The special tax regime for the SPEDU region has kicked off under which qualifying firms will be taxed at five percent, compared to the prevailing rate of 22%, BusinessWeek has learnt.
The tax offer is part of a bouquet of incentives unveiled by government last March in an effort to attract investment to the SPEDU region following the collapse of BCL Mine.
The incentives also include zero customs duty on imported raw materials as well as fast-tracked land leases, licences, permits and utilities.
Finance and Economic Development minister, Kenneth Matambo last Friday gazetted the amendments to the Income Tax necessary to implement the SPEDU tax discount.
According to the order, the five percent tax rate applies only to companies engaged in manufacturing, tourism and agriculture.
The order states that the special rate will only apply to businesses in Selebi Phikwe, Bobonong, Mmadinare-Sefhophe, Lerala-Maunatlala and neighbouring villages, farms and cattle posts.
Both new and existing businesses can apply, including existing manufacturing businesses who are currently taxed at 15%. According to the order, after the first five years of enjoying the discounted rate, businesses will then be required to pay 10%.
Businesses wishing to take advantage of the rate have to apply to the minister, with the applications supported by an assessment report and recommendation from the Trade, Investment and Industry ministry.
Local tax expert, Jonathan Hore described the latest development as welcome, saying it would attract investment into the SPEDU region, creating jobs
“Of course, some tax has been sacrificed but in exchange for jobs and wealth creation,” he told BusinessWeek.
“This is the only regional tax incentive. No other areas will get such incentives.”
Hore said while international bodies such as the International Monetary Fund, OECD, Tax Justice Network and European Union (EU) had been discouraging countries against setting up tax incentives, Botswana had no alternative.
“The EU almost blacklisted Botswana on the basis of the concessionary IFSC tax rate of 15%, which it considers a harmful tax practice. The EU holds the view that tax concessions favour a few wealthy persons at the expense of the public. “They argue that cutting taxes is not economically healthy as the public is denied of basic amenities such as hospitals, schools etc at the expense of a few wealthy persons.
“In that regard, it is not surprising if EU, the IMF, OECD or Tax Justice Network finger Botswana as backtracking on its commitment to shun harmful tax practices.
“The challenge with the analogy of these entities is that they are divorced from the reality on the ground for countries in this part of the world. It’s a one-size-fit-all scenario, which just does not work,” he said.