An answering affidavit by the Botswana Unified Revenue Services (BURS) General Manager – Compliance, Kaone Molapo has shed light on how Prevailing Security (Pty) Ltd – a local security company owned by Shadrack Baaitse understated its taxable income for a period of five years.
Baaitse was in the past reported to have close links with former President Ian Khama and was the subject of raids by the Directorate of Intelligence and Security Services (DISS) in 2019.
Molapo’s answering affidavit, filed on Friday, follows a decision by Prevailing Security (Pty) Ltd to drag BURS to court mid this year seeking a reassessment of its taxable income for the years 2013 – 2018.
The court papers also detail how Prevailing Security (Pty) Ltd failed to provide the taxman with records and information which was required to aid the investigation on possible tax evasion by the controversial security company.
Having failed to source the said information and records directly from Prevailing Security (Pty), the taxman says he then invoked the income reconstruction technique of bank deposit method.
In Accounting and Auditing world, there are various audit and investigative techniques available to tax authorities such as BURS to corroborate or refute a taxpayer’s claim about their business operations or nature of doing business. The Bank Deposit Method used by BURS to investigate Prevailing Security (Pty) ltd attempts to reconstruct gross taxable receipts rather than adjusted. The bank deposit method is appropriate when most of the income is deposited in banks and most of the expenses are paid by check.
BURS says in invoking the method it discovered that an amount of P72, 420, 714.39 was deposited into Prevailing Security (Pty) Ltd bank accounts from 2013 to 2018. Also, in question is the turnover declared by the company over the same period for Value Added Tax pegged at P19, 600, 974.00 and turnover declared by the company directors for the income tax as P34, 822, 056.00.
According to Molapo, the figures demonstrate that Prevailing Security Pty Ltd’s income over the periods was understated in its tax returns for both VAT and income tax.
The court has been told that Prevailing Security Pty Ltd’s failure to avail the required accounting records had an unsurprising relevance in the ascertainment of its expenditure claims for income tax purposes and input tax claims for VAT purposes.
Section 19 (2) of the Value added Tax Act provides a compulsory bar that a business registered for VAT, as is the company, can only claim input tax credit on the basis of tax invoice.
“Consequently, in the absence of adequate records availed by the Company, it was hard to determine that the mandatory statutory thresholds of expenditure deduction and input tax claims have been met by the Company. In the course of the investigation, the Company simply did not provide the records to aid the verification that its claims were validly made”, reads part of Molapo’s answering affidavit which was filed Friday morning.
