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Imported car dealerships are closed, how will it affect the market?

The future of Botswana’s used cars import industry seems bleak after unearthing massive tax evasion by the dealers on behalf of Botswana Unified Revenue Services (BURS) early this year. As it was said in one of the local media, given the tax that car dealers have been evading for years, dealers are likely to be unable to pay government treasury contributions soon and it may lead to the permanent closure of many of them.  

BURS officials closed down a part of the dealerships in January. The tax inspector has also confiscated dozens of used import vehicles. According to information the raid on the dealerships is part of the BURS’ investigations on allegations of various types of crime. Used car businesses, mainly owned by Nigerians, Sri Lankans, and other foreign nationalities, have been seen as a haven especially in the area of ​​money laundering and drug trafficking, although the BURS has declined to disclose details of their investigations.

In 2017 the Financial Action Task Force (FATF) expressed concerns about the vulnerability of the used car import business due to abuse of drug trafficking and other smuggling banned in Botswana while the cars are being brought into Botswana. FATF said that organized crime related to second-hand car dealership, in particular, imported cars from Asian countries is a real business in Botswana.

While used cars import dealers in Botswana claim to be driven out of business by high import taxes, the BURS says the problem is the mass evasion of traders. According to available information, more than 1,500 cars have been captured by BURS from 24 vehicle dealerships. Taxes have been averted for years and amount to millions of dollars, therefore the suppression will kill import trade. 

According to lawyers, car dealers are facing the risk of losing business. BURS Acting Commissioner General (CG) Segolo Lekau confirmed to the Weekend Post that many businesses, especially those importing goods, are breaking customs laws. The Acting CG Lekau mentioned that it seems that citizens work hand in hand with these businessmen and agree to receive fake payment documents that do not necessarily reflect the real price. Because of this reason, the government loses a lot of money, and this may force the government to increase tax.

Unfortunately such state policy ruins small business. We hope that BURS will decrease the tax rate on car imports and thus dealers will be able to pay taxes in full instead of looking for ways to evade them. 

But how bad can it actually affect the second hands cars sales market anyway? According to our own estimation, the majority of purchases are made cashless using bank financing, while most import dealerships, who are being temporarily closed now for the time of investigations, run their sales mostly in cash, which means their share of the market is not quite significant and thus can only influence the market slightly. Besides, it is extremely unlikely that all of the import dealerships turn involved in any of the illegal or unlawful activities and will be back in business eventually, perhaps even shortly after the lockdown will be lifted and investigations may be completed at a normal pace. 

Furthermore, if some small import dealerships still remain closed, it may even turn in favour of end buyers as not all imported used cars are easy-going in terms of maintenance and repair, there simply might not be even spare parts available in Botswana. Thus, despite a recent hype around that topic, we believe that, eventually, no harm will be done to the market.


Published on 21.04.2020 by AutoGuide.co.bw

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Cars BWNewsImported car dealerships are closed, how will it affect the market?