Court of Appeal President Ian Kirby has slammed Botswana Revenue Unified Service (BURS) Commissioner General for wrongly placing a businessman in the circumstances of a lending banker. Kirby made this observation in a case in which a property Developer, Gerald d Davies was challenging the limitations of the right of the Commissioner General of BURS to make additional assessment on taxpayers in terms of section 79 of the Income Tax Act. According to court documents, Davies was successful in business and over the years he invested in foxed properties through his companies.
To fund these companies he made a loan to one of them out of his savings, on which he charged interest rate of 10 percent per annum, which he duly declared and on which he was taxed. Tax was assessed and paid and no objections were raised. As a property developer, his companies constructed buildings to be sold or let out to tenants and he funded the projects by providing loan capital from his own pocket. This was sensible because he could charge 10 percent interest whereas the bank would only give him 8 percent.
Further his infant companies could not afford high lending interests charged by banks. In 2005 a value added tax was conducted one of the companies by the Commissioner General. No irregularities were found, but the repayment of the taxpayer and the refinancing of that company’s loans raised interest of the investigator who extended his audit to the taxpayer and his whole group of companies.
Arising from that audit, the Commissioner concluded that the loans in question were between participators and were not made on an arm’s length commercial basis. He resolved to deem interest to be payable at the bank prime lending rate minus 1 percent, namely 14 percent per annum in terms of sections 134 of the Act, both on Davies’s loans and on the inter company loans and to impose penalties with retrospective effect. But Davies through his Accountant protested to BURS representatives explaining the circumstances of the loan, but BURS was unmoved, the court heard. After protracted negotiates failed he then approach the High court where he lost the case and ultimately approached the Court of Appeal which came to their rescue.
Kirby found that it was unlawful for the Commissioner General of the Botswana Revenue Unified Services to make some additional assessments on his tax which he claims was under section 79 of the Tax Act and also the deeming of interest on participators in terms of section 134 of the Act. ‘’In deeming an appropriate rate of interest the commissioner General wrongly placed himself in the circumstances of a lending banker, who would make a loan on an interest rate based on the prime lending rate. He was not a banker and in any event a banker would not have qualified as a participator at all in terms of section 132(3) of the Act,” said Kirby.
Kirby ordered that BURS should stop freezing of or should stop seizing Davies’ bank account. He further ordered that the additional assessments be set aside and any penalty interest, or statutory interest levied on Davies flowing from those added assessment should be reversed and such sums if any paid by any payment or part payment of the deemed interest are to be refunded to the taxpayers in question. Kirby further ordered BURS to let Davies pay the rate of 10% per year as tax payment. BURS had seized more than 1 million Pula from Davies account at Stanbic Bank in 2006 without his knowledge.
A three panel of Court of Appeal judges led by Kirby, namely John Foxcrot and Issac Lesetedi preside over the case. The court found that Davies paid self-assessed tax voluntarily on a monthly basis, rather than as quarterly as required by the Act and he was even described as an assiduous tax payer because he had never evaded tax. But the Commissioner General conducted an audit on the four companies and come out with a harsh decision which were illegal, irrational or procedural irregularity, the court heard.
The Court of Appeal has found that Davies and his four companies were investing in fixed properties and he had used his own savings to finance his projects. To fund his companies he made a loan to one of them out of his savings, on which he charged an interest rate of 10 % per annum which he duly declared and on which he was taxed.