob has also previously stated that the company is looking for just under P50 million to finance its expansion strategy and is reaching out to institutional investors such as Botswana Public Officers Pensioners Fund (BPOPF) and government investment arm, Botswana Development Corporation (BDC).

However, Jacob told WeekendPost that instead of sitting and waiting for expansion funding the company has started hitting the ground running.

“We have decided to get in the streets of SA, start selling lights from door to door, ” said Jacob who is in currently in Rusternburg to oversee the introduction of The Bulb World products in the market.

Jacob explained more brand activations will be undertaken in South Africa. “The plan is to do it the whole of North West and Limpopo province, through hawkers, we give the hawkers the lights to sell at a factory price and they put a mark up and make a living,” he said.

The Bulb World operates from Selibe Phikwe, it currently employees 65 young people, 80 % of which are Phikwe youth. The company plans to add 100 jobs this year alone as it forges ahead with its regional and continental expansion plans.

In July this year Bulb World products will hit South African Shelves:  Pick n Pay, Checkers and Africa’s largest retailer Shoprite.

The Bulb World has been registered as a company in South Africa; the company will start producing lights from Mogwasa after striking a special economic zones deal with North West Development Corporation in North West Province South Africa.

“Over the next 10 years we are looking to create over 5,000 jobs in Africa. Through our expansion into all of Africa we will be able to create employment for various individuals in different sectors namely; manufacturing, distribution electronics and retail,” Jacob told this publication earlier this year.

Jacob said if all goes well, the plan is to have taken over Africa or rather penetrated, and have prevalent presence in the African market.

“We are gunning to have at least 30 percent market share by then. According to a 2016 Market Survey, the total valuation of sales for LED Lighting was 57BN, a portion of which we plan to have taken over by then,” he said.

 

While the company has set its eyes on Africa, Jacob said, the company has not fully exploited its local growth, indicating that there could be strategic factories built to supply neighbouring countries of Angola and Zimbabwe.

“There is potential for further local expansion as well to other areas of Botswana if things run smoothly as anticipated. Hopefully in the long-term if our fellow Africans and all these markets receive us well we are planning to build another factory,” he said.

“We are looking to build another factory in the Chobe/Ngamiland Area that will give priority to markets in Zimbabwe and Angola,” he said

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‘Oil exploration will have minimal impact’

30th March 2021
Okavango-River-Basin

The Maun based Okavango Research Institute (ORI) has downplayed the impacts of oil and gas exploration in part of Okavango delta arguing that given the distance proposed the likelihoods of negative impacts drilling these exploration wells on the surface water systems is likely to be negligible.

The Institution released a position paper titled ‘Proposed Petroleum (Oil and Gas) Exploration Operations in the Petroleum Exploration License (PEL) No. 73,’ with findings stating that, in the event of discovery of economically viable hydrocarbon deposits, much more careful consideration of the impacts and economic benefits of development of the resource will be needed.

For example, the fracking process for gas and oil extraction is known to require large volumes of underground water.

It further argues that increased extraction of the underground water is likely to affect the water table level and further affect the overall water availability in the river-basin.

“The effect on water availability and use may become worse if surface water is reticulated or sourced by any means from the Kavango River. Should the exploration and fracking for oil and gas expand to Block 1720, 1721 and 1821, the impact on water availability and quality will be significant, especially if the wastewater is not well managed,” said the paper.

The research unit recommends close communication between the relevant Basin State Ministries (Mineral Resources, Environment) and the Permanent Commission on the Okavango River Basin, OKACOM, and other stakeholders must be facilitated.

This will facilitate sharing of the correct information on the desired intentions of the basin states and compromises sought for the sustainability of the ecosystems in the downstream of the Cubango-Okavango river Basin, states the position paper.

ORI as a key stakeholder with scientific information says it is positioned to provide scientific advice and guidance to decision-makers on the potential impacts of both exploration and development and operation activities.

It also recommends that while the impacts might be minimal at the exploration stage, environmental impacts during the development and extraction process are significant.

Findings also state that the SADC Protocol places a mandatory duty to make a notification of planned measures undertaken in any riparian state in cases where such measures hold the potential to cause ‘significant adverse effects.’

It further states that where the planned development is trivial and not expected to cause any significant harm, the development state is not under duty to notify other riparian states.

Given that the drilling in the Kavango Region in Nambia is merely for exploratory purpose and the possibility of harm is minor, it is therefore not surprising that the Namibian government did not inform Botswana.

However, should it be found that the oil can be profitably or economically exploited, the Namibian government would be under a duty to notify both Angola and Botswana.

The institution further states that to ensure sustainable development in the Okavango Delta the following in the context of exploration for and potential development of hydrocarbon deposits within the Cubango-Okavango River Basin, it must be considered that the Okavango Delta is a World Heritage Site listed in 2014 by UNESCO and one of the binding requirements of the listing is the non-permissible commercial mining of any mineral, gas or oil within the World Heritage Site.

It states that the Okavango Delta is also a RAMSAR site in which mining is not allowed.

Should the exploration for minerals, oil and gas be allowed, there is a high chance that a mineral, oil or gas may be found given that the Delta is sitting on karoo sediments and shale rocks which in other parts of the world have been found to be sources of oil and gas deposits. Should oil or gas be discovered, there will be a strong socio-economic pressure to mine oil or gas and create jobs for the masses.

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Business

Pakmaya yeast penetrates local market

30th March 2021
Pakmaya Africa Sales Manager: Cem Perdar

Manufactured in Turkey, Pakmaya Instant Dry Yeast can be used in the production of various fermented products, as it is suited for both traditional and industrial baking processes. All kinds of breads, buns and fermented pastry products are typical examples of applications.

Pakmaya Africa Sales Manager Cem Perdar says Pakmaya has 4 plants in across the world, further indicating that all of the plants have the highest standards of quality certificates and approvals. Regarding raw material, molasses is the main ingredient for yeast. Concerning production activities, yeast manufacturing requires high know-how and capability. Pakmaya has all those capabilities and aspects more than 45 years.

According to Perdar, Pakmaya has been existent in African markets since 30 years. From South to North, Central to East and West, a consumer can find Pakmaya in nearly every part of Africa continent.

“With its high quality, rich product selection and good service, our brand has become the favorite yeast of many Africans. On the other hand, our distributors in African countries are working very hardly and loyally in order to promote our products in their markets. After some time, we are becoming like families with our exclusive distributors in Africa and this enables both parts to work harder and keeps our product sustainable in market,” he said in an interview this week.

The yeast manufacturing giant made its way to Botswana market. The company has been smoothly working with Kamoso Distribution, a local distribution company. Perdar told BusinessPost that two entities have been working hard to earn is market locally.

“At the moment we have a good market share with them in Botswana market. I’m sure during 2021 long, we will be increasing our sales and market position. Soon we are going to start a marketing campaign in Botswana, so that means Batswana will see and recognize Pakmaya more and more. Pakmaya wants to be the best friend of bakers in bakeries and ladies at homes in Botswana.”

As per global COVID-19 regulations to curb the spread of the COVID-19, Botswana just like other country closed borders. Providentially, the restrictions did not affect the company destructively.

Perdar says “Kamoso Africa is a very important and strong partner in Botswana territory. With Kamoso’s hard work and strict measurements, we have done a very good job. So as Pakmaya, we have not suffered any distribution problem. Our partner is doing the needful at the reaching our products to end users.”

He further said “We are doing well in Botswana market and hoping to make much more. Our aim is to enter every single corner in Botswana territory. With our new marketing campaigns, we are planning to be the most preferred yeast in Botswana market.”

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