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BURS loses P80 million claim against Prevailing Securities

Prevailing-Securities

Botswana Unified Revenue Services (BURS) has lost an P80 million tax claim against Prevailing Securities (Pty) Ltd, a company owned by Shadrack Baaitse, an ally of former President Lt Gen Ian Khama.

Lobatse High Court Judge Michael Leburu this week ruled in favour of Danny Julius Guduli in his capacity as the Judicial Manager of Prevailing Securities (Pty) Ltd against Botswana Unified Revenue Services (BURS) and its Commissioner General.

On the 17th August 2018, the company [Prevailing Securities] was selected by the BURS for Tax Investigations. The Managing Director, Baaitse, attended an interview called by BURS, duly represented by Kaone Molapo, Daphney Baka and Samuel Mokelwane. The said interview was in respect to the company’s tax liability.

On the 30th January 2019, the respondent [BURS] issued two notices of assessments. The first one related to Value Added Tax (VAT) and the other to the Income Tax Assessment. In respect to the VAT Assessment, the Respondents issued a total additional assessment of P7, 179, 977.92 for the period January 2013 to December 2017. It further imposed a penalty of 200%, thus bringing the total penalty charge to P14, 359, 955.85.

In the Notice of Assessment, BURS state among others that the company had understated output tax, as evidenced by the Company bank statement, which had indicated that the company had received more “income” than what was declared as “turnover” in the submitted returns. As for input tax, the Respondents stated that the Company had not provided tax invoices.

According to the Applicant, the company had provided all the requisite documents to the Respondents.

The VAT Assessment, according to Danny Julius Guduli, did not include some of the payments made to the Respondents by the Company, for instance, the sum of P119, 952.83 paid on the 1st March 2014 was not reflected on the assessment schedule.

Furthermore, it was averred that the Respondent levied VAT on unpaid invoices and this subjected the company to an unreasonable tax burden for the sum of money received.

The applicant denies that the company understated its income. In amplification, it contended that the company received two types of income, namely income derived from its ordinary course of business and that the other income came from non- income activities.

These non- income activities were not related to any contractual income from its different customers. The non- income activities included reversed instalments, dishonoured cheques, reversed stop- orders, intercompany fund transfers, temporary loans, insurance claims, funds deposited from other bank accounts of the company to meet expenses and rejected salaries from employees bank accounts.

For services rendered, the company was paid in arrears by its customers and not all customers paid for services rendered on time and in full. According to the Applicant, the Respondents levied tax for services rendered, even before the company was actually by its customers.

It is the applicant’s case that the inclusion of non- income activities in the assessment is not only wrongful but irrational and that it amounts to abuse of authority.

With respect to Income Tax Assessment, the Applicant avers that the Respondent erroneously treated all deposits in the company bank accounts as income. The total amount levied as outstanding assessment was P56 703 834.34 which included a 200% penalty.

The total credits from all the four banks stood at P72, 928, 094.61. A total of P22, 068, 250.50 was from non- income activities. The total income before the expenses and running costs, from the four banks was P50, 859, 844.11.

According to the Respondents, this conduct by the company was determined to be intentionally made so as to cheat the fiscus and that this imposition of administrative penalty, was in terms of Section 118 (1) (a) (b) and (c) of the Income Tax Act.

Under the Judicial Review, the documents filed of record will show that the audits conducted against the Applicant covered the periods of 2012- 2018. Information in the Bank statements was wrongfully extrapolated to deem receipt of income when such was not so.

According to the applicant, a number of contracts either did not exist or had expired for the periods under assessment. These included the University of Botswana, BAMB, and BPC contracts, which had expired in 2016; BMC contract which expired in the early part of 2018 and BCL in 2016.

High Court Judge Michael Leburu wrote: “In my view, while banks statements may show the amount in the bank at any given point, they don’t indicate the company’s profitability, the various taxes collected nor the deductions that a tax payer would be entitled to.”

According to the judgement a bank is thus not necessarily a reflection of the profitability or financial performance of a company and cannot always objectively be used to determine the profitability of company nor its VAT liability, given the allowable deductions permitted under the Income Tax and Value Added tax legislations.

“The expenses associated with the company operations are by law not part of its taxable income and any re-assessment should have not ignored this fact.

For all the above reasons, I am satisfied that the Applicant has made out a case for review and has succeeded in showing that the decision of the Commissioner General to include non- income receipts, as part of its taxable income, and receipts that did not constitute a taxable supply was irrational and unreasonable.”

Consequently, the re-assessment by the Respondent is hereby set aside, including the consequences penalties imposed. It is accordingly ordered that the respondent’s additional VAT assessment of P7, 179, 977.92 against Prevailing Securities (Pty) Ltd for the period January 2013 to December 2017 be reviewed and set aside; and that the Respondents’ imposed penalties of 200% against Prevailing Securities (Pty) Ltd in the sum of P14, 359, 955.85 be reviewed and set aside.

Again the respondents Income Tax Assessment of P56, 703, 834.34 inclusive of penalty of 200% against Prevailing Securities (Pty) Ltd be reviewed and set aside.

The respondents were also ordered to carry out a re- assessment of the company’s tax liability (Income Tax and Value Added Tax) within 60 days from the date hereof  and they shall bear the costs of this application, including that of the counsel. The judgement was delivered by electronic mail on the 27th April, 2021.

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