Botswana is among one of the least business-friendly tax systems in Africa, according to the latest Absa Africa Financial Markets Index.
The report entitled: “Taking you further into Africa than ever before” shows that many countries in the continent are moving towards supportive tax systems.
However, the report says, in several jurisdictions, transparent financial reporting is hindered by a lack of accounting and audit capacity, attitudes to transparency and enforcement problems.
“Tax systems in Angola and Botswana are less friendly. Respondents said their systems were generally unsupportive of financial market growth,” reads the report which analyzed tax policies across a number of African countries.
It also assessed progress and potential across six key pillars: market depth, access to foreign exchange, market transparency, the capacity of local investors, macroeconomic opportunity, and the legality and enforceability of standard financial markets master agreements.
“One financial institution executive in Botswana said that planned improvements to the tax regime were not high on the government’s agenda, and there was insufficient public consultation on changes that have been made,” the report noted.
Ugandan respondents were also downbeat, saying the country has the highest tax rates on dividends in the region with no exemptions or incentives to encourage financial market development.
The report also assessed countries’ regulatory and tax environments for financial markets. These factors, it says, play a fundamental role in offering investors incentives to invest in financial products. They provide transparency, which is vital for fostering investor confidence.
“Shortages of accountancy and audit expertise, either in companies or in external auditors, were reported in Botswana, Ghana, Ethiopia, Nigeria and Zambia. Another respondent in Nigeria said there was a mindset that viewed transparent financial reporting as unnecessary exposure,” the report says.
International credit ratings also aid transparency, according to the report. South Africa and Mauritius have the most corporate credit ratings from the three main ratings agencies with 57 and 27 respectively. The rest of the index countries among them Botswana are far behind.
Most countries in the continent have a financial inclusion initiative run by their central bank or finance ministry, which can help unlock savings. Botswana is planning a similar policy, according to one policy-maker, the report says.
“Financial inclusion is being largely driven by mobile money platforms rather than bank,” one central bank official was quoted in the report as saying. The Bank of Botswana earlier this year implemented electronic payment services regulations – rules on the licensing and oversight of electronic payments services providers. Some respondents said addressing concerns around cybercrime and data protection would be important.
Many respondents said financial education for citizens and public authorities was one of the best things that could be done to improve financial inclusion. Authorities in Botswana and Mozambique are using TV and radio programmes to share knowledge widely.
According to the report, market developments and policy changes boost growth of financial markets across the continent.
The report says Botswana formed a Financial Stability Council to coordinate between the country’s various financial authorities.
The FX Global Code, established in 2017 through the efforts of central banks worldwide and the Bank for International Settlements, sets best practice principles for the foreign exchange market. Market participants in South Africa, Kenya and Botswana are adopting the code, according to survey responses.