Fertiliser and chemicals group Omnia may soon head to the Tax Court if it fails to reach an agreement with the South African Revenue Service (Sars), which launched a tax dispute of nearly R1 billion against the company that has now dragged on for two years.
The company, which lodged an appeal against the tax dispute, said its advisors believe any resolution would most likely be substantially less than the additional tax liability assessed by the revenue service.
It said if an agreement can’t be reached, the matter will proceed to the Tax Court.
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In June 2021, the company revealed that it became subject to a tax audit by Sars for transfer pricing pertaining to the 2014 to 2016 assessment years. The audit resulted in Sars indicating a possible upward adjustment to taxable income for those three years, leading to a hefty liability.
Delivering its full-year results for the period to the end of March 2023 on Monday, the company said while it disagrees with Sars’s findings, its tax liability had been reduced after it objected to its assessments.
Revised assessments
Following the objection, Sars issued revised assessments, with the additional tax liability reduced to R414 million from R415 million and understatement penalties to R135 million from R165 million.
However, the revised assessments continue to attract interest on a monthly basis, which had accrued to R389 million as at 31 March 2023, Omnia said on Monday.
As a result, Omnia said it lodged an appeal against the revised assessments and indicated its willingness to partake in an Alternative Dispute Resolution (ADR) process, which it deems the most likely mechanism for reaching a resolution.
Committed to finding closure
“On 17 February 2023, Sars confirmed the matter was appropriate for ADR which the parties are currently engaged in. We remain committed to expeditiously bringing this matter to a close,” the company said.
“In parallel, the Group has also invoked the mutual agreement procedure under the double taxation agreements between the Republic of South Africa and relevant African jurisdictions, aimed at resolving any double taxation that may arise as a result of the revised assessments issued by Sars,” Omnia said.
Omnia CEO Seelan Gobalsamy said in an interview on SAfm Market Update with Moneyweb on Monday that what the company certainly doesn’t want to do is end up paying an amount it believes is not due.
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“We are a responsible corporate citizen in all the jurisdictions we operate in, so we will do what is right,” said Gobalsamy.
“We have entered into discussions with Sars, we’ve disclosed this matter in more than one reporting cycle now, we’ve engaged with our legal teams, our advisors and others, and we’ve set aside certain provisions in our IFRIC [International Financial Reporting Interpretations Committee] 23 provision on our balance sheet for these matters.”
Omnia shares were down over 5% by the end of Monday’s trading session, trading at R60.24.
Challenging times
But the share price move was more a function of the agricultural division – which, despite growing revenue, was affected by adverse weather events, volatile commodity prices and supply chain challenges – Stephan Erasmus, investment analyst at Anchor Capital told Moneyweb.
“That’s the majority of the business, circa 60% of the operating profit. The issue there is that their margins went down from 10.9% to 8.5% … In the agriculture division, Omnia failed to achieve its medium-term guidance of 9% to 12%,” Erasmus said.
While mining has performed well, it’s still missing medium-term guidance, he added.
“They are heavily reliant on their agriculture business and any time of seasonality and change in commodity prices, as we’ve seen, impacts them quite a lot.
“We’ve come from five or four years of bumper crops in South Africa and we may be moving into an El Niño cycle, which is generally associated with drier conditions in South Africa,” said Erasmus.
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