Feasibility of the introduction of standard assessment tax system in Lesotho to cover small traders : report of a mission in August 1971

Report on the feasibility of the Introduction_of.Standard

Assessment Tax,System in Lesotho

!• introduction

1. The mission was undertaken at the request of the Government of Lesotho for technical assistance (as communicated in their note

to the Executive Secretary of the United Nations Economic Commission for Africa) in the matter of improving the system of trade licensing and the institution of the systems ox standard tax assessment in order to bring the large number of small traders who were evading income tax within the tax net. This request, followed the acceptance by the Government of the recommendations contained in the International Monetary Fund "Report on Direct Taxation in Lesotho" prepared by Mr-. F.G. Reynolds in May I969 at the request of the Government of, Lesotho,

2* In the specific field of trade and commerce the IMF report recommended that "Trading and other similar licence fees should.be increased substantially but should become partly deductiDie from income tax".. In this respect the.;

mission further recommended that there was an immediate case for imposing a system of standard assessments on the Ghanaian pattern. These assessments impute; income statutarily to all persons engaged in trade, varying in amount with the estimated profitability of each kind of trade, and in some instances with the. locality.

Since a separate EGA mission has dealt with the problem of trade licensing this report is primarily confined to the feasibility of the introduction of the system of standard tax assessment and the steps required to be. taken towards making this system effectively operational.

1 ... .-■■..,■■ ■ ■ ■■ '

3- As a knowledge of the Ghanaian System of Standard,Tax Assessment was considered a necessary pre-requisite of the technical assistance mission to Lesotho a preliminary survey of "The Introduction and Operation of the Standard Assessment Tax System in Ghana" was undertaken with the co-operation of the Ministry of Finance and the Commissioner of. Income Tax of that Government during a two week.visit to Accra in May 1971--My report in this respect'is

enclosed as Annex I. ■. ■ _., .-

™ 7

4- The feasibility of the introduction of the standard assessment tax system in Lesotho was further examined in detail during my three weeks visit to Lesotho from 10-28 August 1971. During this period I was given access to relevant - official records and documents and meetings were arranged for holding discussions with various officers. Arrangements were also made.for visits to some: sub-

accountancies located at district headquarters of Maseru, Teyateyanneng, Leribe and Butha-Buthe to observe the revenue collection and accounting operations and tocollect.infcreation about the number of licensed traders under various categories. I also had. occasion to visit some, trading establishments in these di?tricts and some other places along with the Collector, pf Revenue and i-Inctome Tax Officer to gather information about the nature of their trading activities3 the average monthly turnoverr the records kept and estimated annual taxable income and whether they were already borne on the list of persons charged to

normal income tax or not.

5. In accordance with the wishes expressed by the.Director of Planning and Development and other Government officials the occasion of this visit was also utilized in attending to the following related important tasks.

(a) Preparation of a memo of request for technical assistance for the

operational job of a fiscal or income tax expert as included in • the ONDP country programme for 197J--73 (copy enclosed vide Annex II).

(b) Deliverance of three lecture on budget-plan harmonization at the

office of Planning and Development and Training Institute with

special emphasis on mobilization of domestic resources for development, procedures for project formulation, annual planning and adoption of phased programmes of budgetary improvements. . . ■

6e The participants in these discussions expressed a strong desire for EGA help and collaboration fbr holding"in-service training courses in these and allied

fields like tax administration policy and legislation at Maseru in the near

future* The policy of EGA in this respect was explained and it was assured that

requests for such assistance would no doubt by sympathetically considered by the

Executive Secretary of ECA as and when these were made.

7« The list of persons I met and the participants in the discussions and the schedule of meetings held and the trading establishments visited is enclosed as Annex III.

8. Before the end of the mission it was found possible to discuss the

main conclusions with the Permanent Secretary, Ministry of Finance, the

Accountant General and the Chief Collector of Revenue. I also addressed a joint meeting of Finance, Trade and Planning officials on the main features of the system of standard tax assessment which resulted in the resolving of some conceptual confusion in the matter of the respective roles of trade licensing and standard tax assessment. The desirability and feasibility of the

introduction of the system of standard tax assessment for small traders and some other c- tegories of self-employed persons who are not presently on the list of persons charged to normal income tax for administrative and other reasons,was accepted for implementation iu the resisting circumstances* However,, it was . agreed that the Income Tax Office required to be suitably strengthened and collection procedures streamlined and si-aplified especially in respect of the role to be played in this respect by the sub-accountancies located at the District Headquarters.

9« The success of this mission is mainly due to the keen awareness of the problem of tax avoidance by small traders and the interest shown and the willing co-operation extended in the task of evolving a proper workable system for

taxing them on an equitable basis by the Permanent Secretary Ministry of Finance, Commerce and Industry, the Accountant General and the Chief Collector of Revenues In view of the acceptance in principal of the proposal to introduce the system of standard tax assessment I prepared a draft amending order before my departure to be * processed further. I am particularly grateful to the Chief Collector of Revenue Mr.

2.M. Sello and the Acting Income Tax Officer Mr. E-M. Thathe for arranging and accomj-

panying me during my visit to a number of trading establishments which in no small

measure helped in studying the problem in its proper perspective. I am also grateful to

the Director of Planning and Development Mr. Timothe T. Thahane and the UNDP Resident Representative in the overall interest shown by them in the need for taking ,-ffective measures for training of staff in new techniques and procedures for achieving budget-plan harmonization especially in the matter of effective mobilization of domestic resources for development and streamlining of

procedures for effective plan implementation. I am also grateful to Lesotho

Government for the courtesies extended and the well-attended reception^

arranged at the end of a fruitful visit. ■ - ,

■'"■-"■ /

II- State of economy and public finances General Background

10a In order to consider the proposal for the introduction of standard tax assessment and other measures for raising more resources in proper perspective a very brief account of the economy of the country, the existing position of

public finances and the evolution of taxation str'ucutre would not be out of place*

11. Lesotho^ a small., mainly mountainous country of 11,716 squre Kiiles aad a popu ation of a little less than one million with a per capita income of about 90 UeSo dollars is entirely surrounded by the Republic of South Africa.

The economy is bassd almost entirely on primitive agriculture and animal

husbandry Kith subsistence activities still playing a major role* Ths smallness of the economy, due to the small geographical area, population sizes and low level of productivity are predominant features0

12, The country is normally deficient in cereal crops with the result that it has to import substantial quantities of food grains • The coirnsunal system, of land tenure under the tribal structure of society leaves little initiative for the individual cultivator to improve land-or adopt better cultivation methods.

The overstocking of the land with cattle has led to soil erosion with destruction of vegetation and trees*

13» Wool and mohair account for seme 70 per cent of the country's export earnings;

Another 15 per cent is contributed by mining of diamonds.».

