Tuesday, September 26, 2023

Botswana’s tax incentive quandary

As a way of encouraging economic development, Botswana frequently offers tax incentives to attract businesses to locate in the country. The Africa Incentive Survey 2016, compiled by KPMG gives insight and a guide to tax and incentives provided in 28 countries across Southern, Eastern, Northern and Western Africa. The survey supports the narration of ‘Africa rising’ citing that the continent is open for business as indicated by the establishment of Special Economic Zones (SEZs) in three-quarters of the countries surveyed.  

Botswana, in comparison to its Southern African member states fairs reasonably competitive in terms of tax incentives. Although the average corporate income tax (CIT) in the region is 27.8 percent, Botswana’s 22percent CIT falls far below that of the region. The country with the highest CIT is Zambia at 35 percent while the lowest is Mauritius with 15percent. The countries in this region provide incentives specific to their development needs, however, certain benefits form a common thread. Seven of the 10 countries, including Botswana, have pre-approval requirements with the exception of Malawi, Mauritius and Swaziland. 

The establishment of SEZ in Botswana was approved in 2015 by Parliament. The survey indicates that Botswana, along with Zimbabwe, does not have a SEZ making them the only two countries out of the 10 that have not set up the zones. With the exception of Mozambique which is currently on tax holiday, Botswana, South Africa, Mauritius, Zimbabwe and Zambia grant a reduced tax of 15 percent for approved activities. 

The survey also indicates that no minimum investment is required to set up shop. In line with the survey’s observation that countries with an over reliance in extractive resources demonstrate a shift to manufacturing and value added services, Botswana exhibits the same change. 

In terms of the tax agreements, the survey cites that “The Minister of Finance and Development planning can enter into an agreement with any taxpayer. Once the agreement is approved, a reduced tax rate, additional deductions and exemptions prescribed by the Minister, would be available. The agreement has to be approved by resolution of the National Assembly. The agreement can only be amended or cancelled by the National Assembly.” 

Furthermore, Botswana can grant additional relief to any project under a development approval order if the Minister considers the project beneficial to the development of the local economy or to the economic advancement of its citizens. “Consideration will be given to the plans or facilities in place for the training of citizens and localisation plans of noncitizen held positions. The company needs to apply for pre-approval before it can claim,” states the survey. 

The survey cites that more than a third of the 28 countries surveyed have incentives related to manufacturing, an area which Botswana has a keen interest in reforming so as to attract private capital. With a wider choice for investors to choose from, it remains a daunting challenge for Botswana to demonstrate a better framework which is unmatched.



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