By Robert Likhang ACMA, CGMA, CA(L), FCIS,
Partner at RL Business Advisers – Accountants, Tax & Business Consultants
[email@example.com / +266 27001023 / www.rl.co.ls]
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.
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.
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.
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.