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Tax havens ravage Botswana, continent

BURS to tap into Tax Inspectors Without Borders

 

Botswana could soon benefit from better tax collection and audits, with the assistance of a new initiative from a OECD (Organisation for Economic Co-operation and Development) and United Nations Development Programme dubbed Tax Inspectors Without Borders (TIWB).


An initiative launched by the OECD to capacitate tax audits and collect more taxes, in developing countries, will soon cascade to Botswana tax system. Botswana Unified Revenue Services (BURS) told BusinessPost that through membership of the African Tax Administrators Forum (ATAF), the initiative will reach Botswana and her tax authorities.


Gaitsiwe Motsewabagale, ‎General Manager – Corporate Planning and Communications at BURS, said that while the tax collector was not part of the proceedings at Ethiopia this week, the initiative would possibly reach the country through engagements at ATAF.


TIWB will facilitate targeted tax audit assistance in developing countries worldwide. Tax audit experts will work alongside local officials of developing country tax administrations to help strengthen tax audit capacities, including issues concerning international tax matters, using a toolkit that sets out guidelines for establishing TIWB programmes and protecting against potential confidentiality and conflict of interest concerns.


“Going forward, a dedicated central organising unit, the TIWB Secretariat, supported by an oversight board of stakeholders, will operate as a clearing house to match the demand for auditing assistance with appropriate expertise. The Secretariat, composed of OECD and UNDP staff and based at the OECD in Paris, will facilitate full-time or periodic deployment of experts,” said OECD secretary general at the launch.


A number of pilot projects and international tax workshops are already underway, including in Albania, Ghana and Senegal. Evidence gathered from real time cases in Colombia indicate a significant increase in tax revenue, from US$3.3 million in 2011 to US$33.2 million in 2014, directly attributable to tax audit advice and guidance.


The latest annual report of the local tax authority, being the 2013 Report, states among its operational challenges, that: “There was an insufficient number of taxpayer auditors to perform adequate audits.”


Revenue collected grew by P5.5 billion (22.6 percent), from P24.37 billion in 2011/12 to P29.87 billion in 2012/13. However this growth is attributable to a massive 69 percent increase in revenues from SACU jump in SACU receipts and a 17.4 percent increase in VAT collection, while income tax actually declined by 9.7 percent.


The Tax Inspectors Without Borders (TIWB) project was launched on Monday this week at the Ethiopian meeting, of the 3rd International Conference on Financing for Development in Addis Ababa.


TIWB will facilitate targeted tax audit assistance in developing countries worldwide. Tax audit experts will work alongside local officials of developing country tax administrations to help strengthen tax audit capacities, including issues concerning international tax matters.


A number of pilot projects and international tax workshops are reported to be already underway, in among others, Albania, Ghana and Senegal, providing proof of the effectiveness of the programme.

The scaling up to other others will be rolled out with the help of the UNDP “Evidence gathered from real time cases in Colombia indicate a significant increase in tax revenue, from US$3.3 million in 2011 to US$33.2 million in 2014, thanks to tax audit advice and guidance,” read a statement from OECD.


“The challenges faced by developing countries are being acknowledged internationally and we are delighted to mobilise the best experts worldwide in a practical contribution to domestic resource mobilisation,” OECD Secretary-General Angel Gurría said during a launch event in Addis Ababa.

“The new partnership between the OECD and UNDP on Tax Inspectors Without Borders will significantly extend the global reach of existing efforts to build audit capacity while sending a strong message of international support to developing countries.”


 "Effective domestic resource mobilisation is at the core of financing for sustainable development. But efforts to raise domestic resources are often constrained by tax evasion and avoidance, and by illicit financial flows,” said UNDP Administrator Helen Clark.


“The Tax Inspectors Without Borders programme is an innovative and practical way of supporting developing countries to mobilise more domestic resources for development. With its country level presence and local knowledge, UNDP is well-placed to partner with the OECD and the best audit experts to scale-up this important work. TIWB can support countries to realise the post-2015 agenda," Helen Clark said.


However, there is some controversy with regard to some of members of the OECD, comprising 34 rich states, also being classified as tax havens. However, the OECD says members have made efforts to shed the characteristics of such tax havens.

BOTSWANA’S TAX LOSSES

According to studies done and reported by international financial intelligence organ, Global Financial Integrity, Botswana has lost an average of P8,5 billion ($856 million) annually, between 2003 and 2012, however with a market spike in the ‘recession years’ 2007, 2008 and 2009,  illicit financial outflows.

The outflows are characterised by tax evasion, trade misinvoicing in goods transactions, transfer mispricing in services and hot money flows to jurisdictions with higher interest rates or expected changes in interest rates.


This is happening in the context of Africa, as a continent, losing over $60 billion annually from illicit financial activity.


In analysing illicit financial flows (IFFs), GFI utilises sources of data and analytical methodologies that have been used by international institutions, governments, and economists for decades; the data sources and methodologies are providing information on gaps in balance of payments data and gaps in trade data.