14» The extremely low share of manufacturing and construction in the market economy include the building of huts and cattle kraals, the home production of agricultural implements and the brewing of beer-, Fixed capital formation is largely confined to the public sector* Few industries exist presently* These include a number,of small flour mills, few brickworks^ two printing works a blanket factory and some small furniture factories. . The. recently established

■*■ 5 ~

National Development Corporation has set up a candle factory, a tyre retreading plantjand^carpet weavers (pty) Ltd. With4the building of a large modern hotel and casino at Maseru the roUrist industry is showing encouraging results«

15« To-encourage the establishment of new industries the pioneer Industries Act was passed in 1969 which allowed 'tax incentives to investors in

manufacturing and processing Ventures * -These include the choice of a tax free period of six years or-tax deductions over long periods on such items as the cost of- new raachinery: and equipment^ factory buildings and housing for employees , and, the.;q^st -of- water? power, sewarage and transport. Incentives were also

granted to approved new hotels and housing schemes. The Industrial Licensing Ac%.(.1;969:) /als<? granted exclusive protection *to. a manufacturer producing one, or more^spexjifie[tf products in Lesotho for a period of up to five years.

\-l6«v Lesotho is a part of the South African Customs Union and the South African monetary; area with the South African Rand being us'ed as the currency. There is

■afre© flotf of goods across the common frontier with "South' Africa with lati& or

two exceptions including alcoholic' liqiior; and diarabhJdsi. J Consequently accurate trade figures are not available. An attempt is however made to collect these by indirect means by the issue of a quarterly trade questionnaire.'

17.' The irholesale'trade "is largely managed by firms which have their head offides in the Republic oif'South AfricaV Trading conditionsare largely

dependent on crop yields? but returning migrant workers from South Africa

create" a substantial cash flowP "which is a mainstay in times of drought. For

lack of opportunities for gainful employment within the country about 59 Pe^ cent of

tne able bodied working population (about 120,000) is absent always in South

Africa seeking employment in goldj coal and diamond mines of South Africa as well as in'commerce industry and agriculture of that country.^ This provides

the country with much needed migrant workers1 remittances which is presently about r-4*& million Rands annual hyi ';''■■' ; '"■ /'\ /:"{■ ■;';': '■'■■'■'^"'■■^ ^';. ■^■•_> ■".:;;; /-'■:.. —-.^■■-'-"■^^■.■1-- ?

l8o The country is singularly dependent on foreign countries for the bulk of its. requirements of consumer1 and'capital goods. Imports are still'mainly of--the nature of consumption gpods with, clothing,.;footwearj blankets ,and other-textiles and tobacco products featuring prominently*

-6 -

Trade licensing

19. An elaborate system of trade licensing is in operation under the Trading Proclamation of 1951 which had its main purpose as the control of trade by the establishment of Boards with power to refuse an application for trade license for various reasons like overtrading or financial position of the applicants Different rates of license fees are levied from different categories of traders1.,,' .fherei are also;rate1 differentials between reserve and,non^reserve^

areas and Lesotho and non-Lesotho traders. The. existing rates for important categories of traders.are indicated in Annex IV., The Government of Lesotho is currently actively engaged in considerations relevant to the evolving of a more stable and dynamic system; of trade licensing--'■ However it appears that the existing system of trade licensing would continue with some modifications in the rates of license fees and procedures for grant of licenses. The system of

licensing.has a vital bearing on tax consideration. The licensed traders under this system have no doubt enjoyed the fruits of a sheltered market for a long time. There would certainly have been more competition had the licences been issued more freely- This is however discussed in detail further in this report ,in relation to the taxation of small traders.

Public finances

20. The country inherited a difficult budgetary position at independence.

There had been a period of growing budgetary deficit amounting to R6.3 million in 1965/66, or 160 per cent of the level of local revenue. .This deficit, was met by grants-in-aid from the British Government. Recurrent expenditure in 1965/66 amounted to about 23 per cent of GDP. Mucn of this expenditure was devoted to administrative and social servicesf expenditure on the relatively development departments - such as. agriculture and works was relatively low. Some 80 per cent of British aid was devoted to meeting the current budgetary deficit^

only 20 per cent was devoted to development.

21„ Financial policy is now concerned with restraining the growth in recurrent expenditure in order to provide more funds for development and secondly to provide

This has been the subject of a detailed survey undertaken by Mr. C. Bech

Christensen, UN Associate Economist in 196? and is also currently being

examined by a parallel ECA mission in trade promotion. '

effective control over expenditure. Thus whereas recurrent expenditure increased by 11? per cent between I96O-61 and 1965-66 it increased by only 7 per cent between 1965-66 and 1970-71 (current .estimates). Thus the current deficit fell from Ro.3 million 1965/66 to an estimated R2.0 million in 1970/71 and.an estimated -9"million" in 1971/72. "

22, The current estimated deficit in 1971-1972 is however otill about 9 per cent.of the recurrent expenditure. This deficit persists inspite of the very large restraint which has been applied in recent years to the growth-in

recurrent expenditure. The principal aims of financial policy announced in

the plan are:

(i) to eliminate the budgetary deficit as soon as possible; : (ii) to reshape the tax system so as to make it more progressive; ! ii- ) to readjust the pattern of recurrent expenditure so as to increase

the relative importance of the more developmental activities of.

government and per contra to reduce the relative importance of administrative overheads in total expenditure,

(iv) to improve the cost effectiveness of government expenditure

- through for example, obtaining better value for the money spent on education, agriculture and other services and improving the efficiency of government activities.

23. The following table presents the total revenues and recurrent expenditure

lOr iTrlft 1 »ai- -i-Vmr^a ■■>■*-.-,.«..-.

for the last three years

(In thousandJjajads)

I969-70 1970-71 1971-72.

""- . ' ■ '■ ' — ■ ■ -™ —■ _ Actual Estimates Estimates Total recurrent expenditure 11,422 11,704

Local revenue ' 9jO13 9}Q27

Budgetary grant . 1?8l6

Total ordinary revenue iOs829 11,041 lljZ5g

Reimbursements Crio --■..

byj 663 - 610

11,704. 11,CC9

Total Revenue 11 ior>

24. The local revenues are analysed by major sources as follows

Headl> X969/ Per 1970/ Per 1971/. Per

__ggfit_ 1971 cent 1972 cent

Direct taxes 1,733. 19.2 1,805 19-9 it8l8 17.7

Customs, and excise "■4,997 55*5' 4,731 52.4 5,932 =57,6

of which revenue under

the customs agreement / 4,739 52,6 4,731 52.4 5?§32 ""'57.6

Posts and teleAommuriica—1

tions 459 5-1 513 5*7 565' " "5.5

Licences & duties of 458 ; 5,1 ■ 486 5O4 441 7, o

o which revenue from ■

trading licences 63 .7 125 1*4. 75 «7

Earnings of ministries and

departments 545 6a ?20

Rent from Government

property 1?5 1#9

Fees of court and

judical fines 185 2 218 2.4 213 2

Interest S5 ,7 40 3A 40 ,4

Diamond registration

and sales tax 142 IO6 150 j n . ^20 : 1

Miscellaneous 238 2O6 I74 2<,0 288 2.8

Reimbursements 17 ?Z 10 .1 37 .4

Total local revenue . :. . 9?012 9 027 10,304

25. More'than half of the local revenues is due to:Lesotho1a share in customs

and excise revenues under the Customs,Agreement with South Africa, Botswana

and Swaziland, The new Agreement which oasie into operation on 1 March 1970

is a continuation of the arrangements which have been in operation between the

four countries since 1910= The Agreement makes provision for (i) the duty

free interchange without quantitative control of domestic products (ii) the free

interchange of duty paid goods imported from outside .the common customs area?

