Botswana, region unite to fight illicit finance
The tax authorities of the southern African region, among them, Botswana Unified Revenue Service (BURS), are taking positive, concerted efforts to work together in curbing illicit financial flows (IFFs), which run in billions of dollars, robbing countries of development funds.
The meeting that took place in Pretoria, South Africa, last week, was also “a precursor to formalizing a Commissioners General Forum to discuss tax and customs matters in the region.”
The meeting discussed several issues of Illicit financial flows (IFFs) which impact revenue authorities’ statutory mandates as well as other items falling withing the IFF ambit such developments in the international tax arena, like base erosion and profit shifting, Transfer Pricing, trade mispricing; Cross border tax and customs issues, such as illicit trade, counterfeits, smuggling; Cooperation on the exchange of information; and a proposal for the establishment of a Sub-regional forum to enhance cooperation.
South Africa, which is hardest hit by IFFs on the continent, has assumed a leading role in the initiative, offering to school experts from the member countries on the nitty gritties of Transfer Pricing for technical experts from the region as well as to share with countries, its Tax Gap methodology. South Africa has also offered to share experiences on detector dog training as a means to enhance border protection and improve the detection of undeclared and illicit goods.
In a joint statement by representatives of tax authorities from the southern African region, Mr Segolo Lekau, Commissioner of Internal Revenue, Botswana Unified Revenue Service; South African Revenue Service; Lesotho Revenue Authority; Swaziland Revenue Authority; Zambia Revenue Authority Mozambique Revenue Authority and the Deputy Director: Legal at Ministry of Finance, Namibia.
“We note the negative impact illicit financial flows have on our statutory mandate and agree that we need closer cooperation to deal with this matter as it relates to tax and customs,” read the statement.
“We note with satisfaction efforts undertaken globally to encourage greater transparency and the exchange of tax and customs information We agreed to increase our resources and capabilities. For exchange of information units and Competent Authorities in order to enhance our ability to share information faster and more efficiently. We stand ready to actively assist one another in building the necessary capacity, and agree that the establishment of a regional customs academy be explored further,” the statement read.
The region is concerned with the challenges posed by practices aimed at circumventing domestic legislation, Such as VAT (value added tax) fraud, smuggling, round-tripping of tobacco, undervaluation of textile and clothing and all other related crimes.
“In this regard and taking full advantage of the legal instruments at our disposal we conclude to work much closer, share information and act jointly to ensure increased compliance. We will make it as easy as possible for those that are willing to comply with the spirit of the law and vow to combine our efforts to root out acts of non-compliance,” the joint statement read.
However, the region felt that the threshold for multinational corporations reporting in the country by country format was too high for MNCs in this region and needed to be negotiated with OECD, to bring it in line with local levels.
On 16 September 2014, the Organisation for Economic Co-operation and Development (OECD) released a series of deliverables that address seven of the focus areas in its Action Plan on Base Erosion and Profit Shifting (BEPS).
The report released on Action 13 (the Report) contains revised standards for transfer pricing documentation and a template for country-by-country (CbC) reporting, both of which will be included in the OECD Transfer Pricing Guidelines.
The Report indicates that the transfer pricing documentation standards and the CbC reporting standards will be revisited by the OECD and G20 countries no later than the end of 2020 to assess whether additional or different data should be required to be reported.
The CbC reporting template requires multinational enterprises (MNCs) to report the amount of revenue of both related and unrelated party profits, income tax paid and taxes accrued, employees, stated capital and retained earnings, and tangible assets annually for each tax jurisdiction in which they do business.
In addition, MNCs are also required to identify each entity within the group doing business in a particular tax jurisdiction and to provide an indication of the business activities each entity conducts. This information is to be made available to the tax authorities in all jurisdictions in which the MNC operates.
The OECD posits that BEPS is of major significance for developing countries due to their heavy reliance on corporate income tax, particularly from multinational enterprises (MNEs) and therefore, the BEPS measures once implemented, will benefit developing countries and provide them with tools to mobilise domestic resources.
The continent loses an estimated $60 billion each year in illicit financial flows and the multiplier effects of these losses are much larger. IFFs from Africa in real terms mean loss of jobs, income, decent education, health facilities and other basic infrastructure critical to transforming the economy of countries in Africa and the socio-economic conditions of Africans.
