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Is there 3% tax on dust roads works?

JONATHAN HORE

Welcome folks to today’s instalment of my weekly tax articles. I am sure that all of us have used a dust road at one point or the other and I want to start by asking you whether you would say that dust roads are constructed, in the true meaning of the word?

Is it really construction or it is some road making works or something close to that? You may also know that certain persons are, per the Income Tax Act, required to deduct a 3% tax on payments made in respect of construction contracts. Well, that being the case, should there be the 3% tax on payments made for dust road works? I must state that this is a very debatable matter and therefore different taxpayers accord it different treatment.

Let me also state that the Income Tax Act (Act) does not categorically deal with the matter at hand. The said Act simply prescribes that, ‘every person who makes any payment to any person under a contract relating to construction operations shall deduct tax from such payment.’ The Act does not define the phrase ‘construction operations,’ which leaves us to make our own assessment on the payments made for dust road-making works. In this article, words importing the masculine shall include the feminine.

BRIEF ABOUT THE 3% TAX

The 3% construction tax is imposed by the Act on payments made in respect of construction contracts which are at least P 5 000 in value. On another note, the Act does not define ‘construction operations’ but it is common cause that the term includes, among others, the construction of the following: houses, office complexes, bridges, dams, tarred roads and sewerage works.

The payer of the amount charged on construction contracts is mandated by the Act to deduct the tax and remit it to BURS no later than the 15th day of the month following that of payment of the amount to the contractor. Failure to remit the tax to BURS within the stipulated time exposes the payer to annual effective interest rate of 19.56% or compounded 1.5% interest per month or part thereof. Further, failure to deduct the tax makes the payer personally liable for the tax. You certainly don’t want to find yourself in such a situation; believe you me.

DUST ROADS & THE TAX

I don’t want to insinuate that the phrase ‘construction operations’ used in the Act points to the fact that there should be brick and mortar in the works involved. However, you and I know that one cannot construct a house, office, stadium, bridge etc, without bricks and mortar. So, whenever there is the use of bricks and mortar, any payments one makes to a contractor will more than likely be subject to the 3% tax.

Below are the reasons why business has divergent views about the deduction of the 3% tax on dust roads:

The process: Dust roads are made through the ferrying of trees, removal of rocks, levelling the surface, watering and compacting the soil. At no point does one use brick and mortar in the process. Further, at the end of the road making exercise, one cannot really point to a firm structure that they could say they constructed. Technically, the end product after the road-making works is a dusty road which can turn into mud when it rains.

So, the dilemma is whether the dust road making process is really construction and if so, what the end product really is? The end product of a tarred road construction process is the tarred road which is firm and durable. The dust road is just a cleared piece of land and no real firm structure is produced in the process. No guidance: I will tell you that colleagues who work for councils, government or farms get quotations written something like ‘dust road construction’ from their contractors.

These colleagues also tend to believe that the dust road construction process is actually construction works. The dilemma that we have is that there is no definition of construction works in the Act and hence we end up using our interpretation. Whilst BURS has issued a guidance note, it is not specific to dust roads. BURS’ view is that ‘road works’ fall within the ambit of construction operations but one assumes that those are tarred roads.

So, the dust road issue remains unanswered. Even if BURS had included dust roads under construction operations, remember that guidance notes issued by BURS are neither binding on it or the taxpayer. Only the law is binding. The above-mentioned colleagues also believe that the road clearing works, soil compacting and levelling works produce a tangible product called a road. The fact that the road can turn into a pool of mud when it rains does not sway them from their view. They therefore conclude that the 3% tax is therefore deductible to all such construction works.

CONCLUSION

As you can see, this matter is subject to divergent views as stated above and one cannot, in the absence of a definition of ‘construction operations’ in the Act conclude with certainty whether payments in respect of dust road making works are subject to the 3% tax. Well, I always say to people, withholding taxes are a common source of divergent views and it’s not surprising that we have a live case that we are analysing now.

I always like to say that where one is in doubt with a withholding tax, they must seek clarity before making payments. However, if the doubt remains after seeking clarity, then one is better off deducting the tax and leaving the option of objecting to the deduction to the payee. Well folks, I hope that was insightful. As Yours Truly says goodbye, remember to pay to Caesar what belongs to him. If you want to join our Tax Whatsapp group, send me a text on the cell number below.

Jonathan Hore is the Managing Tax Consultant of Aupracon Tax Specialists and feedback can be relayed to jhore@aupracontax.co.bw or 7181 5836. This article is of a general nature and is not meant to address particular matters of any person.
 

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DIS Parley Committee selection disingenuous 

25th November 2020

Intelligence and Security Service Act, which is a law that establishes the Directorate of Intelligence and Security Service (DIS), provides for establishment of a Parliamentary Committee. Recently, the President announced nine names of Members of Parliament he had appointed to the Committee.

