FARMER AND TAXATION

By Robert Likhang ACMA, CGMA, CA(L), FCIS,

Partner at RL Business Advisers – Accountants, Tax & Business Consultants

[business@rl.co.ls / +266 27001023 / www.rl.co.ls]

INTRODUCTION

The period from 1st of April to 30th

June is a busy time for businesses as there is a rat race towards meeting the deadline for tax filing with the Lesotho Revenue Authority. It is a busy time for my firm RL Business Advisers assisting farmers and other business owners preparing their financial books for filing. We have established a few issues that are worth considering whilst assisting clients and we thought we need to discuss them here to assist farmers in this process.

TAXATION IS NOT A YEAR-END EVENT

The rush that normally takes place leads to many errors which can have serious effect on the tax life of a business. There are a number of deductible expenses that are missed in this rush as accounts are prepared in hurry and sometimes directly from source documents without proper accounting process and reconciliations being made. Missing tax allowable expenditure could  lead  to  increased  tax,  another  side  of  it  is  erroneously  overstating  the  expen diture, which if  LRA audit is conducted could attract  high penalties. There are also tax credits  such as those in training which attracts 25% credit for the expenditure in training which should not be missed to reduce the tax liability. The LRA may insist on getting approval of Commissioner of Labour for such expenditure and that is a process that takes time.  The Income Tax also allows  for  capital  allowances  for  the  assets  in  which  case  you  could  allow  depreciation allowance up to 25% for special assets annually on a reducing balance method, thus reducing your taxable liability. Most of agricultural equipment fall under this category.

The solution  on this matter is to keep and maintain books of accounts throughout the year.

LRA does not require complex accounting records that are audited unless there is a dispute.

Merely  maintaining  records  on  an  analysis  book,  spreadsheet,  or  a  simple  accounting software  either  maintaining  pure  cash  accounting  or  accrual  system  is  sufficient.  You  will however maintain all your source documents should there be a query on the financials you have. Please keep source documents, and if you are VAT registered make sure you buy from VAT registered suppliers, including airtime, as sum expenditure may look negligible in size, but when compounded over time the expense becomes material. Ensure that the documents are for the business and not personal consumption as only the former are relevant for tax and business accounting purpose.

Maintaining  books  of  accounts  is  not  only  for  taxation  purpose  but  also  for  provision  of management information for your own business decisions, planning and control. In all cases financial records are demanded by financiers like banks, suppliers etc in providing credit.

RL LIKHAN PIC

 

THE USE OF AN ACCOUNTANT

Accountants, especially Chartered Accountants have the necessary accounting and tax skills to assist you in preparing your accounts for tax filing. You however need to ensure that those chartered  accountants  have  their  licenses  which  give  them  rights  to  engage  in  public accounting  and  tax  work.  The  licenses  are  issued  under  the  Accountants  Act  of  1977  as amended  by the Lesotho Institute of Accountants. No Accountant, no matter how qualified and the origin of his country, is allowed to conduct public accounting and taxation advice in terms  of  the  above  statute  without  being  so  authorised  by  the  Lesotho  Institute  of Accountants,  whether  or  not  his  or  her  engagement  is  of  assurance  (i.e.  Audit)  or  nonassurance ( i.e. Advisory) nature.

The advantage of using the licensed accountants is not just purely complying with the law, or just purely engaging them for expertise, but more than that, the licensed accountants are under a code of conduct and professional ethics which if they conduct themselves in a manner that bring doubt to their ethical behaviour, the client has a right to lodge a complaint with the Lesotho Institute of Accountants, and the said accountant could pay   damages and he could be removed from the register of members with costs. For your protection you may demand the accountant to produce proof of Professional Indemnity Insurance (PII) so that you can be sure that your claims will be paid by his / her insurance.

AVOIDING PENALTIES

No one wants to be in the boxing ring   with the Lesotho Revenue Authority, it can be seriously

bloody. The issues of taxation must be taken with seriousness and full attention. For accuracy

you may engage an accounting and tax firm like RL Business Advisers to assist you with your

tax business. Your accountant will have to sit with you at the beginning of the year and as

when needed to assist you with tax planning, especially when capital expenditure, disposal  of

assets  (including  introduction  of  new  investors/shareholders,  mergers,  acquisitions,  joint

ventures  and  all  other  business  matrimonies).  Business  transactions  have  a  lot  of  tax

implications which if not aware of could attract heavy penalties.

 

You need to disclose everything on your business and tax accounts,  and you would rather make  payment  arrangements  rather  than  evade  tax  as  it  would  have  unfortunate consequences. There are a number of schemes that businesses  use to evade tax, and Lesotho Revenue Authority is investigating such and these include transfer pricing which is common with  foreign  investors  charging  heavy  management  fees  on  local  subsidiaries  to  minimize profits in the local company and take on disguised dividends.

If you have not paid your taxes or not disclosed some income streams, your accountant can work  out  your  true  liability  and  present  your  sins  under  Voluntary  Disclosure  Programme (VDP).  VDP  is  not  a  tax  amnesty  or  holiday,  rather  it  is  disclosure  that  help  avoid  heavy penalties that could cripple your farming business if such practices are found by LRA. You willbe forgiven for tax penalties and you will arrange a mutually beneficial payment plan  for the principal liability. It is important that your tax accountant becomes part of the negotiations for payment plan.

CONCLUSION

Farming is a real business and as like any business, it is expected to run in an ethical manner.The  big  emphasis  in  King  IV  code  of  corporate  governance  (South  Africa)  is  on  Ethical Leadership, and as contained in one of its practice statements is tax policy and strategy. Our coming Lesotho’s Mohlomi code of corporate governance (at the time of writing this article it is still in draft form ready for exposure) will also emphasize Ethical Leadership in terms of the teachings of Mohlomi, and tax issues will be relevant as part of ethical behaviour. Farmers, let us take our tax issues with necessary seriousness.

Likhang

Hippee!!! rain

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