Saturday, October 31, 2020

NON-CITIZENS FEEL THE PAIN OF PROPERTY TRANSFER DUTY; QUESTIONS ABOUND WHY IT WAS CREATED?

A decision by Botswana Government to raise from 5 percent to 30 percent a transfer duty paid by non-citizens on property purchases is experiencing a push back from both inside and outside government.

Vice President Slumber Tsogwane has already registered his unhappiness with the clause, highlighting growing pressure to review it.

Business Botswana, a powerful lobby of organized businesses and employers in Botswana has also taken up the issue with Government to seek clarity on the matter.

“It has brought about confusion. There is an impression created that Botswana is no longer as welcoming for foreign business people. That cannot be true,” said an expatriate executive who did not want to be named for fear of possible reprisals.

Yet there are other people who say far from raising money, it was actually a hardnosed strategy by Botswana Government to cool the property market and eventually reduce prices.

Others have yet argued that the primary objective of introducing the tax was to broaden the tax revenue base.

If that was so, then it has been a poorly thought out strategy as it has led to fewer transactions happening, general collapse of the property market and even negative sentiment about the country.

The concern among skeptics is that this piece of legislation will send a mixed message to outsiders on what Botswana’s investment policy really is.

A concern among the international community based on a still to be understood misconception has been that Batswana have a subtle hatred for foreigners.

And this law plays exactly into that narrative.

While Botswana Government, especially under President Mokgweetsi Masisi has been trying to ramp up Foreign Direct Investment, the property Transfer Duty might counter such efforts.

Under the law only citizens and companies that are 100 percent citizen owned are exempt.

The expatriate community in Botswana is relatively small, but tightly knit and well organized.

Small as they play a big role on investment matters of the country because of their high income earnings.

As a distinct group they share information and perceptions among themselves and also with others outside the country with a keen interest to settle or invest in Botswana.

“Since this law came about, the fast rule has been to warn those looking to come, what to expect and more importantly not to look forward to buying any house or property locally,’ said one expatriate.

A renowned economist, Keith Jefferies is one of the people who have argued against the law.

Dr Jefferies argues that the law will have negative impacts across the economy.

If not corrected the law could undermine government efforts to attract FDI – and also damage the country’s economic prospects.

He argues that the law is clearly “anti-foreigner” and also “anti-foreign investment.’

The biggest concern, he adds is that this law comes into conflict with initiatives by Government like the relaxing of Visa restrictions. “. It will have this impact, not just on incoming FDI projects, but on the majority (by value of economic output) of firms in the country, given that it will apply to both wholly-owned foreign companies and joint ventures between citizens and foreign investors (only 100% citizen owned companies are exempt),” writes Dr Jefferies.

He argues that because property companies listed on the BSE (RDC, NAP, Turnstar, Far Properties, Letlole and PrimeTime) have business models based on property development, acquisition, and management, these business models will be devastated, as the economics of property development will be fundamentally and negatively affected by the increased tax (which they will all be subject to).

According to Dr Jefferies “the impact on the BSE could be substantial.”

His prediction that many properties will with time become unsaleable has come to pass.

Across the main suburbs of Gaborone, many properties that are on the market have now gone for unusually long times without sales happening.

Indications are that as it had been predicted, there is already a substantial impact on the domestic market for all types of property.

This is because the net effect of the tax has been to remove and disqualify from the market a big chunk of participants from property market.

These include non-citizen individuals, companies and joint ventures.

A much “reduced property market liquidity, fewer transactions, and reduced property prices. Indeed, this may have been the main reason for the measure – an attempt to reduce property prices.”

The commercial banks too have not been spared.

Increasingly banks are finding it prohibitive to foreclose even when reasons exist for them to.

This is chiefly because prices of houses and property in general have collapsed.

 As Dr Jefferies concluded in his brief “the proposed move is inconsistent with the objectives of increasing the openness of the economy and increasing competitiveness, both of which are central to the National Transformation Strategy. The potential negative effects on many participants in the economy are substantial, and will far exceed the benefits of any additional tax revenues that may be raised. Overall, it would mark huge step backwards and undermine the benefits of the many steps forward that we have seen in recent months.”

RELATED STORIES

Read this week's paper

Education system faces historic transition problem nobody is planning for

A full-blown crisis in tertiary education that the government has not planned for and is sleeping on is taking shape as Form...