Where recorded sources and uses of funds in balance of payments data do not match, the difference is net errors and omissions, indicating an inflow or outflow that was not recorded. Where bilateral trade data does not match – after adjusting for freight and insurance in the data of the importing country – this indicates re-invoicing of transactions between export from one country and import into another country.


Offshore tax havens spread by new computing and telecommunications, provide an unprecedented tax shelter, enabling rich citizens and corporations to escape the national tax system. Wealthy tax evaders save millions, while public services and infrastructure in their home countries, as well as on the small island havens, remain drastically underfunded.


Botswana, herself, has only recently shed its tax haven tag after easing provisions and making amendments. At the time of the OECD report to the G20 in June 2012, Botswana was among the 11 jurisdictions also comprising Brunei, Costa Rica, Guatemala, Lebanon, Liberia, Panama, Trinidad and Tobago, United Arab Emirates, Uruguay and Vanuatu, who could not move to Phase 2 because it was determined at the time of their Phase 1 reviews that critical elements necessary to achieving an effective exchange of information were not in place in their legal framework.

At the same G20 Summit, former French president Nicolas Sarkozy, called for Botswana, alongside eleven other countries, to be excluded from the international business community because the country was a tax haven that did not have a "suitable legal framework for the exchange of tax information.”


Parliament approved the amendment of the Income Tax Act in December 2012 to allow the Botswana Unified Revenue Service to exchange information for tax purposes. Additionally, the amendment of the Banking Act was presented in Parliament last year for approval. This amendment was meant to repeal strict banking secrecy provisions and to allow for banking information to be provided for the purpose of exchanging information with treaty partners.

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Pula smiles at COVID-19 vaccine

25th November 2020
COVID-19 vaccine

A squeaky and glittering metaphoric smile was the look reflected from the Pula against the greenback this week and money market researchers lean this on optimism following Monday’s announcement of another Covid-19 vaccine which is said to have boosted emerging market economies.

With other emerging market currencies, the Pula too reacted to optimism and fanfare on the new Covid-19 vaccine against the weakening US dollar which has been losing its shine since the uncertainty laden US elections.

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Choppies high on JSE rollercoaster volatility

25th November 2020
CHOPPIES

After bouncing back into the Johannesburg Stock Exchange (JSE) last week Friday, following a year of being in the freezer, the Choppies stock started this week with much fluidity.

Choppies was suspended in both the Botswana Stock Exchange and its secondary listing at the JSE for failure to publish financial results. Choppies suspension on Botswana Stock Exchange was lifted on 27 July 2020. On Friday last week, when suspension was being lifted, Choppies explained that this came into fruition “following extensive engagement with the JSE.”

Choppies stock, prior to suspension, hit a mammoth decline in value of more than 60 percent, especially in September 2018. Waking from a 24 month freezer, last week the Choppies share price was at R0.64 and the stock did not make any movement.

However, Monday was the day when Choppies stock moved vibrantly, albeit volatile. Choppies’ value was on a high volatile mood on Monday, reaching highs of 200 percent. At noon, the same Monday, the Choppies share had reached R1.05. Before taking an uphill movement, Choppies stock slightly slipped by 2 cents. But the Choppies share rode up high and by lunch time the stock had reached the day’s summit of R2.00 and that was at 13:30 when investors were buying the stock for lunch.

The same eventful Monday saw gloom on the faces of Choppies rivals, when Choppies gained by 220.31 percent around lunch time its rivals in the JSE Food & Drug Retailers sector were licking wounds. Spar lost 2.94 percent, Pick Pay fell by 2.43 percent, Shoprite 7.52 percent and Dis-Chem 1.98 percent. The only gainer was Clicks by a paltry 0.51 percent.

In an interview with BusinessPost, Choppies sponsors at the JSE PSG Capital Managing Director Johan Holtzhausen explained that the retailer’s stock was in high demand after a long suspension. He said when a company list or a suspension is lifted the market needs to find itself on the pricing of the share.

“Initially when the suspension was lifted there were more buyers than sellers. As far as we could see this created a shortage of shares so to speak and resulted in the price at which the shares traded going to R1.20 and eventually R2.05 before finding its level around R0.80 sent from a JSE perspective.

This is marked dynamics and reflect that there are investors that are positive about the stock in the long run. This is a snapshot over a short period and one requires a longer period to draw further conclusions,” said Holtzhausen in an interview talking about the Choppies stock.

On Monday this week where the Choppies value grew by 200 percent, the stock took a turn looking down, closing the day at R0.87 from a high of R2.00. According to local stockbroker Motswedi Securities on Monday while there was no movement by Choppies in the local stock exchange as the retailer appeared on the board as 141,000 shares traded at P0.60 each.

However in Choppies’ secondary listing the stock price rallied to over 200 percent during intraday trading on Monday before losing steam and declining to around R0.87 share.

Before press yesterday Choppies opened the market with the stock starting the day at R0.80 then went flat for few hours before taking a slide downward, dropping 5 cents in 30 minutes. Choppies then went flat at R0.75 for 50 minutes yesterday before going up at 10:20 am where it nearly recovered the open day price of 80 cents, but was shy of 1 cent. From 79 cents the price went flat until noon.

