In a landmark judgement, the Court of Appeal has ordered the Botswana Unified Revenue Service (BURS) to refund mining giant Debswana more than P14 million.
The issue arises from an audit exercise that was conducted by BURS in 2011 on Debswana. BURS later issued additional tax assessments on Debswana amounting to more than P14 million.
This included an interest arising out of an alleged underpayment of withholding tax in respect of its employees from 2008 to 2011.
Debswana objected to the assessment but was unsuccessful and it then appealed to the Board of Adjudicators and it was also unsuccessful. It then approached the High Court where Justice Godfrey Nthomiwa also dismissed its appeal. Then it approached the Court of Appeal.
Court papers show that BURS and Debswana fell out over whether the Debswana Car Benefit Scheme entitled employees to a non-cash benefit; namely the private use of a company motor vehicle, with the result that what fell to be taxed was the value of private use of that vehicle as determined by tax tables prescribed for the purpose by the Commissioner General.
The scheme was an agreement by Debswana and Avis in which the latter purchased a fleet for Debswana which in turn hired the fleet through a full Maintenance Agreement and allocated them to qualifying members of staff for their private and business use.
BURS and Debswana also wanted the Court of Appeal to determine whether a cash amount equal to the sum foregone by such employees from their salary packages in exchange for the car benefit in which case their tax liability (and accordingly withholding tax payable by Debswana) would be higher.
Court records show that in his letter to Debswana dated 12 August, in terms of which of which assessments were raised, the Commissioner General explained that in his view there was no provision by Debswana to its employees of a company at all, “but a scheme to Debswana employees to acquire/use motor vehicles.”
He concluded that participating employees “are simply spending their cash income as per their choices.” They were thus to be taxed on their full salary packages as cash income. Hence the assessments conducted by BURS.
In response, Debswana argued that the participants in the car benefit scheme sacrificed part of their salary in exchange for the use of a company car. Debswana also explained that tax was withheld on that benefit in accordance with the Commissioner General’s Tax Tables as the company was obliged to do.
Those who did not participate had tax withheld on their full salary package at the nominal rates by Individual Tax return (ITA). At the end of each month, Debswana said, there accrued to employees who elected the benefit an amount equal to cash salary actually payable to them, net of the sum sacrificed and an amount equal to the value to them of use of a company car as set by the Commissioner Generals Tax Tables.
Accordingly, Debswana said, tax had been properly withheld and the objection should be allowed. But on 16 2012 the Commissioner General disallowed the objection.
He ruled that that for a car benefit to be properly bestowed, the car company should be owned and controlled by the employer, which should also be responsible for the cost of its repairs, maintenance and fuel and other risks attaching to it. His conclusion was that since the employees effectively bore all the risk and expenses associated with the car, what they actually received was car allowance equivalent to the sums withheld from their numeration and they were not provided with company cars at all. Withholding tax would thus have been calculated on their full package with no amount being withheld in terms of the Commissioner General’s Tax Tables. Debswana then paid the sum of more than P14 million as was protested by BURS. Debswana then later appealed to the Adjudication Board to have the P14 million it paid to BURS reversed.
But the Board concluded that because ultimately the employees who participated in the car scheme had to undergo a credit check to qualify, there was no salary sacrifice as it is “in fact the employees who are paying for the vehicle and not Debswana.” The matter then came before Justice Nthomiwa who dismissed Debswana’s appeal.
However, Court of Appeal President Ian Kirby also found that Nthomiwa erred in finding that by law an employer can only grant a car to an employee as a benefit if the company is the owner of such a car and that the parties “cannot enter into a contract which changes the law.”
Kirby said there is no legal provision which provides, as was suggested, that a car benefit scheme is only acceptable where the car is used principally on company business and only secondarily for private use. He also found that the sums sacrificed in exchange for the car benefit do not accrue to the employee at all.