- 9 -

(iii) the levying of uniform customs, excise and sales duties (iv).the imposition

of additional duties for protective purposes by Lesotho, Botswana and Swaziland by mutual consultation. The Agreement also provided machinery for mutual

consultations through a Customs Union Commission, By virtue of this Agreement Lesotho has no control over the level of receipts from this source. Since the , method of calculating the division of respective share would take into account the level,of imports in each country it is high, time that proper statistics in „ this respect are kept at the border check points. The present method of collecting information in this respect through the issue of questionnaires periodically is

hardly satisfactory. There is a feeling in official circles that Lesotho" is

importing, much more than has been taken into account in determining its share of customs revenues. The establishment of customs posts at all entry points is ■

therefore contemplated. -

26. : Income tax and company tax legislation is closely modelled on the

legislation in force in the Republic of South Africa-. -Liberal personal income tax reliefs are provided as tax rebates on account of domestic circumstances Tax on public and private companies is levied at a flat rate of. 3.7^"»

27• ..Besides ^he regular income tax and company tax there is a basic tax at R3«5Q payable by every male citizen and a graded tax on a sliding scale aimed at overriding the wider exemption effects of the normal tax personal rebates. The graded tax rises in steps from R4 on annual incomes of R25l to R100 on annual incomes exceeding R2,000.

28. The graded tax was abolished as a separate levey with effect from 1 July 1970 and combined in the regular income tax hj reproducing therein the minimum payment aspects of graded tax. In the lower 6 bands of taxable income, the percentages are

indicated below which the tax charged would not be allowed to fall after allowing for, the.rebates. The schedule of the revised income tax rates is enclosed as

Annex V. The normal tax now rises progressively for incomes above R250 to a maximum marginal rate of 60 per cent.

29- A special tax on salaried persons is also levied in addition to normal income tax. A pay-as-you-earn system of tax collection for civil servants was introduced

in 1969- It has since been extended to other salaried persons.

10 -

30. Revenues from basic tax constitute o;ver fifty per cent of the total revenues from direct taxes, while the graded and regular income tax combined contributed about 23 per cent and company tax and.special tax contributed only about ten

per cent each. . , f' ,

31. In the peculiar situation of Lesotho the role of fiscal policy in . mobilizing additional resources not only to eliminate the existing; dependence on foreign budgetary support for, meeting recurrent expenditures b^t: also for meeting a substantial portion of development expenditures can hardly be over-emphasised.

However, the scope for the Government initiative in raising revenues through indirect taxes as increase in customs excise or sales tax rates is absent except in the context of the Customs Union Agreement signed with the Republic of South.

Africa, Swaziland and Botswana, referred to already, This leaves the field of direct taxes to be looked into not only in respect of choice of new tax measures but also in making improvement in tax administration and procedures for plugging the

loopholes of tax avoidance and evasion. :;

32. The scope for additional tax measures has already been examined in the IMF report and specific recommendations made for increase of basic tax rate payable by farmers of arable land and the imposition of export levies (on the lines of existing levies on mohair and wool) on hides and skins, bones, bonemeal and certain

livestock. In view of Lesotho's dire need for raising additional revenues these recommendations which are no doubt well conceived deserve speedy consideration • for early implementation. However, alongwith that, even more important problem is that of administering the existing tax measures properly and equitably. There is no doubt that the successful administration of the existing taxes would provide a considerable part of the much needed additional revenues. It is in this context that the problem of over 4,300 traders and some other categories of self-employed persons who are known to have income above the exemption limit of R25O but who are

making no return should be viewed.

- 11

III. "■ ^PP^^^P^j^^^^'^ assessment tax techniques to untaxed pool of

■-.,.■ ■■■■■-:-L;;-3mall'i^tra!cier^ and some^'ther categories of

33- .; How. la,rg§..is the-pool:of presently untaxed-traders and other categories of self-employed persons in Lesotho? This is not difficult to find out in view of the operation of a fairly comprehensive licensing system in the country under the Trading Proclamation ■ 1951 and under .a- few other laws regulating various trades and activitieso Information about the names and addresses and nature of business etc, of all licences is available in the records maintained at the sub—accountancies of each district,-

34« In view of the different estimates mentioned of the number of traders etc

who are_avoiding payment of income tax an attampt was made to get information about the .number of licensed traders for 1971 from the nine districts* The information received is presented in a summarized form vide Annex VI6 Detailed statements showing the names and addresses of most of these licenses under

different.business categories nave also been received in the Income Tax office

at Maseru froci the different sub-accountanciesA " ■■ "

35« As shown in the statement- the,total number of traders etc,'-registered for the whole country during 1971 is-6,244* It seems that there are some"omissions in the information supplied by the district; sub*&cicountancie:si For instance the number of transport contraotoi-r.. end. taxi;;; and bus owners- has not1'been' reported in case of Mafeteng* Qo Nek and Mohales Keek districts- In case of other-districts aldo there seems to be short reporting in these respects as well.

■.No beer-shop .licenses -have' also 'been reported" fcr-Mafeteng and Leribe districts

T-rhich also does1 iuot seem to iW a correct statement of affairs «■ Keeping in v?.bv

these significant omissions'we'could'proceed with our analysis*

36O . The categories .of licensed. wholesalers? bankers* clubs9 hotels9 industrial

manufacturersj speculators ar*d others whose numbers are small'-are "manageable enough to bo dealt with under the normal income tax procedures. In fact 'the bulk of these licensees ar,e already, charged to income tax> on the basis of returns submitted by them*. .Those belonging to any.-of these categories who"

are not submitting,-their..;re£ur.ns. should be pursued-for necessary returns under'the normal procedures, as their. na.mes and. addresses are-already1 known.

For the.purpose of:presumptive,.assessments under'the■standard assessment"tax

- 12

system these categories may not therefore be taken into consideration at this tUte; Any of these however could ba considered later on for such assessments

if circumstances so warrante

37... The remaining important categories of traders which contain the bulk of

the untaxed pool are as follows:

Number of licensees'

1» General traders

2» Bakeries

3c Wood and coal merchants ■ ng

4- Transport contractors, buses and taxis etc. 192

5« Butcheries

o. Restricted traders -

7. Cafes

Q* Beershops (reserve areas) „«

9o Millers .

