MASERU — The Lesotho government fears it could be losing millions in potential revenue annually through suspected elaborate misinvoicing schemes by second hand car dealers.
The Ministry of Trade and Industry, which controls the sector, says several vehicle dealers are evading tax by duplicating licences for multiple operations. It says the practice helps them avoid the need to open bank accounts with local banks. This makes it nearly impossible for tax authorities to track them down for taxes.
Profits are shipped into neighbouring South Africa through the two countries’ porous borders leaving Lesotho without any benefit, the Ministry says.
“Their transactions are cash only and they do not do any digital payments because they can be traced. They are not growing our economy; instead, they are bleeding it with all the money that they take out which is supposed to be circulating in the country,” Principal Secretary in the Trade ministry Maile Masoebe said in an interview with the Lesotho Times.
Although the allegation is that unregistered dealers ship cash out into South Africa, no dealers have so far been arrested. Dealers also refute the allegations saying the ministry is trying to come up with a scapegoat to chase foreign players.
But Mr Masoebe said locals with limited financial backing have been muscled out of the sector by wealthier foreign operators. He said the remaining local players have been reduced to playing roles of clearing agents.
To curb the problem, the ministry in October imposed a moratorium on vehicle imports by companies, only allowing individuals to import vehicles. Coupled with the Businesses Licensing and Registration Regulations of 2020, which restrict 47 business sectors, including the motoring sector for locals to operate, the government hopes to create a new orderly system. Foreigners can participate in the 47 sectors but only as minority shareholders with a maximum 49 percent stake in the companies.
“For the purposes of promotion and development of local entrepreneurship and micro, small and medium enterprises, the business activities set out in Schedule 16 shall be reserved exclusively for citizens of Lesotho excluding a naturalised and registered citizen of Lesotho,” part of the gazette reads.
Mr Masoebe said: “The most critical issue we are addressing now is to ensure that these foreign dealers transact fully through the local banks, hence the new requirement for (getting an) import permit is for them to produce an actual purchase invoice as opposed to the old practice where they would just submit a proforma invoice with no proof of purchase”.
However, he declined to discuss figures to determine the extent of the problem.
“Unfortunately, the figures would depend on the cooperation of other relevant stakeholders such as the Lesotho Revenue Authority (LRA) and the local banks,” he said.
But the control measures the government wants to implement would make it hard to smuggle money abroad and improve transparency.
“The fact that they would now be regularly reporting sales with corresponding deposits in the local banks, we hope may assist in controlling the suspected malpractices. For them to purchase new stock (it) means there must be money in the account and accompanying proof of such transactions through the banks.”
While he acknowledged the prevalence of misinvoicing in different sectors including in the motoring sector, LRA Commissioner General Thabo Khasipe could also not provide any figures.
“I’m unfortunately unable to assist with details. However, I can assure you that we remain concerned with tax compliance of this (motoring) sector. To address these problems, we continue to craft interventions to solve the problems.”
Mr Khasipe said Lesotho would curb smuggling and tax evasion by working with all parties in the industry in capturing and using relevant transaction data, including from banks, the ministries of Home Affairs and Trade.
However, car dealers dismissed the government’s claims as false.
While Import Car Dealers Association (ICDA) president Mohamed Razeen said he would only comment on the matter after meeting with the government this week, other dealers said the allegations of smuggling and misinvoicing were unfounded.
The ICDA has 65 members out of a total of 70 dealers who are concentrated in Maseru. Other smaller districts like Butha-Buthe and Thaba-Tseka have a few individuals who operate at a much smaller scale than those in Maseru.
A car dealer, who refused to be named for fear of reprisals from the authorities, said all their processes, from ordering their inventory from countries like Japan and Singapore were done through banks to create paper trails.
“The claims are unfounded,” he said. “The government must be clear what it wants to do instead of hiding behind claims of misinvoicing because all our papers are in order. We pay our taxes on time and when we bring in vehicles, it is impossible to do so without a bank account.”
“One cannot bring in a car without an operator’s licence or clearance from the LRA. Similarly, one registered dealer cannot give their documents to another dealer because it attracts a liability,” the dealer said.
Instead of the misinvoicing claims, he said the government wanted to introduce a new policy where importers could not import cars, mostly from Japan and Singapore, that were more than eight years old.
This, he said, would largely benefit the South African motoring industry, whose “exorbitant” second hand vehicles are currently failing to compete with Japanese imports. But he thinks the plan is ill-fated.
“A car like a Honda Fit, which is popular in Lesotho, costs anything from M25 000 to M40 000 when it’s from Japan or Singapore. However, when it’s from South Africa, one must pay around M130 000.”
Lesotho has about 70 second hand motor dealers who mainly sell lower end runners like Honda Fit, Toyota Corolla and Mazda Demio among others. These cost from M25 000 upwards and are popular with Lesotho low-income earners and also taxi operators. Higher end vehicles like Mercedes Benz, BMW and Audi among others cost a maximum of M250 000.
On the other hand, if they import cars that are less than eight-years-old, the prices would also spiral as relatively newer vehicles with lower mileage are expensive and locals may not afford them.
A secretary at one of the Maseru dealerships, who also preferred anonymity, said the authorities were barking up the wrong tree.
Instead of “persecuting” registered motor dealers who are paying their taxes and doing business by the book, the government must institute a proper audit to weed-out unregistered players, she said.
Indigenising the sector will leave hundreds jobless while landlords and others playing supporting roles in the value chain will languish in poverty.
“The staff, like me, will be left jobless. Landlords will lose revenue if the shops are forced to close while several other service providers in the value chain will suffer. Instead of indigenising the sector, the government must come up with an audit and ensure that all players are registered and (that) no one is cheating the system,” she said.
- This story was produced by Silence Charumbira. It was written as part of Wealth of Nations, a media skills development programme run by the Thomson Reuters Foundation in partnership with The African Centre for Media Excellence. More information at wealth-of-nations.org. The content is the sole responsibility of the author and the publisher.