This announcement was preceded by a meeting the President held with the Speaker and the Leader of Opposition. Following the announcement of Committee MPs by the President, the opposition, through its leader, made it clear that it will not participate in the Committee unless certain conditions that would ensure effective oversight are met. The opposition acted on the non-participation threat through resignation of its three MPs from the Committee.

The Act at Section 38 provides for the establishment of the Committee to examine the expenditure, administration and policy of the Directorate. The law provides that the Parliamentary Committee shall have the same powers and privileges set out under the National Assembly (Powers and Privileges) Act.

On composition, the Committee shall consist of nine members who shall not be members of Cabinet and its quorum shall be five members.  The MPs in the Committee elect a chairperson from among their number at their first meeting.

The Members of the Committee are appointed by the President after consultation with the Speaker of the National Assembly and Leader of the Opposition in the National Assembly. It is the provision of the law that the Committee, relative to its size, reflect the numerical strengths of the political parties represented in the National Assembly.

The Act provides that that a member of the Committee holds office for the duration of the Parliament in which he or she is appointed.  The Committee is mandated to make an annual report on the discharge of their functions to the President and may at any time report to him or her on any matter relating to the discharge of those functions.

The Minister responsible for intelligence and security is obliged to lay before the National Assembly a copy of each annual report made by the Committee together with a statement as to whether any matter has been excluded from that copy in pursuance of the provision of the Act.

If it appears to the Minister, after consultation with the Parliamentary Committee, that the publication of any matter in a report would be prejudicial to the continued discharge of the functions of the Directorate, the Minister may exclude that matter from the copy of the report as laid before the National Assembly.

So, what are the specific demands of the Opposition and why are they not participating in the Committee? What should happen as a way forward? The Opposition demanded that there be a forensic audit of the Directorate. The DIS has never been audited since it was set up in 2008, more than a decade ago.

The institution has been a law unto itself for a longtime, feared by all oversight bodies. The Auditor General, who had no security of tenure, could not audit the DIS. The Directorate’s personnel, especially at a high level, have been implicated in corruption.  Some of its operatives are in courts of law defending corruption charges preferred against them. Some of the corruption cases which appeared in the media have not made it to the courts.

The DIS has been accused of non-accountability and unethical practices as well as of being a burden on the fiscus.  So, the Opposition demanded, from the President, a forensic audit for the purpose of cleaning up the DIS.  They demand a start from a clean slate.

The second demand by the Opposition is that the law be reviewed to ensure greater accountability of the DIS to Parliament. What are some of the issues that the opposition think should be reviewed? The contention is that the executive cannot appoint a Committee of Parliament to scrutinize an executive institution.

Already, it is argued, Parliament is less independent and it is dominated by the executive. It is contended that the Committee should be established by the Standing Orders and be appointed by a Select Committee of Parliament. There is also an argument that the Committee should report to Parliament and not to the President and that the Minister should not have any role in the Committee.

Democratic and Parliamentary oversight of the intelligence is relatively a new phenomenon across the World. Even developed democracies are still grappling with some of these issues. However, there are acceptable standards or what might be called international best practices which have evolved over the past two or so decades.

In the UK for instance, MPs of the Intelligence and Security Committee are appointed by the Houses of Parliament, having been nominated by the Prime Minister in consultation with the Leader of the Opposition. This is a good balancing exercise of involvement of both the executive and the legislature. Consultation is taken for granted in Botswana context in the sense that it has been reduced to just informing the Leader of Opposition without much regard to his or her ideas; they are never taken seriously.

Furthermore, the current Committee in the UK has four Members of the ruling party and five MPs from the opposition. It is a fairly balanced Committee in terms of Parliamentary representation. However, as said above, the President of Botswana appointed six ruling party MPs and three from the opposition.

The imbalance is preposterous and more pronounced with clear intentions of getting the executive way through the ruling party representatives in the Committee. The intention to avoid scrutiny is clear from the numbers of the ruling party MPs in the Committee.

There is also an international standard of removing sensitive parts which may harm national security from the report before it is tabled in the legislature. The previous and current reluctance of the executive arms to open up on Defence and Security matters emanate from this very reason of preserving and protecting national security.

But national security should be balanced with public interest and other democratic principles. The decision to expunge certain information which may be prejudicial to national security should not be an arbitrary and exclusive decision of the executive but a collective decision of a well fairly balanced Committee in consultation with the Speaker and the minister responsible.

There is no doubt that the DIS has been a rogue institution. The reluctance by the President to commit to democratic-parliamentary oversight reforms presupposes a lack of commitment to democratization. The President has no interest in seeing a reformed DIS with effective oversight of the agency.

He is insincere. This is because the President loathes the idea losing an iota of power and sharing it with any other democratic institution. He sees the agency as his power lever to sustain his stay in the high office. He thought he could sanitize himself with an ineffective DIS Committee that would dance to his tune.

