Botswana Investment and Trade Centre (BITC), has affirmed that the controversial International Finance Service Centre (IFSC) fiscal framework remains a key instrument in its investment attraction tool. BITC, the country‘s integrated trade and investment promotion agency established to position Botswana as a global business and investment destination
Responding to WeekendPost inquiry this week, BITC communication chief, Kutlo Moagi said the organization actively supports and promotes the IFSC fiscal framework as a key instrument in positioning Botswana as a financial services hub for financial services companies inclusive of International Holding Companies. Compared to the normal 22 percent, the fiscal framework accords beneficiary companies corporate tax of 15 percent, which is one of the lowest in Africa.
The IFSC framework also provides that qualifying and accredited companies denominate capital in any major international convertible currency, with no exchange controls enabling the companies to repatriate profits dividends with no restrictions. The framework which is enjoyed by companies such as Letshego, Motorvac amongst others also provides that no capital gains tax when disposing of fixed assets where shareholding of the IFSC company is in excess of 25 percent.
IFSC companies also enjoy unilateral tax credits of up to 15 percent for taxes incurred in jurisdictions where Botswana does not have a double taxation agreement. Other IFSC benefits are zero rated VAT and no withholding taxes on dividends when distributing to non-resident directors.BITC was established in 2012, birthed from Botswana Export Development & Investment Agency (BEDIA) to house and facilitate all investment, trade and export led economy development initiatives including the IFSC under one roof.
However, the latter has been underscored by various global economic and financial commentators such as the International Monetary Fund (IMF), Organisation for Economic Cooperation & Development (OECD) as a window used by elites to rake in all returns eroding national tax bases and compromising domestic resources mobilisation systems. OECD observes that tax exemptions such as IFSC fiscal framework have little impact on investment attraction but only cripple the country‘s revenue collection vehicles.
OECD contend that 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. 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.
Contrary to the argument that Botswana loses money on tax cuts to IFSC companies that could otherwise be mobilised for other key economic undertakings such as infrastructure to further enable investment BITC said the IFSC dispensation, despite the financial sector not being labour intensive it has the propensity to create skilled jobs that are synonymous with the sector for Batswana.
“As a consequence of the framework insisting on a physical presence (Office) as opposed to brass plating, indirectly this contributes to business tourism in the form of shuttle services, lodging, dining fees when non-resident directors visit their head offices,” explained BITC Chief Executive Officer Keletsositse Olebile few weeks ago.
The investment promotion boss who championed Botswana ‘s campaign against the tax haven tag in 2014 told this publication this week that as subsidiaries consolidate into Botswana the Botswana Government benefits from Taxes it would not have earned if the IFSC incentive framework was not in Place. “Again, as these companies establish their substantive presence in Botswana, property rentals are also a benefit realised from their presence,” he said.
Olebile also added that some IFSC companies are keen to capital raise in the local bourse which improves growth and liquidity of the local bourse adding that indirect benefits to economy include renting office space, banking services, amongst others. According to BITC, since inception of this fiscal arrangement a total of 56 IFSC companies have set-up in Botswana creating 280 jobs and investing P29 billion.
From 2013 to date, BITC accredited and recommended 18 companies to be IFSC certified by Minister of Finance with 196 corresponding jobs. Letshego Holdings is one of BITC’s flagship IFSC companies. It has been underscored by OECD and European countries led by France that tax incentives and exceptions such as IFSC were a window for exorbitant tax dodging, money laundering and illicit financial crimes, under these sentiments Botswana was accused of having a secretive tax system with tax haven jurisdictions that bleeds the country’s public funds.
Botswana is reported to lose over P80 billion every 10 years , citing from 2003- 2012, due to corporate tax dodging and money laundering, which according to International Finance Organization Oxfam is sometimes encouraged by arrangements such as tax exemptions. The International Monetary Fund (IMF) has also spoken against Botswana’s weak domestic fund mobilisation mechanism. In its report released in June this year, the IMF urged Botswana to reform its entire revenue collection system and framework.