Total ^j-340

38.. The number of traders (including companies) who are making returns for normal tax purposes does not exceed 350. ^s includes about 50 wholesalers, banking institutions, manufacturers, hotels and speculators etc. not included

in the above nine classes of traders.

39. • Out of the above number of 5,971 traders the maxim™ number that is- submitting incase tax returns under the normal procedures therefore does not exceed 300 tax payera. This leaves about 5,671 traders big and small w»ich form part of the untaxed pool at present. Observation of the operation of these categories of licensed trading establishments and their average monthly turn-overs around some districts (both in reserve and non-reserve areas) has established that at the most about 1O-13 per Cent of this number say6OO-8OO may be considered as doubtful cases with net incomes below the taxable limit of R25O. This margin would also cover some cases of fictitious licensees who have obtained trading licenses but- are not actually in business. They are paying licence fees in order to derive the benefit of wholesale purchases for themselves and their friends or possibly sale to hawkers, A proper

application of trade-licensing and tax procedures would ultimately eliminate

this fictitious element. Giving allowance for these and some other fa6tors

we are still left with a substantial number of 4,800 traders who are successfully

evading payment of income tax under the present circumstances.,

40* The reasons for thin large scale tax evasion on the part of small traders are

not far to seek. Primarily there ares ■ -, ,;

(a) Lack of sufficient tax administrators and weak assessment and enforce

ment machinerya

(b) Failure to keep proper records by the traders which could form the

basis for filing tax returns.

(c) Lack of voluntary compliance with the requirements of tax law due to

ignorance, misunderstanding, negligence or lack of co-operative attitude on the part of the tax-payers*.

sd) Lack of publicity about the provisions of the tax law and failure to

provide simpiej adequate and clear instructions for keeping records

and submission of returns- ■'.■■■■.

41- The solution of these problems in the short run in order effectively to get about 4»80O or so potential tax-payers contributing their due share to ;

Government revenues is not in sight, While efforts are being made to secure-*' an all round improvement in tax administration the process by its very nature and because of lack of trained personnel Is going to be a long drawn out oriei

42. While we should plan for the removal 6f these deficiencies as soon as

possible we have to devise some simple operational means of tackling with the situation consistent with our existing administrative resources. The obvious, answer lies in the introduction of the system of standard tax assessment on more or less the same pattern as is being applied in Ghana— or some other similar presumptive techniques of determing the tax liability in such cases*

4-3• The Ghanaian system has imputed minimum income statutorily to persons

engaged in trade and other categories of self-employed persons who are not submitting r^'tilar returns but in whose case the tax administrators have reason to believe that their net incomes are above the exemption limit. A similar attempt is called for in Lesotho in view-of the circumstances already

mentioned., -

Xj See Annex I.

- H.- -

44. Issuing notices to all these:persons included in the untaxed ppol-for ■

submitting proper income tax returns a,s required under the law would not be very helpful at this stage. The attempt would largely result in poor . : response in a majority of cases or in a number of cases inadequate faulty returns may be received which would require considerable administrative resources for follow-up investigations* = As these resources are simply not available in the existing circumstances we must endeavour to make the,best use of such scarce resources as are available, I agree v/ith the observation of

Mr, Reynolds in t^a respect viz "An initial assault on too wide a'front, which petei-3

out in widespread non-enforcement will prejudice the whole future of income '

taxation among the self-employed". .

45. To begin with income imputation for tax purposes may be made for the major categories referred to above as these cover the bulk of tax evading traH rs. In view of the different circumstances of traders under these categories depending on their average turnover and location etc it would be necessary to establish two or more classes of standard tax rates ranging from higher to middle and lower brackets of small traders according to their

presumptive incomes, ;

.46. The major technical problem in this respect which needs to be clarified relates to the factors that should be taken into account in determining the presumptive tax- rates. Among those that could^ be taken into account are1 gross sales, value of property housing the trading establishment, number 'of employees, location of business, type of trade, inventory, age and quality of.

equipment used, private style of living of"trader and so on, Variations can be constructed for different trades! for example in the case of taxi-, drivers the year and make of vehicle and estimated mileage might be. taken

into' account. All this however involves complicated and refined investigations in each individual case and would be difficult to carry out fairly and

effectively in view of the existing constraints* A sophisticated system of

investigations is not therefore recommended for Lesotho at this stage, since

the evasion problem itself arises from.the scarcity of trained administrators

and the administration's inability to determine the very sorts of norms and =

standards needed in any complicated presumptive'system. " ' ;

47. The'fact of the matter is that the small traders in Lesotho, generally

speaking are.incapable of computing their actual income and the Income Tax Department as at present constituted is by and large incapable of verifying it.- The bookkeeping knowledge and standards of the small traders are such that it would be unrealistic to expect them to keep the kind of records needed for a determination of actual income. Moreover in view of the large number of 'traders involved who are scattered throughout the country and difficult 1$ reach even in some cases because of lack of proper roads or other means of .communications, the administration could not be expected to make an adequate _, verification of actual income or for that matter to indulge in the exercise

of determining presumptive, income in each and every case.

43. In spite of the above difficulties however a fruitful attempt could be made to determine the average monthly turnover of distinct classes in each .trade category on a sample basis in different locations in each district and , on this basis to .work out average taxable incomes and standard tax rates for

different classes of each trade. Generally speaking it is considered that the

average taxable income would be about 8-10" per cent of the annual average

turnover* This assumption is borne out by an "ILO Survey of Small Scale Enterprises in Maseru" conducted by lwr» B. Koch in February 197O-

, 49"... Mr. Koch found out that out of 53 retailers surveyed in Maseru 18 had a monthly turnover of less than R250| 26 had a monthly turnover between R250-

1,200s 5 had a monthly turnover between Ri,2OO-B3,000; and 4 had a monthly turnover

more than R3,00Qo The.report of this survey also mentions that gross

profit on groceries was about 15.per cent and the gross profit on soft goods

was-about 3P per cent- The average net profit including salary of the owner/

manager may be assumed to be in any case,below 10 per cent of the turnover-

50* While accepting the measure' of about 10 per cent of turnover in

determining taxable income one has to be careful in classifying enterprises by type and location. The degree of refinement that could be employed in this respect would have to be seen in''relation tx> the tolerable inequities and the.cost and effect of taking more details into account.