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Foschini-Jet merger, a class and rivalry conundrum dissection

25th November 2020
Foschini

Competition and Consumer Authority (CCA) has revealed that in its assessment of the Jet take over by Foschini, there were considerations on possible market rivalry and a clash in targeted classes.

According to a merger decision notice seen by this publication this week, high considerations were made to ensure that Foschini’s takeover of Jet is not anyhow an elimination of rivalry or competition or if the two entities; the targeted and the acquiring enterprise serves the same class of customers or offer the same products, to elude the anti-trust issues or a stretch of monopoly.

The two entities are South African retailers whose services stretched to Botswana shores.  Last month local anti-trust body, CCA, received an acquisition proposal from South African clothing retailer, Foschini, stating their intentions to take-over Jet.

South African government’s Business Rescue Practitioners earlier this year after finding out that Jet’s mother company, Edcon, is falling apart, made a decision that Foschini can buy Jet for R480 million. This means that Foschini will add Jet to its portfolio of 30 retail brands that trade in clothing, footwear, jewellery, sportswear, homeware, cell phones, and technology products from value to upper market segments throughout more than 4085 outlets in 32 countries on five continents.

However the main headache for the CCA decision which was released this week, is distinguishing the targeted and the acquiring entity businesses and services.

When doing a ‘Competitive Analysis and Public Interest’ assessment, CCA is said to have discovered that Foschini is classified as a “standard retailer” which targets middle-to-upper income consumers and it competes with stores such as; Truworths and Woolworths. The targeted entity, Jet, is on the lower league when compared to its acquirer, it serves customers of lower classes and is regarded as a discount/value retailer targeting lower income consumers or a mass market. This makes Jet to be in direct competition with Ackermans, Pepkor, Cash Bazaar and Mr Price.

“Therefore, a narrower view of the market is that Foschini through its stores trading in Botswana is not a close competitor to Jet. Additionally, there exist other major rivals who will continue to exercise competitive constraints on the merged enterprise post-merger,” concluded CCA this month.

The anti-trust body continued to explain that in terms of the Acquisition of a Dominant Position, the analysis shows that the acquisition of the target business by Foschini Botswana will result in an insignificant combined market share in the relevant market.

This made CCA reach to a conclusion that there is no case of an acquisition of a dominant position in the market under consideration or any other market on the account of the proposed transaction.

What supports the merger according to CCA is that it is in compliance with regards to ‘Public Interest Considerations’ because the findings of the assessment revealed that the transaction is as a result of the need for a Business Rescue by the target enterprise. This is so because in the event that the proposed transaction fails, it will translate into the loss of the employment positions at the target business.

“On that note the Authority (CCA) found it necessary to ensure that the proposed merger does not result in any retrenchments or redundancies. In light of this, the assessment revealed the critical need to protect the employees of the merged entity from possible merger specific retrenchments/ redundancies,” said CCA.

Before making a determination that the recently proposed transaction is not likely to result in the prevention or substantial lessening of competition or endanger the continuity of the services offered in the relevant market, CCA said it then moved into a concern for public interest which is a protection enshrined in the Competition Act of 2018.

CCA’s concern was mostly loss of livelihood or employment by 126 Batswana workers at Jet stores, stating that possible retrenchments or redundancies may arise as a result of implementation of the proposed merger.

Much to the desire of trade union or labour movements in Botswana and across Southern Africa where the Jet stores are stemmed-who also raised concerns about the retail’s workers job security- CCA subjects Foschini to keep the target entity 126 workers.

“There shall be no merger specific retrenchments or redundancies that may affect the employees of the merged enterprises. For clarity, merger specific retrenchments or redundancies do not include (the list is not exhaustive): i. voluntary retrenchment and/or voluntary separation arrangements; ii. Voluntary early retirement packages; iii. Unreasonable refusals to be redeployed; iv. Resignations or retirements in the ordinary course of business; v. retrenchments lawfully effected for operational requirements unrelated to the Merger; and vi. Terminations in the ordinary course of business, including but not limited to, dismissals as a result of misconduct or poor performance,” said CCA.

CCA also orders that Foschini informs it about all the details of 126 Jet employees within thirty (30) days of the merger approval date. CCA should also know information of when Foschini is implementing the merger, within 30 days of the approval date.

Other conditions include Foschini sharing a copy of the conditions of approval to all employees of the Jet or their respective representatives within ten (10) days of the approval date.

“Should vacancies arise in the target, the merged enterprise shall consider previous employment at one of the non-transferring Jet stores to be a positive factor to be taken into account in the consideration of offering potential employment,” said CCA.

According to CCA, in cases of any job losses, for the Authority to assess whether the retrenchments or redundancies are merger specific, at least three months before (to the extent that this deadline can be practically achieved and in terms of the prevailing and legally required employment practices) any retrenchments or redundancies are to take place, inform the Authority of:  i. The intended retrenchments; ii. The reasons for the retrenchments; iii. The number and categories of employees affected; iv. The expected date of the retrenchments.

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