The non-participation of the opposition MPs renders the Committee dysfunctional; it cannot function as this would be unlawful. Participation of the opposition is a legal requirement. Even if it can meet, it would lack legitimacy; it cannot be taken seriously. The President should therefore act on the oversight demands and reform the DIS if he is to be taken seriously.

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The Maccabean Uprising

25th November 2020
Jewish freedom fighters

 Jews drive away occupying power under the command of guerrilla leader Judas Maccabees but only just

Although it was the Desolation Sacrilege act, General Atiku, that officially sparked the Maccabean revolt, it in truth simply stoked the fires of an already simmering revolution. How so General?

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Atomic (CON)Fusion

25th November 2020

For years I have trained people about paradigm shifts – those light-bulb-switch-on moments – where there is a seismic change from the usual way of thinking about something to a newer, better way. 

I like to refer to them as ‘aha’ moments because of the sudden understanding of something which was previously incomprehensible. However,  the topic of today’s article is the complete antithesis of ‘aha’.  Though I’d love to tell you I’d had a ‘eureka ‘, ‘problem solved’ moment, I am faced with the complete opposite – an ‘oh-no’ moment or Lost Leader Syndrome.

No matter how well prepared or capable a leader is. they often find themselves facing perplexing events, confounding information, or puzzling situations. Confused by developments of which they can’t make sense and by challenges that they don’t know how to solve they become confused, sometimes lost and completely clueless about what to do.

I am told by Jentz and Murphy (JM) in ‘What leaders do when they don’t know what to do’ that this is normal, and that rapid change is making confusion a defining feature of management in the 21st century.  Now doesn’t that sound like the story of 2020 summed up in a single sentence?

The basic premise of their writing is that “confusion is not a weakness to be ashamed of but a regular and inevitable condition of leadership. By learning to embrace their confusion, managers are able to set in motion a constructive process for addressing baffling issues.

In fact, confusion turns out to be a fruitful environment in which the best managers thrive by using the instability around them to open up better lines of communication, test their old assumptions and values against changing realities, and develop more creative approaches to problem solving.”

The problem with this ideology however is that it doesn’t help my overwhelming feelings of fear and panic which is exacerbated by a tape playing on a loop in my head saying  ‘you’re supposed to know what to do, do something’. My angst is compounded by annoying motivational phrases also unhelpfully playing in my head like.

  • Nothing happens until something moves
  • The secret of getting ahead is getting started

and

  • Act or be acted upon

All these platitudes are urging me to pull something out of the bag, but I know that this is a trap. This need to forge ahead is nothing but a coping mechanism and disguise. Instead of owning the fact that I haven’t got a foggy about what to do, part of me worries that I’ll lose authority if I acknowledge that I can’t provide direction – I’m supposed to know the answers, I’m the MD!  This feeling of not being in control is common for managers in ‘oh no’ situations and as a result they often start reflexively and unilaterally attempting to impose quick fixes to restore equilibrium because, lets be honest, sometimes we find it hard to resist hiding our confusion.

To admit that I am lost in an “Oh, No!” moment opens the door not only to the fear of losing authority but also to a plethora of other troubling emotions and thoughts:  *Shame and loss of face: “You’ll look like a fool!” * Panic and loss of control: “You’ve let this get out of hand!” * Incompetence and incapacitation: “You don’t know what you’re doing!”

As if by saying “I’m at a loss here” is tantamount to declaring “I am not fit to lead.” Of course the real problem for me and any other leader is if they don’t admit when they are disoriented, it sends a signal to others in the organisation stating it’s not cool to be lost and that, by its very nature encourages them to hide.  What’s the saying about ‘a real man never asks for direction. ..so they end up driving around in circles’.

As managers we need to embrace the confusion, show vulnerability (remember that’s not a bad word) and accept that leadership is not about pretending to have all the answers but about having the courage to search with others to discover a solution.

JM point out that “being confused, however, does not mean being incapacitated.  Indeed, one of the most liberating truths of leadership is that confusion is not quicksand from which to escape but rather the potter’s clay of leadership – the very stuff with which managers can work.”

2020 has certainly been a year to remember and all indications are that the confusion which has characterised this year will still follow us into the New Year, thereby making confusion a defining characteristic of the new normal and how managers need to manage. Our competence as leaders will then surely be measured not only by ‘what I know’ but increasingly by ‘how I behave when I accept, I don’t know, lose my sense of direction and become confused.

.I guess the message for all organizational cultures going forward is that sticking with the belief that we need all-knowing, omni-competent executives will cost them dearly and send a message to managers that it is better to hide their confusion than to address it openly and constructively.

Take comfort in these wise words ‘Confusion is a word we have invented for an order not yet understood’!

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