Botswana’s tax carrot

Botswana aims to diversify its economy with tax advantages to international companies but stresses that it is not a tax haven in the traditional sense of the word.

Mr Baledzi Gaolathe, minister of finance and development planning, said in Gaborone that countries offering zero tax rates are disapproved of internationally because tax havens are regarded as a harmful practice.

Gaolathe said that with its ninth development plan, Botswana aims to reduce its dependence on diamonds and to eradicate unemployment.

The plan is to achieve its plan by 2016. Botswana, which is classified as a middle income country, has a structural unemployment rate of approximately 20%.

The country wishes to restructure its economy by focusing on tourism, financial services and infrastructure development.

According to Gaolathe agriculture’s contribution to GDP has fallen from 40% to a paltry 3%.

Botswana has experienced years of good growth. This growth is gradually slowing down.

Gaolathe said that to reach its development goals, a growth rate of 5,5% is required.

The economy grew at 6,7% last year but the expectation is that it will slow to 5% this year.

The International Financial Services Centre was brought into existence last year with the chief goal of establishing Botswana as a world class destination for a wide variety of cross-border financial services.

Mr Alan Boshwaen, CEO of the IFSC, said the challenge is to change peoples’ predisposition from cattle farming to financial services.

The country has made good progress with the training of its people and at present there are 28 000 students from Botswana in tertiary institutions world-wide.

At least 25% of GDP is spent on education.

According to Boshwaen, at least 20 companies are using the tax advantages of the IFSC.

He says this is disappointing. It was hoped that growth would be faster.

"It remains a long term priority. We don’t have much of a choice, given the economic reality. The demand is not for agriculture and mining but more for sophisticated services. The conditions in Zimbabwe and the Democratic Republic of the Congo also have not helped our cause.

Boshwaen says the advantages offered by the IFSC can modernise the country by exposing it to international know-how.

"Our goal is to generate jobs through low taxation and to encourage skills transfer. Botswana’s tax rate is among the lowest in Africa. It is not a short-term gimmick."

source - Sake Beeld (Business Beeld)