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Botswana still nursing tax haven blister

Botswana remains stuck in European Union (EU)’s grey-list of tax havens and it is closely monitored by Brussels as it promised to reform its tax structures since last year. Furthermore, Botswana is still an uncooperative tax territory in France mind as it is placed high on the blacklist of ‘Uncooperative Territories and French Tax Consequences of the Blacklisting.’

Being grey-listed by EU means a country will be under constant monitoring and checkups from Brussels. But it is better than being in the blacklist where a country faces EU sanctions as well as getting a dent in international reputation. The tax haven tag on Botswana was first placed by France President Nicholas Sarkozy in 2011 who then declared that the international community should shun Botswana as it is a tax haven.

The IFSC burden

The Minister of Finance and Economic Development Kenneth Matambo in July this year said government will constantly engage EU to remove the perception of tax haven on its neck. In a commitment letter written by Matambo to EU November last year, the minister suggested that the EU’s Forum on Harmful Tax Practices (FHTP) raised a red flag on this country’s tax regulations, especially the controversial International Financial Services Centre (IFSC) tax incentive framework under which IFSC accredited and qualifying firms enjoy a 15% corporate tax rate while other companies face the normal 22 % tax. Tax experts concluded that IFSC regime is one of the sources of Botswana’s tax haven tag.

The International Monetary Fund (IMF) also warned since last year that Botswana should remove its many tax incentives and IFSC was the main culprit. This prompted Matambo to tell the EU in a recent letter this year that Botswana is working on introducing legislative amendment to address the harmful effects of IFSC. “We undertake to complete the necessary legislative actions to amend the regime by December 2018 as agreed by the Forum on Harmful Tax Practices,” wrote Matambo to EU.

While tax pundits and the IMF advises that IFSC should be abolished, Matambo remains unmoved on the tax initiative, telling reporters July this year that, “the IFSC framework basically provides a lower level of tax to companies under the mandate of the IFSC. For us it is an incentive to grow the financial sector. The purpose of this lower level of tax is to provide an incentive but the OECD countries for their own reasons look at it differently, we disagreed with them that we are not a tax haven. We do tax companies that make an income in this country.”

In the 2018/19 Budget Speech, Matambo promised that government will review IFSC in order to remove any perception that Botswana is a tax haven.  “The review will be undertaken as part of the Income Tax (Amendment) Bill scheduled for presentation to Parliament during 2018,” he said.

Secrecy another source of EU blacklisting

According to Tax Justice Network Africa’s Financial Secrecy Index 2018, Botswana is one of the most secretive tax jurisdictions. It says “information sharing remains limited, enabling companies and wealthy foreigners to get away with tax avoidance and evasion by avoiding detection in their home countries or where business activity takes place.

According to Tax Justice Narrative on Botswana, this country comes in at 103rd place in 2018 Financial Secrecy Index.  It further states that the country has a relatively high secrecy score of 68, but has an insignificant market for offshore financial services. “There may be limited information on the way Botswana’s IFSC is used for illicit and criminal practice,” said the Tax Justice Network.

In February this year in his 2018/19 Budget Speech, Matambo said to deal with issues of secrecy the Financial Intelligence Act and Regulations which will address the shortcomings identified by the Mutual Evaluation Review for Botswana by the Eastern and Southern Africa Anti-Money Laundering Group in May 2017 will be dealt with this year.

Botswana walking at a snail’s pace in tax regime amendments

However the tax structure amendment by Botswana which was promised to be done this year has since been deferred to next year leaving the country’s tax haven label stuck on its neck. In a recent interview Ministry of Finance and Economic Development Spokesperson Fenny Letshwiti revealed that the ministry is working on amending the Income Tax Act and the Value Added Tax Act and to enact a new Tax Administration Act. He further revealed that the Bills will be presented to the February 2019 Parliament for approval.

While Botswana wrote to EU November last year committing to Brussels that it will work on its tax regime or all the tax reforms this year December, it appeared to be a pipeline dream as the ministry recently revealed that the amendments are slated for next year. This means this country will have to wait for a while to be removed from any blacklist or grey-list.

Botswana not a tax haven – just an EU Big Brother perception?

Some pundits and politicians make the tax haven tag on Botswana appear as a mere neocolonial or Western big brother body check on this country. But EU remains the biggest player in the international trade market as it is the major exporter of Botswana’s beef. Botswana also exports diamonds to Europe. On the other hand Botswana imports manufactured goods, transport equipment, machinery, electrical machinery and pharmaceuticals or chemicals.

 Local tax expert Jonathan Hore in an interview with BusinessPost said Botswana is not technically a tax haven but it is just that the EU has strict standards regarding the disclosure and sharing of information with other countries. “The tax haven tag was first placed on the country in 2011 when Nicholas Sarkozy first publicly declared that the international community should shun tax havens. In that year, the country did not have any information disclosure arrangements with other countries. The country has also made many information disclosure agreements with many countries in order to comply with international transparency rules.

Despite Botswana’s bad reputation of being among the bad boys of the international arena, this country has been defensive of its tax administration and dismissed the notion of it being a tax haven.  Last year during the 19th meeting of the African the then Minister of Investment, Trade and Industry Vincent Seretse said Botswana is not a tax haven and does not deserve to be in any blacklist. Seretse attacked France’s constant “unsolicited” blacklisting of this country. He said Botswana complies with all the international tax standards and has a transparent tax jurisdiction.

Minister of Finance and Economic Development Matambo also rejects the tax haven brand on Botswana and in his Budget Speech he suggested calling Botswana a tax haven is just a mere perception by Europe. In the July press conference he said “we disagree with them, that we are not a tax haven.”


 Recently, Minister of Investment, Trade and Industry Bogolo Kenewendo was confident that this country being called a tax haven is a thing of the past. Caribbean Pacific –European Union, the then Minister of Trade Vincent Seretse rejected France’s notion that Botswana is a tax haven. Botswana adopted a seemingly sovereign and bold stance through Seretse who called the EU blacklisting “unsolicited.”

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Botswana on high red alert as AML joins Covid-19 to plague mankind

21st September 2020
Botswana-on-high-alert-as-AML-joins-Covid-19-to-plague-mankind-

This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.

The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.

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Finance Committee cautions Gov’t against imprudent raising of debt levels

21st September 2020
Finance Committe Chairman: Thapelo Letsholo

Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.

He was speaking in  Parliament on Tuesday delivering  Parliament’s Finance Committee report after assessing a  motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.

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Gov’t Investment Account drying up fast!  

21st September 2020
Dr Matsheka

Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.

The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.

The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.

The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.

This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.

Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.

Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.

However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.

Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.

When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.

This  as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.

Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.

The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.

Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.

In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.

Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.

Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.

Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.

Acknowledging the need to draw down from GIA no more, current Minister of Finance   Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”

He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”

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