Wednesday, June 12, 2024

Moswaane offers theory of how Botswana loses billions in IFFs

In a rare show of bipartisan unity, ruling party and opposition MPs were able to agree that a certain group of foreign businessmen, some of them “untouchable”, are the major cause for Botswana’s illicit financial flows (IFFs). A detail that was later provided by a Botswana Patriotic Front MP, Baratiwa Mathoothe, narrows down the suspect list to businessmen from a particular country. Francistown West MP, Ignatius Moswaane, said that from his personal experience in the customs clearing business, he knows that there is a certain group of businessmen who would declared P50 million worth of imported goods when the actual value is P500 million.

These businessmen (“some of them are untouchable”) typically don’t keep their money at the bank and don’t provide customers with the option of paying by bank card. The latter requires a debit/credit card swiping machine. “Banna bao ga ba swipee,” said Moswaane meaning that “those [business] men don’t use swiping machines.” He also alleged that these businessmen typically export and import Botswana currency through unofficial channels and suggested that if the Botswana Unified Revenue Services (BURS) was to plug the leaks in its tax collection system, it would make an additional P40 billion from them.

In fully agreeing with what his fellow Opposition Bench colleague had said, Mathoothe gave Oriental Plaza in Gaborone as an example of a cash-only shopping complex. In making an implicit suggestion about the huge profits that the traders are making from untaxed business, the Serowe South MP said that they drive very expensive cars, which cost “well over P1 million.” All traders at Oriental Plaza are Chinese. While he didn’t share any compromising detail, Takatokwane MP, Tshoganetso Leuwe, also expressed concern about the cash-heavy, receipt-free retail business that Moswaane had referred to. Not using swiping machines and not issuing receipts means that BURS has no way to determine sales value from which it can extract a certain percentage as tax. The Minister of Minerals and Energy, Lefhoko Moagi, proposed that airport-type scanners should be used at all ports of entry to detect the fraud that Moswaane had described.  

A recent report from the African Development Bank identifies Botswana among countries that have been worst affected by IFFs. “Despite the success story of Botswana’s economy, trade mis-invoicing outflows are prevalent, with over US$ 12.3 billion cumulatively recorded in 2003 and 2013,” says the report, which defines trade mis-invoicing as the practice of knowingly submitting an invoice that misrepresents the value of goods being imported or exported. “The driving factors for illicit financial flows in Botswana include weak enforcement institutions, corruption and existence of tax havens.”

Trade mis-invoicing has also been alleged in Mogoditshane and the culprits have been identified as some mostly foreign, used-car dealers. By the sleight of hand that Moswaane alleged as well as one occurring in Mogoditshane and in many more places and sectors, Botswana is losing billions of pula. Southern Africa is itself the epicentre of IFFs. “IFFs are highly concentrated in some countries, the top-ten countries and account for 73.4 percent of total IFFs in Africa from 1980 to 2018. Four Southern African countries, namely South Africa, Angola, Botswana, and Zambia accounted for 40.7 percent,” the Bank says.

What puts Botswana at greater risk is its overreliance on diamonds. The report says that the extractive sector is particularly prone to IFFs. “Extractive sectors fall under high-level discretionary political control, such as a president or executive committee, and are often prone to secrecy. State companies in these sectors often use the public function to promote their personal interests. There are also limited competition in extractive sectors, leading to fewer corporate checks and balances. Moreover, extractive sectors often require high degrees of technical expertise which facilitate the falsification of reports.”


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