51* One obvious flaw in the application of standard tax rates determined acccrd:: ig to the above, method would be that these do not take into account family circumstances of individual tax payers as is the case in the

application of normal income tax which allows the deduction subject to

certain limitations of allowances and rebates from income tax payable in consideration of such circumstances,. However, as it would always be open to

any tax,payer to get his name removed from the list of standard tax assessees

by submitting a proper tax return the inequities of the standard tax assessment system could be got removed by taking recourse to such actionB Moreover, the discretion of the:tax authorities in placing a tax payer in a lower standard tax bracket can be used to decide cases of hardship when appeals supported

by proper facts and details are submitted for their decision,

52. It must be remembered here that the standard tax assessment system i.i providing for a unilateral estimation of tax liability-fay the tax administra tion is a sanction against tax-payers who fail to file returns. It permits the determination of tax liability without the necessity of an elaborate audit. As such it is a necessary compromise between simplicity and ease of

application on the one hand and .exactitude on the other*

53. The ultimate object of the standard assessment tax system should be to induce tax payers to settle their tax liabilities on the basis of actual submission of income tax returns required under normal circumstances rather than, on the basis of standard rates determined unilaterally. The greatest incentive,to this shift would be presumption at high rates. A milder

alternative would be to grant special concessions and incentives only to those traders etc, who maintain adequate records. It must however be ensured that the option to be taxed on the basis of actual income rather on the basis of standard rates should be allowed to be exercised only, by a tax payer who can

■ meet the bookkeeping requirements imposed on other tax payers, reporting actual business inccme. The tax payer must for.example attach to. his income tax return-a copy of a balance sheet and profit and loss, statement.

54e The administration should also take care to ensure that the system of standard tax assessment as discussed here is made applicable only to small businessmen whose turnover does not exceed certain specified limits taken

into account in determining the standard rates. All major business enterprises

- 17 -

above' these limits must be made to report actual income for tax assessments If during'the course of investigations any cases of higher taxable income are found out which are covered under the standard tax assessment system-, these should be promptly taken out of the operation Of thesystem and regular files opened for them for consideration under the normal income tax procedures.

55* It is no doubt true that the exercise in determining standard tax

rates for different classes under each category of traders would involve application of judgement and some guesswork on the part of tax authorities»

The important thing to remember however is that the income tax pfficer or his staff should not act dishonestly, vindictively or capriciously in determining the class to which any particular tax payer would belong.

This should be determined as objectively as possible and gaurded against

through a percentage test check at higher level of the assessments made0

56* While the fixing of standard tax rates for different classes of persons

under the various business categories on a realistic basis would require more time for visits to all the districts than was possible during the course of this mission an attempt has been made to suggest standard rates for the categories of traders referred to above for four classes determined on the basis of annual average turnover noticed in the four districts of Maseru, Teyateyanang, Leribe and Butha-Buthe* It was noticed that nearly 10-15

per cent of the small.licensed traders had average annual turnovers less than

with their net taxable incomes after deducting general expenses being.less

than the exemption.; limit of R25O* The average turn overs and standard rates for the four classes which are above the exemption limit, are as follows:

m^,. Broad range of , " .

Class to standard tax

— average .annual

4. ■ per annum

Turnover -*-= ——

. A , .; Above H20,000 , ... . R120

B . . Between R15,000-20,000 R 80 .

C . - : : Between R7»000 -15,000 R 40

.D . - . : .. Between R3?SOO-7»OOQ , ,. . . . R. 20 ,

In case of transport contractorsshowever the following rates are suggested on the basis of capacity a'tid weiglrti '

- 18 -

'„, Standard tax

Class

—'-,?—■ : . _-....- ■■ ■ . ...- per annum

A In respect of each vehicle- up to 5 tons R32.00 B In respect of each vehicle above 5 tons RSO.OO G Taxi owners in respect of each vehicle R32»00

57* These, standard, rates, are suggested with due regard to the net average taxable incomes expected after deduction of general expenses etc> and . average deductions on account of allowances, and rebates subjeqt. to the ; limitation that the net taxi payable is not allowed to fall below the : specified limits. These rates are no doubt tentative at this stage and

are mentioned here to initiate the process of thinking and further verification by the Income Tax Department before they are finally adopted.

58» Although the exact number of small traders falling . under each of the

above four classes would be known only after the effective introduction of the system, yet on the basis of observations made it may be stated that, each of these four classes would contain roughly 25 per cent of the total tax—payers subject to standard tax assessment system under each of the trade

categories (excluding transport contractors) mentioned above»

59- For purpose of grant of trade licenses these categories are distinct but in actual practice there is a considerable over—lapping of, commodities dealt with by these categories. A groceryj a cafe and a restricted trader for instance would have lot of common items in which they are dealing. The most important consideration in this case therefore is their turnover, rather than the commodities in which they are dealing.

60. It is also reported that some wholesalers are selling goods even to persons who do not hold licenses. This cuts across the interests of licensed retailers. A person or company having a wholesale license should not be allowed to have retail outlets at the same time. Moreover people who have obtained trading licenses but who have not erected their business houses often abuse their licenses by buying goods from wholesalers for non-licence holders thus illegally competing with properly: trading licensees. Although the task of regulating trade is the primary function of the Trade Section

yet the introduction of the standard assessment tax system would facilitate the task of eliminating such malpractices considerably*.

61. In fact there is need for close collaboration between the Trade and

Income Departments not only for the proper functioning of the trade licensing systera but also for tax purposes* In this connexion it is

suggested that i.n cases where under any enactment any person or authority is empowered to issue a licence? a permitP a registration certificate or any

other similar document to such small traders etco the collector of revenue should request officially such person or authority in writing not to issue such document unless the person applying thereof produces to such person or authority a tax clearance certficate issued by the collector or other officer authorized on his behalf indicating that the standard assessment of tax or instalments thereof liable to be paid by such applicant have been paid- ..

Wl; -n this practice is firmly established it would automatically ensure - compliance with the requirements of the. standard assessment tax system,. :

62. It should also be provided that the payment of the standard tax could

be set-off against the income tax actually payable by any person* Connected with this is the requirement to take off a person from the list of persons subject to the standard tax assessment on the submission of a proper income tax return to the satisfaction of the collector of revenue. Thereafter his case would have to be dealt with as a regular income tax assessee.

63° The above requirements along with the other necessary provisions have

been incorporated in a draft Income Tax Amendment Order to be issued at the

time of the enforcement of the system (copy enclosed as Annex VIl)*. Attached

along with the order is a schedule of persons intended to be covered by the order and the standard rates for different classes in the light of the above discussion. As already stated the suggested rates would have to be reviewed if necessary in the lighv of further field inspections= : ,

64» The system should be applied initially for a period of three years and

before the end of this period the results obtained should be reviewed and

decision taken about the extent of the continued application of the system with amendments that may be called for in the standard rates and the classes of

persons to be covered by it8 .

- 20 -

65. Apart from the aine categories of small traders referred to in this discussion the amending order also contains some other categories of self- employed individuals like dry cleaners, hair dressers, tailors, motor garages, electricians, carpenters/watch makers and brick makers. It is expected that more additions of self-employed persons who are hard to cover under the normal income tax procedures would be made as more information about their activities becomes available.

