Early Christmas beckons for G4S shareholders

MBONGENI MGUNI
Staff Writer | Wednesday June 8, 2011 00:00

On Friday, the security firm's Chairman, Lebang Mpotokwane announced that an advance dividend of 158.74 thebe had been declared, payable on or about June 24.

Other investors also have the opportunity to benefit from the move, as the advance dividend will be paid out to shareholders registered as at June 17. Effectively, investors have about two weeks to snap up G4S Botswana shares and benefit from the windfall.

African Alliance analyst, Odirile Okaile described the advance dividend as a 'great opportunity' for investors.

'The aim is to use up the Additional Company Tax credits before they fall away; these are substantial amounts for many companies, especially banks,' he said. The announcement is expected to trigger a rush for G4S shares when trading kicks off on the Botswana Stock Exchange (BSE) this morning. However, at P37.50, the security company's share price is the most expensive on the BSE's Domestic Companies Index, undermining the prospects of easy pickings for smaller retail investors. Okaile explained that while in theory the advance dividend appeared irresistible, not all classes of investors would reap profits.

'You would expect that people come rushing through, but the benefits of snapping up shares may be offset by the costs associated in buying and selling shares such as fees and commissions. 'Some investors may, therefore, not be able to reap profits. However, if you had a substantial amount to invest, you would be able to earn profits from the advance dividend,' he said.

Through the advance dividend, G4S Botswana follows other private sector players declaring dividends in order to use up their Additional Company Tax (ACT) credits. From July 1, the new tax year, changes in law mean tax credits that companies have accrued will disappear.

The only solution for affected companies is to declare and pay dividends before June 30 in order to use the tax credits. Prior to the latest changes in the Income Tax Act, companies pay 10 percent ACT to Botswana Unified Revenue Services (BURS) against which they are able to offset 15 percent in withholding tax on dividends whenever they declare them. Thus, companies effectively retain the 15 percent withholding tax whenever they declare dividends as it is set against the ACT paid to BURS.

However, from July 1, the two-tier tax regime (corporate and ACT) will be replaced by a 22 percent flat rate, which authorities have hailed as less complex. The tax reforms were informed by an International Monetary Fund (IMF)-inspired study in 2007, after which extensive consultation held the changes back until this year.