Botswana hastens to avert EU blacklisting

• Country must fix compliance laws by 31 August • Matsheka makes relevant income tax amendments

Botswana hastens to avert EU blacklisting

Botswana has moved fast pace to amend its income tax laws in order to meet the date by which the European Union Commission will blacklist the country for dirty money if the situation has not improved, The Business Weekly & Review has established.

Just over three weeks remain to the deadline of August 31.

Earlier this year, Botswana was added to a list of jurisdictions classified as tax havens for being non-compliant with international tax standards, thus posing a threat to the international financial services sector. According to the EU, the countries have anti-money laundering deficiencies.

This week, the Minister of Finance and Economic Development, Dr Thapelo Matsheka, successfully mobilised MPs to support his proposed amendments to the Income Tax Act because time is not Botswana’s side to comply or be blacklisted by the EU and consequently treated as a financial pariah.

Such a fate would not only harm the country's prospects of luring foreign direct investment (FDI) but also spell doom for Batswana living abroad and or doing business with multinationals companies. That is already the case in at least one EU country, France, where banks will not open accounts for Batswana.

Presenting the bill before Parliament, Dr Matsheka the law was necessary "in order for Batswana to be allowed to sign the OECD Convention on Mutual Administrative Assistance in Tax Matters (MAC)”.

He reminded his fellow MPs that failure to pass this law before the looming deadline would result in the EU regarding Botswana as a non-cooperative tax jurisdiction. "Failure to sign the MAC will result in Botswana being listed as a non-cooperative tax jurisdiction by the European Union," he said.

According to the finance minister, among other things, the bill seeks "to provide for Botswana to meet international obligations regarding the effective exchange of tax information and transparency in tax matters”.

Minister Matsheka characterised the issue as being in national interest and one that should therefore be prioritised and taken through all the necessary stages before ahead of other parliamentary business.

Should Parliament pass the law within the time left, the country should be able to sign the Convention on Mutual Administrative Assistance in Tax Matters of the Organisation for Economic Co-operation and Development. This is a multilateral instrument that provides for exchange of tax information between member states. The convention also enables cross border tax examination and assistance among jurisdictions.

"However, in order for a country to be allowed to be allowed to sign this convention, its legislative framework has to be seen by countries that have signed the convention to allow for effective implementation of the convention," Minister Matsheka explained.

Botswana joined the Base Erosion and Profit Shifting inclusive framework (BEPS) in 2017. According to the minister, this allows for governments to equip themselves with instruments to avoid tax avoidance.

Against this background, Botswana was given some action items to complete. They include preventing tax treaty abuse, countering harmful tax practices and preparing transfer pricing documentation. Over and above this, the country was to enhance dispute resolution.

However, Botswana did not complete these tasks by 2019, putting the country under pressure to do at great speed within the limited time left. "By the end of 2019, the process of allowing Botswana to sign the MAC had not yet been completed as expected due to the deficiencies identified in our tax law," Matsheka noted.

The EU has given authorities until the end of August to remedy the situation. "Botswana was given an extension by the European Union Secretariat to sign the MAC before the 31st August 2020 and to ratify it before 31st August 2021," Matsheka told the House. "To this effect, Section 5, Sub Section 4a of the Income Tax Act is being amended to provide for certainty that provisions regarding confidentiality and authorised use of tax information under international agreements such as the MAC will prevail over contradictory provisions or domestic laws and that such information may only be used for tax purposes and that Botswana will not introduce any law that overrides international agreements."

Since a few years ago, Botswana has been regarded as a place where international criminals and shady businesses wash their dirty money, prompting censorious warnings and action from the wrath of international fiduciary organisations and regions such as the 27-member European Union. The country also ranks high among jurisdictions notorious for financial secrecy.