Costly Ruling: Peermont Loses BWP 6.4M Capital Allowances Dispute to BURS

Introduction to the Capital Allowances Dispute

In a significant ruling, the High Court of Botswana dismissed Peermont Global’s appeal in a capital allowances dispute with BURS. The case revolved around Peermont’s interpretation of tax forms ITA 201 and ITA 202 and the company’s claim on assets that were already fully depreciated. The verdict reaffirms the limits of claiming capital allowances under Botswana tax law.

Understanding Capital Allowances in Tax Law

Capital allowances are similar to depreciation and offer tax relief on capital assets used for business purposes. However, these deductions cannot exceed the asset’s original purchase cost. Once the full value has been “absorbed” for tax purposes, no further deductions can be claimed on that asset.

Case Background: Peermont’s Tax Claims

Peermont Global (Botswana) Pty Ltd submitted capital allowance claims for the 2006–2013 tax years. The company argued that official BURS forms ITA 201 and ITA 202 enabled pooling of assets regardless of depreciation status. This led to claims on assets that were fully written off.

In 2013, BURS conducted an audit and found the hotel had made excessive and incorrect claims, resulting in a revised tax assessment demanding an additional BWP 6.4 million. Peermont objected, and the matter went to the Board of Adjudicators, which initially ruled in the hotel’s favour.

Legal Arguments in the Capital Allowances Dispute

BURS’ Position

• Argued that the Income Tax Act does not allow claims on fully depreciated assets.

• Emphasized sections 39(2) and 41(1), which do not support asset pooling.

• Warned that such claims would diminish the government’s ability to collect lawful taxes.

Peermont’s Counterargument

• Maintained that the Third Schedule and forms ITA 201 & ITA 202 support pooling.

• Believed the forms permit continued claims on assets still in use, even if fully depreciated.

High Court’s Verdict: Judgment Against Peermont

The court focused on whether the law allows enhanced capital allowances using fully absorbed assets. It ruled that such an interpretation would go against the entire purpose of the Income Tax Act, which is to fairly and lawfully limit tax deductions.

The judgment concluded:

• Claims on fully depreciated assets would undermine tax integrity.

• BURS’ revised assessments were valid.

• The Ministry of Finance must revise the ITA 201 and ITA 202 forms to eliminate any ambiguity.

Tax Compliance Takeaway for Businesses

This landmark case sends a clear message to taxpayers: only unabsorbed capital costs are eligible for allowances. Businesses must maintain accurate tax records and avoid misinterpreting official forms. The verdict strengthens BURS’ enforcement position in similar future disputes.

Frequently Asked Questions (FAQs)

1. What was Peermont Global’s main argument in the tax dispute?

Peermont claimed that BURS’ official forms allowed them to pool all business assets for capital allowances—even those already fully depreciated.

2. Why did BURS reject Peermont’s claim?

BURS stated that the Income Tax Act does not permit further deductions once an asset’s cost has been fully absorbed for tax purposes.

3. What are forms ITA 201 and ITA 202?

These are capital allowance forms prescribed by BURS, used to calculate annual capital deductions on business assets.

4. What did the High Court ultimately decide?

The court ruled in favor of BURS, affirming that capital allowances cannot be claimed on fully depreciated assets.

5. How much was Peermont ordered to pay?

Peermont was issued revised assessments totaling BWP 6.4 million in additional taxes.

6. What should businesses learn from this case?

Companies must ensure accurate interpretation of tax laws and forms, and consider periodic tax reviews to avoid costly audits or reassessments.

Conclusion: A Cautionary Tale for Taxpayers

The capital allowances dispute between BURS and Peermont serves as a precedent for how tax laws will be interpreted going forward. It highlights the importance of understanding what can—and cannot—be claimed under capital allowances. Businesses should consider professional tax audits to remain compliant and avoid similar financial pitfalls.

External Resource:

For detailed information on Botswana’s capital allowance laws, visit BURS official website.