66.. .Xhe transport, contractors and buses and taxis owners present a special

problem as they are not. all borne on the list of licensees. Special measures should.be taken with, the authorities responsible for registration* and

inspection of vehicles and the police to recover the amounts of standard tax

from them. .

67- While it would be desirable to administer the standard tax assessment fr ..i Maseru in matters of making assessments and watching recoveries etc*

it is necessary to involve the sub-accountancies as far as possible in making recoveries and the introduction of the system in its initial stages.

A senior inspector of taxes should be made responsible for looking after the operation of the standard tax assessment under the overall supervision"

of the chief collector of revenues. The first assessments on the introduction of the system should be checked hundred per cent by the income tax officer.

A test check of at least 25 per cent should also be carried out by the collector

of revenues personally,

63. A complete card index and tax payer rolls should be maintained of all the standard tax assesses in the Income Tax Office for prompt follow up action. A bi-monthly progress report on the progress of recoveries under the system should be prepared by the Income tax inspector concerned and submitted for the information of the Accountant General through the ghief Collector of Revenue, This report should also be periodically submitted for

the information of the permanent Secretary Finance.

69. The objective of raising adequate revenues for meeting increasing ' Government expenditures has to rely on the taxation structure primarily.

The proposal of Mr. Raynolds in this connexion to try to meet this objective

by substantial increase in-licence fees and to give credit for half of these

- 21 -

fees from the income tax due for payment in any particular year is rather cumbersome and complicated. It is neither designed to meet the revenue objective adequately nor to give adequate incentive for submission of income tax returns. Revenue resulting from the exercise of regulatory licensing is primarily designed in most 'of the countries to defray the costs of regulation of business or occupation in respect of which it is exacted.

In Lesotho' this has however been used to some extent for revenue purposes the existing level of revenues from this source being R75»0O0 annually. While

it is desirable to continue to raise this or even a ylittle higher level of revenues from this source by making proper adjustments it would be a

mistake to lose sight of the greater tax potential on account of the relative ease of increasing the existing licence fees.

70, The introduction of the system of standard tax assessment is expected

to add a minimum of additional revenues of R100,000 per annum to the

public exchequer. As this revenue is being lost in the existing situation

a concerted effort is called for to get it. From the point of view of

equity as well it is high time that the loophole of taxing traders and other

self-employed individuals is adequately plugged. Some of these persons on the basis of all available evidence have more income than high civil servants.

The mployees in Government or private agencies are now being adequately taxed

under the law through the PAYE system. To further delay enforcing the law to tax evading traders and some other self-employed persons would create dis—satisfaction amongst existing tax payers.

71• In the peculiar conditions of Lesotho described in the beginning,

income tax should be the main form offinance, not only because the

initiative of Government in other areas is limited, but also because of the fact that when properly defined and applied it is the best on the grounds of both efficiency and equity.

Annex II

Request_for technical assistance under the United Nations^ Development Programme

Background

In order to enable the mobilization of increasing amount of resources for

economic development, the First Five Yar Development Plan of Lesotho (1970-71 to 1934-75) envisages the elimination by the end of the plan period of the foreign budgetary support for meeting recurrent expenditures, which is equivalent, to

about 75 per cent of such expenditures at'present. This calls for an effective programme of fiscal planning and improvement of tax collecting machinery to raise more revenues and to put a restraint on the abnormal growth of thfe recurrent expenditures* ..;.-. ;... ;■.■■" ■;■■■■ . ■' . ■ ■ -. ...;,.■ " ■ ■ " ■ -.:■

In view of the importance of direct taxes in the revenue structure of the country c survey was carried out early in 1969 at the request of Government of Lesotho by Mr.. F.G. Reynolds an IMF Fiscal Expert who has made a number of recommendations for reforming the structure of income tax and improving the tax collection machinery. Most of the recommendations incorporated in Mr. Reynold's report have been accepted for implementation. Following on those recommendations action has already been taken to secure the services Of a professional firm Of"tax consultants intermittently for short periods* The details:involved in the matter of the introduction of standard assessment tax system for small tracers are;al&o being worked out presently with the assistance of EGA Regional Adviser in Public Finance.

However, the successful implementation of the various reform proposals:;/.;

requires ..^the services of a Fiscal or income tax expert in order to re-organize the Income Tax Department on proper lines and render advice on fiscal and budgetary management problems. In view of lack of trained personnel in the Income Tax

Department the expert may be required to supervise and carry out the operational work of the Income Tax Department. As soon as the local counterpart of the expert is properly trained to carry on the operational job the expert would be available for advice on various fiscal problems. The expert should have adequate

qualifications and extensive experience in fiscal policy and on income tax law and practice. He should also have the ability to train local staff in fiscal and budgetary management problems' and tax policy and administration.

Annex II Page 2

For the performance of his duties the expert will be responsible to the Permanent Secretary? Ministry of Finance through the Accountant General*

Assistance^requested

Operational fiscal.or income tax expert,,

Counterpart support

(a) Personnel: Efforts are being made to recruit and select a potential income tax officer from anongst accounting and economic graduates from the local. University* He will be posted as under study,to the

Fiscal/income tax expert„

(b) The Lesotho Government would meet the local cost of the salary and allowances etc*, of the experts

(c) Secretarial? transport and office accommodation:

Support services^ office accommodation and transport etc* will be made available as may be required for the efficient discharge of official duties*

Housing availability for the expert

Lesotho Government will provide housing for the expert*.

Related projects

(&) Previous assistances IMF assistance

(b) Complementarys N/A

Follow-up.

• In view of the important role that fiscal policy is destined to play in carrying out programme of economic development a review of the past achievements and future requirements will be carried out at the close of the First Plan period:

Annex II Page 3

Job Description

Post title Duration

Effective date

Duties

Qualifications

Language

Fiscal and/or income tax expert

Tito years with possibility of extension

Immediately

(i) To re-organize and supervise the operations of

the Income Tax Section of the Treasury till the local understudy is trained to effectively take charge of the duties and responsibilities of income tax officer

(ii) To provide advisory services to the Government of Lesotho in the fields of fiscal policy, tax administra tion and budgetary management. This will include all fiscal and revenue matters, public expenditure, budgetary procedures and classification and public debt problems with special emphasis on their relationships to economic policy formulation and planning»

(iii) To undertake studies and investigations in the above fields on a sound basis in the context of Lesotho*

Master's Degree in economics, public administration or business administration with specialized training in tax policy,, legislation and administration), ten years experience in fiscal policy, income tax legislation or related fields.

English essential

Annex III

A. List of officials met with whom discussions were held

I« Finance and Taxation

Permanent Secretary _ Mr. Waddington

Ministry of Finance, Commerce & Industry

The Accountant General »

Chief Collector of Revenue

Acting Income Tax Officer

Assistant Secretary Finance

II. Planning and Development

Director Central,Planning and Development Officer ?

