Tax certainty for growth

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It is never an easy task for governments to strike the right balance between providing a business friendly tax environment for investors while at the same time ensuring that foreign investors pay their fair share of the tax burden.

More than ever, the debate around taxes and in particular the taxation of multinational enterprises continues to dominate news headlines, leaving companies to react to the question around ‘fair or equitable’ taxes.

Speaking at the firm’s annual Botswana Tax Seminar, Jim Deiotte, Africa Tax Leader at Ernst & Young, says, “The pain of taxes is not only felt globally but across Africa. With the intense debate around the appropriate level of taxes resulting in a politicized topic – is this really helpful or this hurting governments and business?”

With a growing perception around the world that current international tax regimes have not kept pace with developments in the global economy, many countries and governments are focusing attention on the potential for loss of tax revenues through international activity that may reduce their corporate tax bases. With support from the G20 and individual finance ministers, the OECD is undertaking a major project on base erosion and profit shifting (BEPS). The OECD has a long history of providing a forum for governments to work together to address cross-border issues of common interest.

On 12 February, the OECD released its initial report Addressing Base Erosion and Profit Shifting. This report focuses on identifying the factors and issues related to base erosion and confirm the OECD’s intent to develop a comprehensive action plan for release in July 2013.

Deiotte further stated, “Our role as advisors to business is to help our clients navigate this period of change. Whether in assessing and responding to potential reputation risks, monitoring and reacting to the shifting policy landscape or changing the way in which their tax function resources, processes and systems are designed, we can help our clients formulate their response”.

Deiotte, highlighted the need for countries such as Botswana to understand the drivers of this politicized topic. “The issues we are dealing with are complex and there are no simple solutions, but we will progress if we continue on the path paved with constant dialogue.”

Recent Tax developments in Botswana:

The Minister of Finance and Development Planning announced a few fiscal changes when he presented the 2013/2014 budget in February.

The Banking Act will be amended to allow for disclosure of banking information by a bank or person upon request by the Botswana Unified Revenue Service.

The Botswana Income Tax Act will be amended to include a provision to allow the Botswana Unified Revenue Service to exchange information with other competent Authorities in terms of a double tax agreement or exchange of information agreement. Pursuant to this amendment, the Botswana government is in the process of signing exchange of information protocols with governments of countries that it has signed double tax agreements with.

Josephine Banda, Associate Director for Tax at Ernst & Young Botswana commented, “The above changes will give tax authorities both internally and externally wider access to the operations of businesses in Botswana and businesses therefore need to put in place risk management procedures to ensure compliance.”

In an effort to expand its tax treaty network the government of Botswana recently signed a double tax agreement with the government of China and Lesotho and has concluded agreements with the governments of Malawi, Tanzania, Zambia, Swaziland, Serbia and Luxembourg which are still to be signed.

Banda concluded, “This is a positive move   for investors in Botswana especially for those operating through the Botswana International Financial Services Centre, a regime that provides financial services to non residents and competes with centres such as Mauritius which has a very wide treaty network.”

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Following on from Ernst & Young’s successful integration in 2008 of 87 countries into one area from across Europe, Middle East, India and Africa (EMEIA), the firm has launched its Africa Business Center™ (ABC), which aims to enhance the effective and efficient links between its geographic reach and areas of expertise. The firm enjoys representation in 33 countries across Africa.

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