21 Mar 2021

Director of tax policy at the Ministry of Finance and Economic Development (MFED), Ms Boikanyo Mathipa says Illicit Financial Flows (IFFs) strip government of needed resources for development.

Ms Mathipa said in an interview that tax avoidance and tax evasion were some of the illegalities that came through IFFs and had a harmful impact on the development of the country.

The Economic Development in Africa Report 2020 dubbed IFFs as cross border transfers of money or assets connected with some illegal activity.

Ms Mathipa noted that to combat such acts Botswana continued to participate in an array of global efforts to fight against tax avoidance and tax evasion.

She also noted that Botswana had 17 Double Taxation Avoidance Agreements (DTAAs) and eight Tax Information Exchange Agreements (TIEAs) that were in force and that efforts were in place to increase the number of such agreements.

“Under such agreements, tax information is exchanged upon request. Furthermore, countries which have entered into DTAAs assist each other to collect the tax; this means that taxpayers cannot go from one country and hide their assets in other countries,” she indicated.

Ms Mathipa reiterated that Botswana participated in global forum activities geared towards fighting against tax evasion and tax erosion.

She said in September 2020 Botswana signed a Mutual Administrative Assistance Cooperation (MAAC), which also assisted in sharing information and going beyond Double Non-Taxation Avoidance Agreements that the country has been having.

Furthermore, Ms Mathipa explained that MAAC was a multilateral instrument available for all forms of tax co-operation, except customs, to tackle tax avoidance and tax evasion through increased co-operation among tax authorities and in the process, respecting the rights of taxpayers.

She said the plan was for Botswana to ratify the MAAC ahead of the deadline of December 2021.

By the move, she said Botswana had joined forces with all G20 countries, all BRICS (Brazil, Russia, India, China and South Africa), all Organisations for Economic Cooperation and Development (OECD) countries.

She enlisted Eswatini, Namibia, and South Africa as part of the SADC countries that had signed with the MAAC.

Ms Mathipa noted that Botswana joined the Global Forum in 2010 and had undergone reviews by the Global Forum on her administrative and legislative framework since July 2010 to check if the country had the ability to effectively exchange information with other countries. She said Botswana was not a country where taxpayers may hide their income from other tax revenues.

In view of the aforementioned, Ms Mathipa underscored that the reviews helped Botswana to evaluate and revise her laws to ensure that they complied with international standards on transparency and exchange of tax information.

She said the country did well during the reviews despite that a lot of internal laws had to be amended to be compliant with the standards.

Based on the latter, she said in July 2017 Botswana joined the Base Erosion and Profit Shifting (BEPS) Inclusive Framework and by that by the transition, the country had an obligation to implement the BEPS minimum standards and participate in all tax issues raised under the Inclusive Framework.

One of such minimum standards was to sign and ratify the OECD Convention on Mutual Administrative Assistance in Tax Matters (MAAC), with a key objective to combat aggressive tax planning and guard against tax evasion and avoidance as well as to ensure a level playing field in tax by eliminating harmful tax practices, she said.

Ms Mathipa specified that BEPS had 15 action items, out of which four minimum standards had to be met by each member country.n She said since joining the Inclusive Framework, Botswana has been working on countering harmful tax practices, preventing tax treaty abuse, transfering pricing documentation and enhancing dispute resolution.

So far, she said Botswana had completed the implementation which involved the review of the Botswana International Financial Service Centre regime, and that the regime was cleared from having potentially harmful tax features.

“Actions six and 14 are, by nature, work in progress as they are dealt with during negotiations of Double Taxation Avoidance Agreements (DTAAs) and Botswana has also been engaging countries with which she has DTAAs to renegotiate any DTAAs that have deficiencies,” she said.

Furthermore, she highlighted that Botswana has also worked on introducing transfer pricing rules under the Income Tax Act in December 2018, and MAAC happened to be one of the instruments that made transfer pricing rules effective of which the country was already a member of.

Ms Mathipa reiterated that the BEPS agenda focused on equipping governments with domestic and international instruments to address tax avoidance and tax evasion to ensure that profits were taxed where economic activities, which generate those profits, were performed and where the economic value was created.

She underlined that the BEPS agenda was focused on closing the gaps in international tax rules that Multi-National Enterprises (MNEs) may use to artificially shift their profits to low or no-tax jurisdictions.

“MNEs, like all other taxpayers who are earning income in Botswana, have to pay the right amount of tax on their taxable income in accordance with all Botswana’s taxation laws. Taxation laws in Botswana have provisions under which the times for payment of various taxes are specified,” she said.

She said imposing tax in accordance with tax laws of Botswana never had any impact on investment because Botswana had some of the lowest tax rates in the Southern African region, if not worldwide.

Ms Mathipa said tax should be paid where income was earned and where the value was added.

She said Botswana took a step to participate in global efforts to prevent MNE’s from shifting profits made in other countries to be taxed in Botswana or profits made in Botswana to be taxed in other countries.

In her conclusion, Ms Mathipa verified that the benefits of joining BEPS and signing and ratifying the MAAC included avoiding being listed as a non-cooperative tax jurisdiction by the EU Code of Conduct Group (Business Taxation) and to be in a favourable state to attract foreign direct investment.

She pointed out that countries listed as such were shunned by other countries and individual investors, and that they found it difficult to attract foreign direct investment.ENDS