Mr. D.K. Ntoto Mr. OoTo Sefako

Mr. Z. M. Sello (Took over.with effect

from 17-8-^71)

Mr. E.M, Thatho

Miss Mafike

Mr. ThimotheT. Thahane

Deputy Director

Assistant Secretaries

III. Commerce

Assistant Secretary

IV0 Ministry of Agriculture

Mr. K0T.J. Rakhetla Messrs P.D, MokhesiP J.N. Thokoa and S. Montsi

Commissioner for Commerce and Industry Mr. E.T- Manare

Mr. Bns

Dr. Tidmash

Mr. SOE. Janamane

V. Various officials qf the District Administration and sub- accountancies at

Maseru, Tyateyanang, Leribe and Butha-Buthe* '

Annex III Paee 2

List of some trading es^bli^mentsvrsxted on a sampling basis

I, Tayateyanan^ District

WoT, Nkoke Kopanang

J.B. Tully

Batebang Store M. Motlometle ; M.S.P. Ponedo

-K.A.M. Patel ■:■

RST» Taole George Thabo

II. Roma University Area

N. Thorn

T. Maana E.M- Makhaba

i Makuta •"■

III. Lgribe District

P.O. Pude SPQR

IV. Butha-Buthe District

S.O, Qasira High Summer Paki Moaki

Mphalali .

Karelo Ratsepot

Bafethong Store (with two tailors)

E.S. Mettakhola Cafe Marathene MAO Keng Store

Restricted Trader and Butchery Dry Gleaner

General Dealer

Restricted Trader; ■ :?

Cafe Cafe \

General Dealer Restricted Trader Butchery

Self service store, mill and General

Dealer Cafe

Restricted Trader Butchery

Cafe Cafe

General Dealer' -■':'■/.

Cafe Cafe

General Traders, Butchery and cafe

Restricted Trader;

Restricted Trader

Restricted Trader and cafe Cafe

Restricted Trader

Annex IV

Rate of Licence fees

Trading licences: Proc. 72 of 1951

1« Aerate or mineral water manufacturers 2c Agent of a firm

(a) , Non-resident in Lesotho (b) Resident in Lesotho

(c) Employee of resident agent

3. Bakery _ . ■

(a) By every baker who is a person other than an (b) By every African baker on Government Reserves (c) By every baker elsewhere

4* Banker or Banking Institution

(a) for the first and only office (b) for each and every other office (e) for each and every agency

R 10-00

R60-00

"40-00

10-00

R 6-00 R 3-00

R100-00 R 5P-00

■R 10-00

(a) Situated on a Government Reserve or within

; 2 miles of its boundaries f;

(i) of. which the proprietor is a person

other than an African

(ii) of which the proprietor is an African

(b) Situated elsewhere arid

(i) of which the proprietor is a person other

than an African :

(ii) of which the proprietor is an African

6. Cafe

(a) of which the proprietor is a person other

than an African ; ■•='.. : ,

(b) on a Government Reserve or within 2 miles of

its boundaries of which the proprietor is an African

(c) Elsewhere of which the proprietor is an African

R 20-00

R 3-00

R 7-00

R :

R 10-00

R 4-00 R 2-00

Chemist and Apothecary R 20-00

Annex IV Paee 2

8« Goal and wood merchant

By every coal and wood merchant other than an African

By ev&ry African coal and wood merchant

9» Dairy: By every owner of a dairy herd kept on a Government Reserve in respect of milk, cream, and butter or anyone of such dairy products sold by him or on his behalf«

(a) where such herd does not exceed five cows

n,. " : " ; exceed 5 cows but, does not

!ri1' ' "' ! ': '' "''' ' " exceed ten cows ; "

" " " 1 cow but does not exceed 25 cows

(c)

R 4-00 R 2-t)0

(d ) Where such herd exceeds twenty—five cows

R l-OO

r ■ 4-oo

R 10-00 R 20-00

General Trader Hawker

(a)

(b)

Penalties

African hawker

Hawker other than an African

2-00 p.m.

4-00

Any person who fails to take out a licence as required within one month from the date when his liability commenced or who pays an amount less than the sum due for such licence shall pay for each month or part of a month during which he carrie;

on any trade, profession or occupation without the prescribed licence, or during which any amount due in respect thereof is short paid, a sum calculated at the rate of 10 per cent of the licence duly prescribed in respect of such trade, profession or occupation*

Transport Contractor . . Lorry

(a) Goods only or^passengers only (where passenger capacity does not

exceed five or -■■..■ . . :. . .

Goods and passengers (where capacity does not exceed five) R 4-00

Omnibus

(a) Gpods and passengers (where passenger capacity exceeds

five but does not exceed 15) . R 8-00"

(b) Passengers only (where passenger capacity exceeds 15

but does not exceed 25) R 12-00

(c) Passengers only (where passenger capacity exceeds twenty-

five) ■ R 16-00

Annex V . . - ..,

Schedule of Income TAx :

1« For an unmarried individual where the taxable income does not exceed R700

10 per cent of the taxable income; . ',:

exceeds R700 but does not exceed Rl,000

exceeds R1?OOO but does not exceed R5,20O

exceeds,R5,200 but does not exceed R6,000

exceeds R6,000 but does not exceed R8,000

exceeds R8,00G but does not exceed RIO, 000.

exceeds R10,000 but does not exceed Rl6,000

exceeds Rl6,000

R70 plus 13 per cent of the amount

by which the taxable income exceeds R700.

R109 plus 17 per cent of the amount by which the taxable income exceeds RlyOOO.

R823 plus 25 per cent of the a :ount by which the taxable income exceeds

Rl,023 plus 35 per cent of the amount by which the taxable income exceeds

R6,poo.: i

Rl,723 plus 45 per* cent of the amount by which the taxable income exceeds R8,000.

R2j623 plus 50 P&*1 cent of the amount by which the taxable income exceeds R10,000.

R5j623 plus 60 per cent of the amount by which the taxable income exceeds Rl6,000.

2. For a married individual where the taxable income does not exceed R900 8 per cent of the taxable income.

exceeds R900 but does not exceed R5,200

exceeds R5,200 but does not exceed R6,000

exceeds R6,000 but does not exceeds R8,000

exceeds R8,000 but does not exceed R10,000

exceeds R10,000 but does not exceed R12,000

exceeds R12,000 but does not exceed R20,000

exceeds R20,000

plus 14 per cent of the amount by which the taxable income exceeds R900.

R674 plus 25 per cent of the amount by which the taxable income exceeds R5,200.

R874 plus 35 per cent of the amount by which the taxable income exceeds R6,000, Rl,574 plus 40 per cent of the amount by which the taxable income exceeds R8,000.

R2,374 plus 45 per cent of the amount by which the taxable income exceeds R10,000.

