Wednesday, October 28, 2020

Rushed through – the Income Tax Bill

BY BONNIE MODIAKGOTLA

The Income Tax amendment Bill was passed on parliament Wednesday as a matter of urgency to beat the review that is due next year January, and to prevent the country from being listed as uncooperative.

Kenneth Matambo, minister of Finance and Economic Development, approached parliament last minute to seek approval from legislators regarding the amendments to the Income Tax Act. The Bill was brought as a matter of urgency as the January 2019 deadline approaches – of which the country will be subjected to a review by the Forum on Harmful Tax practices.

Matambo told parliament that it is critical that the amended Bill be passed to enable Botswana to meet the requirements with the Forum on Harmful Tax Practices, an initiative of Organisation for Economic Cooperation and Development (OECD). At the core of the amendments lies the country’s much touted International Financial Services Centre (IFSC) ÔÇô a tool used by government to attract Foreign Direct Investment by offering low tax base. Now government wants the tax regime under IFSC to be reviewed.

“Such amendment is mainly to remove the features that have been identified as potentially harmful by the Forum on Harmful Tax Practices. Based on the commitment to amend the Act, Botswana is scheduled for a final review by the Forum on Harmful Tax Practices in January 2019. Mr Speaker, the passage of this Bill is one step that is required to put this country on the right path, so as to be able to pass the January 2019 review by this Forum on Harmful Tax Practices,” said Matambo.

Matambo asked that the Bill be assented to once it has been approved by parliament, before the end of the year. He admitted that he was asking too much from legislators at a short notice ÔÇô considering that the global taxation concepts that are involved in the proposed Bill are new and complicated.

“That is why we had some challenges in completing the drafting of the Bill on time. It is very important for Botswana to pass the January 2019 review in order for the country not to be viewed in a negative light regarding its taxation laws, and for it to retain its attractiveness for Foreign Direct Investment (FDI),” Matambo said.

He added that passing the review would also help to prevent the listing of Botswana as an uncooperative tax jurisdiction by the European Union Code of Conduct Group (EU-CCG). Botswana has for the past years been trying to get rid of the perceptions that it is a tax haven after former France president Nicolas Sarkozy in 2011 branded the landlocked and diamond rich country as a tax haven.

Sarkozy’s remarks were sparked by the country’s IFSC initiative which targeted multinationals by offering them low taxation – under the IFSC regime, certified companies are taxed at a reduced rate of 15 per cent instead of the normal corporate rate of 22 per cent. These companies are not permitted to operate in the domestic economy and if a company wishes to do so, under the current rules, it either has to have its IFCS Certificate renounced and be taxed at the rate of 22 per cent or form another company to operate in the domestic market.

Now feeling the pressure and the blight of being labelled a tax haven, Matambo said the country’s IFSC has been assessed by the Forum on Harmful Tax Practices as a regime with potentially harmful tax features. He said the urgent amendments he brought before parliament seeks to remove “this ring-fencing in order to comply with the requirements of the Forum on Harmful Tax Practices” and also to revitalize the sector.

“The effect would be that the process of offshore trade will still be taxed at 15 per cent, while those of domestic trade will be taxed at the normal rate of 22 per cent. The 15 per cent would still apply. It is in this context that I bring the amendments to the Income Tax Act before this Honourable House for approval.”

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