According to reports, the major perpetrators of IFFs from Africa are multinational companies, especially those operating in Africa’s extractive sector, mostly in oil, gas and mining. These activities pose a major threat to sustainable development and security.
HOW IT WORKS
Transfer pricing is the setting of the price for goods and services sold between controlled or related legal entities within an enterprise, such as when a subsidiary company sells goods to a parent company; the cost of those goods is the transfer price.
Money launderers, corrupt politicians, terrorists, arms traffickers, drug smugglers, and tax evaders, in moving their dirty money, all rely on: company structures that allow them to hide their identity, and banks and other professionals willing to do business with them, both which are currently all-too available in some jurisdictions termed tax havens.
These allow the entities to charge each other, non arms length prices that reduce profits, reducing the tax burden in the process. The illicit profits realised remain offshore in the havens and deny the host countries tax revenues.
The scale of the offshore industry’s dirty-money problem is hotly disputed. Economists at Global Financial Integrity, reckon that developing countries alone suffered illicit financial outflows—defined as money that is illegally earned, transferred or used—of at least $5.9 trillion over the past ten years.
The world is said to have between 50 and 60 active tax havens, mostly clustered in the Caribbean, parts of the United States such as Delaware, Europe, South-East Asia and the Indian and Pacific oceans. They serve as domicile for more than 2 million paper companies, thousands of banks, funds and insurers and at half of all registered ships above 100 tonnes.
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Grit divests from Letlole La Rona
Grit Services Limited, a member of the pan African real estate group, London Stock Exchange listed Grit Real Estate Income Group is divesting from Letlole La Rona Limited (LLR), a local real estate company established by government investment arm Botswana Development Corporation over a decade ago.
The Board of Directors of Letlole La Rona Limited this week announced in a statement to Unitholders that Grit Services Limited (‘Grit’) has informed them of its intention to exit its investment in the company.
Grit has been a material shareholder in LLR since 2019. On 07 March 2023, Grit sold 6 421 000 linked units, representing 2.29% of the Company’s total securities in issue, at a market value of BWP 22 537 710.
This trade follows previous sales of 6.79% in December 2022, as communicated to Unitholders on 10 January 2023, as well as a further sale of 4.78% (representing 13 347 068 linked units) on 24 February 2023 to various shareholders.
In aggregate, Grit has sold 13.9% shareholding in the Letlole La Rona between December 2022 and March 2023, resulting in current shareholding of 11.25% in the Company.
Letlole La Rona said in the statement that the exit process will take place in an orderly manner so as to maintain stability of the Company’s share price.
The statement explained that Grit’s sale of its entire shareholding in LLR is in line with its decision to exit investments where it does not have majority control, or where it has significant exposure to currencies other than US dollar, Euro or hard-currency-pegged revenue streams.
“Grit has announced similar decisions pertaining to certain of its hospitality assets in Mauritius recently. The Company would like to advise Unitholders that it remains focused on long-term value delivery to all stakeholders” LLR said
In July last year as part of their Go-to-Africa strategy Letlole La Rona acquired an initial 30% equity stake in Orbit Africa Logistics, with an option to increase this investment to 50%. OAL is a special purpose vehicle incorporated in Mauritius, owning an industrial asset in a prime industrial node in Nairobi, Kenya.
The co-investment was done alongside a wholly owned subsidiary of London listed Grit. The Orbit facility is situated on a prime industrial site on Mombasa Road, the principal route south of Nairobi center, serving the main industrial node, the port of Mombasa and the industrial town of Athi River and is strategically located 11 kilometers south of the international airport and 9.6 kilometers from the Inland Container Depot.
Grit shareholding in Letlole La Rona was seen as strategic for LLR, for the company to leverage on Grit’s already existing continental presence and expand its wings beyond Botswana borders as already delivered by Kenya transaction.
Media reports have however suggested that LLR and Grit have since late last year had fundamental disagreements on how to go about the Go-to-Africa strategy amongst other things, fuelled by alleged Botswana government interference on the affairs of LLR.
Government through LLR founding shareholder – Botswana Development Corporation has a controlling stake of around 40 percent in the company. Government is the sole shareholder of Botswana Development Corporation.
Letlole La Rona recently released their financial results for the six months ended December 2022, revenue increased by 4% to P50.2 million from P48.4 million in the prior comparative six months, whilst operating profit was up 8% to P36.5 million. Profit before tax of P49.7 million was reported, an increase of 8% on the prior comparative six months.
