Thursday, October 28, 2021

VAT complications caused BR to lose money in an unusual way

At least until the time that Deloitte intervened, Botswana Railways was losing money in a very peculiar way.

In order to fill a capacity gap, the organisation had entered into contractual agreements with external contractors to render maintenance and repair services to its fleet. In terms of these agreements, BR provides free replacement parts that are required by the contractors and a part is replaced when it is irreparably damaged. These contractors were located in South Africa and Zimbabwe.

BR wanted its old spare parts back but that proved problematic. The contractors requested BR to collect those parts but that “created Value Added Tax (VAT) complications at the Botswana Customs and Excise when the parts were transported across the border back to Botswana.” The other complications started on the other side of the border. Packaging and transporting the parts came at a cost that contractors expected BR to bear. If the parts were not collected, BR incurred a storage fee. To get around this problem, BR decided to sell off such parts as scrap.

In the course of its investigation, Deloitte contacted the contractors but one (Emily Masilela) at Transnet Rail Engineering in South Africa was not particularly helpful. When the investigators asked her if there were any spare parts for BR locomotives at the TRE workshop, Masilela had her own request: put your request on paper.

“To date we have not had a reply from Ms. Masilela,” says a forensic audit report, meaning that six months had gone by with no response from TRE.

African Rail and Traction Services was more cooperative. Mark Surtees told Deloitte that his company scraps the parts unless BR wants them back. However, he also noted the cost implication with regard to packaging and transport.

On the basis of these complications, Deloitte recommended that “the scrapping of locomotive parts that are replaced by contractors during maintenance in South Africa should be written off.” The report doesn’t indicate what happened with parts from maintenance work that was done in Zimbabwe but there is nothing to indicate that the situation would have been any different.

BR also did business in an unusual way with the National Railways of Zimbabwe to which it periodically sent its wagons for overhauling. According to the audit report, NRZ owed BR money that it couldn’t pay back. The matter was settled by having NRZ overhaul 28 wagons as repayment for the debt.

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