Motor Centre Botswana (MCB) - a motor dealership company owned by long-serving Botswana Democratic Party (BDP) Treasurer, Satar Dada want a decision against him to pay Botswana Unified Revenue Services (BURS) over P12 million income tax for the tax year 2009 set aside.
This comes after the tax agency, BURS, charged the multimillionaire, tax income even though he argues that he lost money amounting to P53 million after a loan deal between his company and Lobatse Cash Store (LCS) Pty Ltd and Lobtrans Pty Ltd. The protracted legal battle emanates from a loan in 2007 by MCB to Lobtrans to enable it to meet its ‘additional working capital requirements’. MCB invested R50 million in Lobatse Cash Store and the parties agreed that all transactions in respect of the agreement be made in the name of LCS. The agreement was also that the repayment of the investment capital was to be made by Lobtrans on the first Friday of every calendar month.
Court documents seen by this publication indicate that in the agreement Lobtrans had arranged an investment of R50 million from MCB and the investment was to be secured by tankers of the company. In 2003, MCB started acquiring South African Rand from a Mr. Asmal, a member of the local Muslim community known to the Dada family, who owned three companies, Lobatse Cash Store Pty Ltd, Lobtrans Pty Ltd and a business known as ASA Bureau de Change which dealt in foreign currency.At the beginning of January 2007, Lobtrans, LSC and MCB entered into a written agreement in terms whereof MCB ostensibly undertook to invest the sum of P50 million in Lobtrans for a period of 12 months. MCB was to make the investment by making payment to LCS.
Towards the end of 2007 the relationship with Mr. Asmal came to an unhappy end, this is according to the court papers. The usual eft (electronic funds transfer) payment for the December 2007 purchase was not made at the beginning of January 2008. “MCB deposited two cheques of P60 million and R5 million which were dishonoured. MCB derived benefit from the fleet of vehicles as prior security interests had been given to financial institutions by Lobtrans,” argues MCB in court papers. When the tax agency in 2009 made its assessment, it ignored the loss that Dada’s company made and assessed the appropriate tax payable in respect of the assessment to be P12 million, says the motor vehicle company. MCB argues that it cannot be taxed this amount because the company has made a loss of over P53 million.
When the tax agency approached MCB in 2009, the company appealed´ to the Board of Adjudicators who dismissed the appeal. MCB then took the matter to the High Court, which also dismissed the company’s appeal. The appeal was heard on 3rd December 2013. In July 2014 the Board dismissed the appeal and confirmed the additional assessment. The Board agreed with the characterisation of the loss being the loss of a loan and thus of a capital nature. Now MCB wants the highest court to set aside the lower court’s ruling in its favour. High Court Judge Godfrey Radijeng in his ruling in March last year stated that, “the agreement in my view was a commercial document intended by the parties to bind them. The literal meaning of the words used as canvassed by the Board are to my mind what they say and nothing more”.
Radijeng concurred with the Board of Adjudicators that MCB cannot argue that the agreement should not be relied on because it was not implemented. He said in his view MCB cannot seek to absolve itself of its responsibilities arising from the agreement that was implemented because as the company alleges, it is unenforceable for vagueness.“The appellant’s contention in relation to the first issue is that both the Board and the High Court came to a conclusion that the amount was to be characterised as a loan solely on the basis of a written document and the interpretation to be given thereto and ignored all the objective factual evidence of the transaction that occurred between the parties,” reads MCB heads of argument.
But BURS counters in its heads of argument that what was payable on the investment by Lobtrans is covered in one of the clauses of the agreement. BURS argues that Lobtrans was obligated to repay the loan monthly, whereby the payable amount was determined by “adding eight basis points to the obtaining ZAR/BWP corporate rate of First National Bank Botswana Limited quoted on the first Wednesday of the month.” It is further argued that a closer and a careful examination of the shaping of the repayment obligation shows that MCB was expected to make a return on the financial advancement made to Lobtrans.
“The fixed rate of return in the agreement is consistent with being a conscious investment decision and is inconsistent with being a simple forward cover contract. This shows that Lobtrans was under the obligation to pay cost plus. The rate fixed is a non-arm’s length one which the Appellant (MCB) could not obtain from bankers under the normal forward cover arrangements. Consistent with funding Lobtrans, which needed additional working capital, an inflated rate was set.” MCB is represented by Senior Counsel John Peter while BURS was represented by Kealeboga Tshane. Judgement will be delivered next month (February).