R3,274 plus 50 per cent of the amount by which the taxable income exceeds R12»000«

R7,274 plus 60 per cent of the amount

by which the taxable income exceeds R20?000*

VI districtsinLesothovarious

Nature of trade/

licensesMafetengQ.H* 1 2 3 4 5 6. 7 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 19. 20. 21. 22. 23. 24. 25, 26. 27.

Generaltraders Wholesale" Bankers Millers Chemist' Wirelessdealers Motorgarage- Dairies Hairdressers Bakeries Beershops Herbalists Woodandooal merchants Transportbuses)

" "" taxis)

Taxisabove15 passengers .Transportgoods, -■contractors .-Motor.dealers' Club_andliquor.hous Res.tri-cted.traders... Cafes'V.\

..Hotels':/

Aeratedwater Industrialmanufactu, Speculators Agen-fe.of

3

53 2 17

3

26 f

32

:

4

129 231

469

2 3 1 7

1

2 74

26 16

2

60

270

2 96

24 27

142 36i

42 14 21 79

76

17©

2

3418 5 1 10 81 32 51 ;-212 --232

1

93

-64;

136 1

16 4 141

15 50 12165

55 S3 ₁₅₅

Total 34O 7 28 129 523 27 118 102

,193-L.-

1

30

5f-

-"3.44'■-- 3 3

7 698 1,402

."-.: -e,3ii

5 2 3 16 10

ANNEX VII

Draft Order No- of 1971

Income Tax Amendment Order 1971 -o enable the fixing of standard assess ments of normal income tax payable by certain persons like small traders and

certain other categories of self-employed individuals- .

, Made by the Council.of Ministers . ■ - ■

This Order may be cited as Standard Assessment Order 1971 and shall be deemed to have come into operation on 1/7/70 with effect from1 and including the assepsment year 1970/71*" '

Notwithstanding, anything contained in the Income Tax Consolidated Act 195^ as amended from time to time herein called the principal'Act it is

hereby enacted as follows:

Every person specified in the Schedule to this Order_ who is not presently charged to the payment of.normal income tax shall inform the collector of income tax in writing within thirty days of the publication of this Order In the Gazette that he is a person so specified and of his personal address and business or official address and of the details of his net income for the previous assessment year and other information relevant tothe

determination of his taxable income under system of standard assessment. If this information is not furnished by any person,within the prescribed time the collector shall be competent to form his own estimate of such income for

the purpose of this Order™ .

(2) (a) - Without prejudice to the provisions,of the principal act or the other provisions of this Order, the collector ,of income tax may issue

notices for payment of standard assessment pf ■income tax to any person

covered in the Schedule to this Order, and such person shall,notwithstanding

anything to the contrary in other.;provisions of the Principal Act pay the

amount of such assessment in accordance with the provisions pf such notice.

Annex VII Page 2

The tax as so assessed .shall be paid by all or any of the persons to whom this Order applies in such instalments, commencing from such date and thereafter at such intervals as may be specified by the collector in

the notice of assessment, ,

3(a) The collector may from time to time, having regard to the average chargeable income of each category or sub-category of persons covered in the schedule or other relevant factors fix or modify the rates of standard assess ment of income tax of any or all categories -or !sub-categories shown: in the Order by notifying the same in the Gazzette.

3(b) The collector may also at his discretion make modifications in the schedule to this order with effect from specified date by notifying in the Gazzette the deletion of existing categories c^ sub-categories or addition of new categories or sub-categories subject to application of standard assessment of income tax. •■-

4(a) Where under any enactemeht any person or authority is empowered to issue a licence, a permit, a registration certificate or any other similar document for the performance of any function by persons shown in the schedule to this order, as may be amended from time to time, and the collector requests such person or authority in writing not to issue such document unless the person applying thereof produces to such person or

authority a tax clearance certificate issued by the collector or other officer

authorized on his behalf indicating that the standard,assessment of tax or instalment thereof liable to be paid by such applicant have been paid, no such person or authority shall issue that document until such clearance

certificate is produced, (b) Where a request has been made by the collector

under su.^paragraph (a) the person or authority to whom such request has been

made suall cause to be published in the Gazzette a notice stating that the

requirement referred to in that sub-paragraphshall be complied with before

the relevant document referred to in sub-paragraph (a) of this paragraph and

specified in such notice is issued.

Annex VII Page 3

(5) Any tax^paid under this order* byT.any persbrvmiiiy.be set-off

against the income tax actually payable by him.

(6) A person subject to standard assessment may be. taken off from

the;list of persons subject to this system on ths submission of a prpper income tax return to the satisfaction of the collector. Thereafter his case:

will be dealt with ac regular income tax assesses*

1 (7) (1) It shall be lawful to the collectors . (a) to inspect any premises for the purposes of this Act and$

(b) to request in writing any person to keep such records, returns

and other documents as he may determine for the purposes of

',-. this Order, and to. furnish any such records? returns or documents to him within the period specified in the request <■-

(2) Any person who prevents the collector without reasonable cause

from inspecting his premises? for ths purpose of this Order or, who fails, to keep any record return or document, which he is requested to keep by the collector or who on being requested hy the collector to furnish a record, return or documentf fails so to do within the period specified in the . ; request, or who furnishes a false or incorrect record, return, or document, shall be guilty of an offense, and shall on summary conviction, be liable to a fine not exceeding one hundred Rands or imprisonment for term not exceeding one year or to both such fine and imprisonmento

(8) The tax may be sued for and recovered in court of competent

jurisdiction by the collector in his official name with full costs of suit from the person liable to pay such tax as a debt due to the Kingdomo

(9) The Minister of Finance may make regulations in respect of such

matters as may be prescribed and for carrying on the principles, and

provisions of this Order a .■■>■.

Annex VII Page 4

Standard Assessment Order 1971 — Schedule

Licence categories or nature of business

Classes of assessment

Standard assessment

rates

Quarterly payments

(i) (ii)

(iii)

(iv)

(v) (vi) (vii)

(ix)

(x) (xi) (xii) (xiii) (xiv)

(xv)

(xvi)

General traders )

Bakeries I

Butcheries )

Restricted traders I

Cafes )

Beershops (

Wood and coal merchants )

Dary owners (

Millers , )

Brickmakers ' I

Dry cleaners )

Tailors I

Motor garage )

Electricians and road j

repairers )

Garpenters and furnitureI

maker's \

Herbalists

A

Average annual R120 turnover above

R20.000

Average annual turnover between

R15,OQQ - R20.000 R 80

Average annual turnover between

R7SQOO-15,QOO R 40 D

Average annual turnover between

R3,500-7?000 R 20

R20

RIO

R 5

II. . ...

Transport contractors bus and taxi owners

(i) In respect of each

vehicle up to 5 tons

(ii) In respect of each .

vehicle above 5 tons

(iii) Taxi owners in respect

of each vehicle

R32-

R80,

R32.

00

00

00

R8.00

R20.00

R 8.00