The hand of the Big 5 in Tax avoidance industry
Business
For a profession whose name suggests ‘honesty’ in business and literally everything else, the accounting profession, on the world scale, has besmirched its own credibility badly.
After the fall from grace of Arthur Andersen LLP, one of the former "Big Five" accounting firms among PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young and KPMG, providing auditing, tax, and consulting services to large corporations, the remaining big players have been indicted in serious financial dishonesty that disables governments’ ability to reach their development goals.
A careful study by academics, Prem Sikka and Hugh Willmott titled, “The Tax Avoidance Industry: Accountancy Firms on the Make.” Critical Perspectives on International Business, reveals that about 21 trillion dollars has been hoarded by wealthy elites in secretive offshore jurisdictions to avoid taxes in their home countries. The offshore hoard is protected by a highly-paid, professional enablers in the private banking, legal, accounting, and investment industries.
This open access study examines the involvement of global accountancy firms in devising and selling tax avoidance schemes euphemistically marketed as normalised “tax planning”. It demonstrates how “tax planning” involves “wilful blindness” to complicity in dubious and sometimes fraudulent and corrupted activity. Prem Sikka and Hugh Willmott reveal in detail the construction and promotion of elaborate tax avoidance schemes by big accounting firms (Deloitte & Touche, Ernst & Young, KPMG) that reduce the “tax take” on business and corporations, and thereby reduces the state revenues required to provide and maintain public services.
The researchers cast doubt upon the “business culture” that has become established in these firms and question the appropriateness and adequacy of private regulation of these firms. This paper also contributes to a crucial public debate on the legal tax manipulations of powerful and privileged parties, which in turn increase economic inequality and undermine the foundations of functioning democracy.
In 2002, the firm voluntarily surrendered its licenses to practice as Certified Public Accountants in the United States after being found guilty of criminal charges relating to the firm's handling of the auditing of Enron, an energy corporation based in Texas, which had filed for bankruptcy in 2001 and later failed. The other national accounting and consulting firms bought most of the practices of Arthur Andersen.
The study admittedly relies upon secondary sources but strongly Subject to gaining adequate access to the big accounting firms, research based upon close-up investigation of “tax planning” would further illuminate such practices.
The study shows how normalised and institutionalised “tax planning” schemes have become in the big four accounting firms. It suggests that such schemes require closer scrutiny if payments of tax are to be made as intended, and thereby provide the revenues required to maintain public services such as education, health and pensions.
The study informs a debate about the payment of taxes and the role of big accounting firms in creating aggressive tax avoidance schemes. It questions the appropriateness and adequacy of private regulation of these firms and so contributes to a public debate on the tax contribution of comparatively powerful and privileged parties.
The study “blows the whistle” on the role of big accounting firms in devising schemes that reduce the “tax take” on business and thereby reduces the revenues required to provide and maintain public services.
“The pursuit of wealth, prestige and the exercise of power by concocting tax avoidance schemes have consequences for others, in the form of a lack of resources for expenditure on public goods to enhance or preserve hard won social rights.”
“As key players of the construction of post-1970s neo-liberalism, the Big Four accounting firms (PricewaterhouseCoopers, Deloitte and Touche, KPMG and Ernst & Young) have been major beneficiaries of financial expansion. They are all multinational and have devised ownership structures to frustrate scrutiny of their own affairs, but play a central role in the construction and operation of regulatory arrangements for corporations and financial markets through governance arrangements, such as those relating to accounting and auditing.”
The UK tax authorities have referred to Ernst & Young as “probably the most aggressive, creative, abusive provider” of avoidance schemes and courts have ruled that a PricewaterhouseCoopers (PwC) scheme was a “circular, self-cancelling scheme designed with no purpose other than to avoid tax,” states the report.
The Big Four operate from hundreds of countries and cities, including over 80 offices in offshore tax havens (Mail on Sunday, 2011) that do not levy income/corporate taxes or require companies to file audited accounts. Around $US12bn (£7.9bn) of their global fees comes from UK operations, which includes £6.1bn from consultancy services, including sale of tax avoidance schemes (Financial Reporting Council, 2013).
The firms do not reveal the revenues generated through the sale of tax avoidance schemes, but a 2005 internal study by the UK’s tax authority, Her Majesty’s Revenue and Customs (HMRC), concluded that the Big Four accounting firms generated around £1bn in fees each year from “commercial tax planning” and “artificial avoidance schemes”.
Business
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.
Business
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.
Business
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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