“We are encouraged by the strong results, notwithstanding a challenging economic environment. Our performance was mainly underpinned by annual lease escalations, our quality tenant base and below average market vacancy levels, especially in our warehouse portfolio,” Kamogelo Mowaneng, Letlole La Rona Chief Executive Officer commented.
LLR reported a weighted average lease expiry period of 3.3 years and escalation rates averaging 6.8% per annum for the period ended 31 December 2022.Its investment portfolio value increased by 14% year-on-year to close the period at P1.4 billion, mainly driven by the acquisition of a 30% stake in OAL in July 2022.
The Company also recorded a significant increase in other income, predominantly due to foreign exchange gains on the OAL shareholder loan. “We continue to explore pipeline opportunities locally, and regionally in line with our Go-to-Africa strategy and our interest remains on value-accretive investments,” Mowaneng said.
An interim distribution of 9.11 thebe per linked unit was declared on the 6th of February 2023 for the half-year period to 31 December 2022, comprising of a dividend of 0.05 thebe and debenture interest of 9.06 thebe per linked unit which will be paid to linked unit holders registered in the books of the Company at the close of business on 24 February 2023.
Stargems Group establishes Training Center in BW
Internationally-acclaimed diamond manufacturing company StarGems Group has established the Stargems Diamond Training Center which will be providing specialized training in diamond manufacturing and evaluation.
The Stargems Diamond Training Institute is located at the Stargems Group Botswana Unit in Gaborone.
“In accordance with the National Human Resource Development Strategy (NHRDS) which holds the principle that through education and skills development as well as the strategic alignment between national ambitions and individual capabilities, Botswana will become a prosperous, productive and innovative nation due to the quality and efficacy of its citizenry. The Training Centre will provide a range of modules in theory and in practice; from rough diamond evaluation to diamond grading and polishing for Batswana, at no cost for eight weeks. The internationally- recognized certificate offered in partnership with Harry Oppenheimer Diamond Training School presents invaluable opportunities for Batswana to access in the diamond industry locally and internationally. The initiative is an extension of our Corporate Social Investment to the community in which we operate,” said Vishal Shah, Stargems Group Managing Director, during the launch of the Stargems Diamond Training Center.
In order to participate in this rare opportunity, interested candidates are invited to submit a police clearance certificate and a BGCSE certificate only to the Stargems offices. Students who excel in these programs will have the chance to be onboarded by the Stargems Group. This serves as motivation for them to go through this training with a high level of seriousness.
“Community empowerment is one of our CSR principles. We believe that businesses can only thrive when their communities are well taken of. We are hoping that our presence will be impactful to various communities and economies. In the six countries that we are operating in, we have contributed through dedicating 10% of our revenues during COVID-19 to facilitate education, donating to hospitals and also to NGOs committed to supporting women and children living with HIV. One key issue that we are targeting in Botswana is the rate of unemployment amongst the youth. We are looking forward to working closely with the government and other relevant authorities to curb unemployment,” said Shah.
Currently, Stargems Group has employed 117 Batswana and they are looking forward to growing the numbers to 500 as the company grows. Majority of the employees will be graduates from the Stargems Diamond Training Center. This initiation has been received with open arms by the general public and stakeholders. During the launch, the Minister of Minerals and Energy, Honorable Lefoko Moagi, stated that the ministry fully endorses Stargems Diamond Training and will work closely with the Group to support and grow the initiative.
“As a ministry, we see this as an game changer that is aligned with one of the United Nations’ Six Priority Sustainable Development Goals, which is to Advance Opportunity and Impact for Diversity, Equity, and Inclusion (DEI). What Stargems Group is launching today will have a huge impact on the creation of employment in Botswana. An economy’s productivity rises as the number of educated workers increases as its skilled workmanship increases. It is not a secret that low skills perpetuate poverty and widen the inequality gap, therefore the development of skills has the potential to contribute significantly to structural transformation and economic growth by enhancing employability and helping the country become more competitive. We are grateful to see the emergence of industry players such as Stargems Group who have strived to create such opportunities that mitigate the negative effects of COVID-19 on the economy,” said the Minister of Minerals and Energy.
Food import bill slightly declines
The latest figures released by Statistics Botswana this week shows that food import bill for Botswana slightly declined from around P1.1 billion in November 2022 to around P981 million in December during the same year.
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