“It would be important to remove many tax exemptions, increase property taxation, and consider making the personal income tax more progressive,” reads the report which was released first week on June this year. IMF advised Botswana that tax was vital in boosting the country’s administrative, fiscal and institutional capacity adding that tax revenue was very essential for any developing country to function.
This week Minister of Finance & Economic Development, Dr Thapelo Matsheka approached parliament seeking lawmakers approval of Government’s intention to increase bond program ceiling from the current P15 Billion to P30 billion.
“I stand to request this honorable house to authorize increase in bond issuance program from the current P15 billion to P30 billion,” Dr Matsheka said. He explained that due to the halt in economic growth occasioned by COVID-19 pandemic government had to revisit options for funding the national budget, particularly for the second half of the National Development Plan (NDP) 11.
Botswana Stock Exchange (BSE) has this week revealed a gloomy picture of diamond mining newcomer, Lucara, with its stock devaluated and its entire business affected by the COVID-19 pandemic.
A BSE survey for a period between 1st January to 31st August 2020 — recording the second half of the year, the third quarter of the year and five months of coronavirus in Botswana — shows that the Domestic Company Index (DCI) depreciated by 5.9 percent.
Botswana Diamond PLC, a diamond exploration company trading on both London Stock Exchange Alternative Investment Market (AIM) and Botswana Stock Exchange (BSE) on Monday unlocked value from its shares to raise capital for its ongoing exploration works in Botswana and South Africa.
A statement from the company this week reveals that the placing was with existing and new investors to raise £300,000 via the issue of 50,000,000 new ordinary shares at a placing price of 0.6p per Placing Share.
Each Placing Share, according to Botswana Diamond Executives has one warrant attached with the right to subscribe for one new ordinary share at 0.6p per new ordinary share for a period of two years from, 7th September 2020, being the date of the Placing Warrants issue.
In a statement Chairman of Botswana Diamonds, John Teeling explained that the funds raised will be used to fund ongoing exploration activities during the current year in Botswana and South Africa, and to provide additional working capital for the Company.
The company is currently drilling kimberlite M8 on the Marsfontein licence in South Africa and has generated further kimberlite targets which will be drilled on the adjacent Thorny River concession.
In Botswana, the funds will be focused on commercializing the KX36 project following the recent acquisition of Sekaka Diamonds from Petra Diamonds. This will include finalizing a work programme to upgrade the grades and diamond value of the kimberlite pipe as well as investigating innovative mining options.
Drilling is planned for the adjacent Sunland Minerals property and following further assessment of the comprehensive Sekaka database more drilling targets are likely. “This is a very active and exciting time for Botswana Diamonds. We are drilling the very promising M8 kimberlite at Marsfontein and further drilling is likely on targets identified on the adjacent Thorny River ground,” he said.
The company Board Chair further noted, “We have a number of active projects. The recently acquired KX36 diamond resource in the Kalahari offers great potential. While awaiting final approvals from the Botswana authorities some of the funds raised will be used to detail the works we will do to refine grade, size distribution and value per carat.”
In addition BOD said the Placing Shares will rank pari passu with the Company’s existing ordinary shares. Application will be made for the Placing Shares to be admitted to trading on AIM and it is expected that such admission will become effective on or around 23 September 2020.
Last month Botswana Diamond announced that it has entered into agreement with global miner Petra Diamonds to acquire the latter’s exploration assets in Botswana. Key to these assets, housed under Sekaka Diamonds, 100 % subsidiary of Petra is the KX36 Diamond discovery, a high grade ore Kimberlite pipe located in the CKGR, considered Botswana’s next diamond glory after the magnificent Orapa and prolific Jwaneng Mines.
The acquisition entailed two adjacent Prospecting Licences and a diamond processing plant. Sekaka has been Petra’s exploration vehicle in Botswana for year and holds three Prospecting Licenses in the Central Kalahari Game Reserve (Kalahari) PL169/2019, PL058/2007 and PL224/2007, which includes the high grade KX36 kimberlite pipe.