Sars tax powers tested in multimillion-rand foreign dispute

The South African Revenue Service’s (Sars’) authority to tax foreign nationals faces a test in a multimillion-rand dispute with South Sudanese entrepreneur Joseph Wole Lotua, who owns more than five financing companies in the country but contends he has no personal tax liability in South Africa.

The revenue authority initiated a legal challenge of more than R70m in tax debt against Lotua and linked companies last year after the Ugandan Revenue Authority flagged a suspected money-laundering case linked to Lotua’s company.

Uganda is the designated government authority for the mutual agreement procedure under the double taxation agreement with South Africa.

A Ugandan taxpayer was linked to the alleged illicit movement of money in US dollars to Lotua’s company in South Africa. Lotua, however, has pushed back against the allegations, providing a contract with a Ugandan company to explain money flows from the foreign state.

The case takes place as Sars has been on a crackdown on multinational companies’ tax liabilities.

According to Sars, Lotua is a director of 10 companies in South Africa, including Kwekwe Capital Investments, which it found the company from 2022 until 2024 received R235m in taxable income.

Sars further joined Lotua personally in the litigation and has a tax claim against him.

Lotua, who has close ties to high-ranking officials in the South Sudan government, disputes personal liability in the legal challenge, arguing he does not live in the country and does not meet the legal requirements warranting a foreign national to pay taxes.

The revenue authority in December attained a preservation order which allows it to appoint a legal representative tasked with taking control of Lotua’s assets, including bank accounts, shareholdings, loan accounts, members’ interest, and movable and immovable assets.

Lotua is a director of registered companies including Kwekwe Capital Investments, Kwekwe Mining, Kwekwe Energy, Kwekwe Poultry and Agriculture, Kwekwe Digital Technologies, Kwekwe Real Estate and Kwekwe Feeds.

“The preliminary investigations reveal that the respondents failed or neglected to meet their tax obligations in terms of the tax acts and thus committed statutory offences.

“The bank statement transactions of Kwekwe Capital Investments were analysed, and Sars found the account showed money flow into the account in US dollars.

“The money when received was used for different things, including the purchasing of vehicles and properties, purchases described to be on behalf of other respondents, transfers to the accounts of other respondents under the description of a loan to the respondent and purchases relating to the day of travel and day living expenses to Mr Lotua.”

Sars indicated it had not concluded its investigations, but its main findings have been on tax debt, not money laundering.

“Additionally, Mr Lotua has derived a substantial amount through bank withdrawals from the account of KCI [Kwekwe Capital Investments] and purchases by KCI on behalf of Lotua, and this is regarded as income on which he is liable to pay income tax.”

The bank records show Kwekwe Capital Investments on November 24 2021 had an opening balance of R50 and the next day received R6.4m from Eldouma General Trading, the company which Ugandan authorities suspect was used for alleged money laundering.

Some of the funds transferred were in US dollars.

Lotua, in his answering affidavits, argues he resides in South Sudan and does not meet the legal requirements to be a taxpayer in South Africa.

“The applicant alleges that I am non-compliant with my tax obligations and that I owe or may owe various sums of money to the applicant. The allegations are unfounded and misguided.

“In order for tax obligations to be imposed on an individual, the applicant must first determine if the individual is a South African tax resident.”

According to Sars regulations, an individual must be physically present in South Africa for a period or periods exceeding 91 days in total during the year of assessment under consideration; 91 days in total during each of the five years of assessment preceding the year of assessment under consideration; and 915 days in total during those five preceding years of assessment.

Lotua argues he does not meet the requirements and has only spent more than 100 days in the tax assessment years in the country.

“I submit that not only am I not a South African citizen, but I do not meet any of the requirements to be deemed a tax resident in the Republic of South Africa,” he argues.

“Joining me in this matter in my personal capacity without conducting a proper investigation into my obligation to pay tax in the Republic of South Africa is overreaching, constitutes a blatant abuse of power and a total disregard for my rights.”

He further denies allegations of money laundering flagged by the Ugandan government.

“The relationship and business agreement between [Kwekwe Capital Investments] and, by implication, me and Eldouma are completely legal and by no means a money laundering scheme as the applicant seems to suggest. I have not received any money from Eldouma in my personal capacity either.

“The ties I have with Uganda relate to a company called Eldouma General Trading, a company that processes payments on behalf of Kwekwe Capital Investment. This is due to the cash economy that operates in South Sudan; the country, unlike the Republic of South Africa, has no established infrastructure in regulating its financial services sector.

“Eldouma, among other obligations, receives funds, which are cash, which are designated for transfer/remittance to third parties from Kwekwe Capital Investments.”

Lotua argued only six of the 10 companies registered under him remain in operation in South Africa. He said all tax returns were submitted to Sars by December, and only one company had a tax debt.

“I do not receive any income in South Africa from any of the [companies]. In any event, I deny that there is any tax owing by any of the respondents [his companies] other than the Ninth Respondent.”