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Botswana unmoved on tax incentives – Matambo

Publishing Date : 19 July, 2018

Author : REARABILWE RAMAPHANE

Minister of Finance and Economic Development, Kenneth Matambo has affirmed Botswana’s position on tax incentives saying Botswana will continue offering tax incentives in various arrangements across economic sectors as the country sees fit for its economic transformation agenda.


This is contrary to advice and calls by various international finance & economic institutions. Organization for Economic Cooperation and Development (OEDC) has strongly spoken against Botswana’s tax exemptions and incentives. One of tax arrangements that Botswana is  strongly discouraged  of is the International Financial Services Centre (IFSC) regime under which IFSC accredited and qualifying firms enjoy a 15% corporate tax rate while other companies face the normal 22 % tax.


The package encompasses amongst others conditional exemptions on Capital Gains Tax, Withholding Tax and other rates. Botswana adopted this predominantly to accelerate economic diversification by encouraging growth of the financial services sector. Local IFSC accredited firms include amongst others retail giant Choppies, Letshego Holdings, Motovac, as well as a number of capital and asset management firms. OEDC is of the view this arrangement does not output significant and desirable results but only cripples the country’s revenue collection vehicles.


“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,” says OEDC. Botswana has been cited as one good example for such. The underlying concern by OEDC 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.


Botswana has been labelled by this organization and different countries as a tax haven with globally non-compliant tax regime and arrangements that only benefit the already rich and elite business people. The argument is that Botswana’s tax incentives were also contributing in increasing the gap between the rich and the poor. Statistically Botswana is one of the countries with high levels of wealth and inequality in the world.


However, Minister Matambo boldly stated on Tuesday when addressing the media that Botswana remains committed to attracting investment and growing the financial service centre through different arrangement of tax incentives. He said that government will continue to engage concerned parties to do away with the perception that Botswana was a tax haven.


“Here we were dealing with concerns expressed by others especially Organization for Economic Cooperation and Development countries. 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,” he said.


Matambo however said Botswana was open to reviewing and relooking its system but only when it sees fit. “On the other hand we had to listen to what they were saying and consider it and the extent to which we can make an adjustment to the framework where necessary,” he added. Early last year Botswana was heavily criticized and labelled by France, one of the world’s largest and influential economies as a tax haven, however Botswana reverted and strongly cleansed itself of the tag through different global statements.


It has been underscored that this tax incentives and exceptions were a window for exorbitant tax dodging, money laundering and illicit financial crimes, under this 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 have lost over 80 billion pula in 10 years, from 2003- 2012 due to corporate tax dodging and money laundering, according to International Finance organization, Oxfam. This it was said is sometimes encouraged by arrangements such as tax exemptions.


The International Monetary Fund (IMF) has also spoken against Botswana weak domestic fund mobilization vehicles. In its report released last month 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.”


This recommendation by IMF and other organization opposes what Botswana is currently doing. In its investment wooing basket, tax exemption and incentives are underscored as key nectarines in attracting foreign capital to set up business in Botswana. 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.

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