Are Tax Treaties for the Benefits of Taxpayers or Maximisation of State Revenue? A Review of VAT Treaty between Lesotho and South Africa

Abstract

The Governments of the Kingdom of Lesotho and the Republic of South Africa have entered into double taxation treaty (DTA), as a cross border strategy to prevent fiscal evasion with respect to value-added tax. DTAs, worldwide do not only address prevention of fiscal evasion of tax, but they benefit businesses and individuals against double taxation. It has however been observed that certain services between the Republic of South Africa and Lesotho are taxed twice when being imported into Lesotho. The study analysed the DTA to determine whether this was in line with the agreement. Such an analyis was based on literature review, document analysis in the form of Acts and the DTA itself. From the analysis, it was found out that recharging tax for the identified services was contrary to the DTA and Value Added Tax governing the DTA. The general conclusion is that the treatment of VAT on services is for tax revenue maximisation not in the interest of the tax payers.