Remember when the former French Prime Minister, Nicolas Sarkozy, accused a certain Southern Africa country at a 2011 G20 summit of being a tax haven and when the finance minister of that country conceded that indeed his country’s finance laws were not watertight?
That country is Botswana and so those here at home who point fingers across the Atlantic Ocean at a South American tax haven should know that three fingers are pointing back at them. Panama is in the news after the discovery of what from a journalistic perspective is a treasure trove that contains names of wealthy clients who are using the country as a tax haven. At the time that Sarkozy raised concern about tax havens, Botswana was just a name away from Panama on a list of countries that failed to meet the required transparency standards. Those countries were: Trinidad and Tobago, Antigua/Barbuda, Barbados, Botswana, Brunei, Panama, Seychelles, Uruguay, Vanuata, Switzerland and Liechtenstein.
“Countries that remain tax havens will be shunned by the international community,” Sarkozy said after the summit.
Americans were also gravely concerned about Botswana’s non-compliance with transparency standards and the United States Embassy is said to have engaged with the government over this issue. Ultimately, this pressure compelled the amendment of the Income Tax and Banking Acts in order to bring transparency to the processes covered under those pieces of legislation.
While it may have been forced to change its systems, Botswana was not doing anything out of the ordinary. A senior lawyer within the government system who has intimate knowledge of international finance says that all countries offer tax incentives to attract foreign direct investment.
“These incentives can be in the form of lower tax rates, tax exemptions or tax holidays. Botswana is no different from other countries in this respect,” the lawyer says.
A good example is the US itself which Bloomberg says is muscling its way into the lucrative tax haven business.
“After years of lambasting other countries for helping rich Americans hide their money offshore, the U.S. is emerging as a leading tax and secrecy haven for rich foreigners. By resisting new global disclosure standards, the U.S. is creating a hot new market, becoming the go-to place to stash foreign wealth. Everyone from London lawyers to Swiss trust companies is getting in on the act, helping the world’s rich move accounts from places like the Bahamas and the British Virgin Islands to Nevada, Wyoming, and South Dakota,” Bloomberg reported in February this year.
Interestingly, the latter report came out two months before the Panama Papers scandal broke out. Whether a tax haven survives or not depends on how much power it has as Botswana’s case clearly demonstrates. The lawyer says that the precise aim of establishing the International Financial Service Centre (IFSC) by the government in 1999 was to turn Botswana into a tax haven.
“This is because companies that invested through the IFSC were subjected to very minimal tax in Botswana. In short, the IFSC allowed multinational companies who had nothing to do with Botswana or who had a minimal interest here to evade taxes in their home countries. The IFSC was simply a conduit through which the government of Botswana allowed wealthy foreign individuals and companies to evade tax and avoid the proper taxation of their personal income and capital income in their home countries. At the time the IFSC was created, Botswana had signed no information exchange agreement with any state, making it possible for companies to exaggerate their losses and offset them with favourable tax rates here. This Botswana legislation was responsible for revenue loss by other countries and also legitimised and provided an opportunity for tax evasion,” the lawyer says.
Ultimately, IFSC was “merged” with the Botswana Export Development and Investment Agency (BEDIA) to form what is now called the Botswana Investment and Trade Centre.