allAfrica.com: Botswana: Botswana Tax Laws Are Rigid (Page 1 of 1)

Botswana's tax system is a big and a complex subject. Our tax system is so complex that even our MPs from the ruling party do not understand it. The irony of it all is that it is parliament that has made our tax system so complex to the extent that an ordinary Motswana has to rely on tax professionals in order to comply with our tax laws.

As I have always lobbied through various media houses, Botswana needs a business-friendly tax system in order to attract Foreign Direct Investment, grow SMMEs and reduce high unemployment rate that seem to be on the increase. This sounds strange because the international community for only one thing-mineral wealth knows Botswana. Yes Wall Street knows Botswana. Very few African Countries have a voice in Wall Street like Botswana. So Botswana enjoys a special place in the international community because of the sparkling stones. As a result, our government has powers that if they do choose to exercise these powers, the likes of Anglo American and De Beers are left with no choice but to comply with Botswana wishes.

As I had said it is unusual for an African country to have a voice in the global markets. I am here not talking about just a mere voice because every nation can make noise but with Botswana, the voice our government has over the international markets carries with it the right to be heard. Hardly two years ago, government enclave decided to flex its muscle on a company called De Beers. The name De Beers has become synonymous with Botswana diamonds. Botswana, a small nation with a small population, was declared a desert during the 'scramble of Africa' and as a result it became two or three countries out of 52 countries in Africa that escaped colonialism.

It came as a surprise few years after Botswana gained independence that Botswana was not just a desert but also a significant player in the global diamond business. Indeed it was a shock to the colonialists to realise that Botswana supplies more than 25 percent of the World's richest diamonds. In addition, Botswana is the largest gemstone producer in the world and as Business Day (Thursday, March 20, 2008) has reported, '. Botswana.... is home to the world's richest diamond mine'. Business Day significantly covered DTC Botswana under two headings, Diamond Centre set to shine on global stage and De Beers bows to Botswana. The newspaper is even more dramatic and had this to say about De Beers 'whatever De Beers is doing, they've been forced to do. They (Botswana) fought tooth and nail about moving DTC to Botswana'.

We hardly give government enclave credit but I think this is an opportunity to give our government credit for 'fighting tooth and nail'. Whilst applauding government efforts, we need to hasten to mention that this beneficiation seems limited only to employment creation and skill transfer. The point here is that government should also 'fight tooth and nail' to ensure that citizens participate significantly in the global diamond business through equity ownership in these diamond companies not just job creation. We appreciate the 3, 300 jobs for locals but this should not excite us if it does not translate into locals literally owning stakes in these diamond marketing companies. We trust that just like Bank of Botswana Governor who is always reminding commercial banks about localisation and transfer of skills to citizens, DTC Botswana will also be at the forefront of citizen economic empowerment. As international diamond companies are flocking to Botswana, it is imperative that the Ministry of Finance expedites its commitment to review tax policies in order to make Botswana tax laws friendly to businesses. Ministry of Finance should deliver on its promises.

These are actually promises to the voters and to parliament. Our unfriendly tax policies hit hard on the voters and even on our politicians-MPs to be more specific. There is a need for a shift in Botswana's tax policy in form of tax incentives. Botswana being a developing country should be doing more to attract foreign business and taxation is one area that has been neglected by policy makers. We trust that Mokoro international consultants will be able to assist Ministry of Finance on these matters! Botswana with its enormous mineral wealth has a room to manoeuvre and establish itself as a holding company haven for business into Africa and beyond. Currently, Botswana has no incentives for companies that have subsidiaries elsewhere in the world and this is dangerous. That is the reason Botswana's economy remains undiversified besides our mineral wealth. In fact non-mining companies will rather set up their head offices outside Botswana than in Botswana. The reason is due to our hostile tax system, which does not provide benefits to companies that have subsidiaries elsewhere in the World. Even local Batswana are better off registering their companies in Mauritius and Dubai where the tax system attracts Foreign Direct Investment. Recently, we have been seeing non-mining companies leaving Botswana due to our rigid tax laws. Motor Swedish Company left Botswana when its tax holiday expired. Hyundai Auto Company too left Botswana at the end of its tax holiday.

Volvo Truck, which was a truck assembly plant, left after we devalued the pula and the reason it gave was our tax laws, which are not favourable to multinational companies. Loss of such multinational companies as Volvo and Hyundai to South Africa is a blow to the voters and households that depend on these companies for their livelihood. Allowing these companies to relocate to South Africa is a drawback to government efforts to diversifying the economy. As the outgoing President Festus Mogae has correctly pointed out, Botswana's economy is vulnerable as it is only dependent on diamonds. Taxation can be a powerful tool towards addressing diversification of the economy and attracting foreign direct investment. It is interesting to note that our 2008 budget speech was a 'do nothing' budget offering no tax incentives whilst South African Budget offered so many tax incentives to the extent that even VAT thresholds were raised from R300 000 to R1Million to facilitate SMMEs growth.

Taxation of SMMEs is a very long topic that needs to be discussed separately but I will hasten to mention that the reason why Citizen owned companies will remain small and unlikely to grow is attributable to lack of tax support from the Ministry of Finance and Development Planning. The idea here is not to attack Ministry of Finance but to share ideas that translate into economic growth. In fact, Batswana are a more forgiving nation and they would not focus on the ministry's past failure but will rather focus on the future. It is therefore necessary for the Ministry of Finance and Development Planning to learn from their past mistakes and focus on the future of Batswana and develop policies that will expedite diversification and FDI.

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