Income Tax

12 Months Ended

Jun. 30, 2022

Income Tax [Abstract]

Income Tax

18.INCOME TAX

Income tax provision

The table below presents the components of (loss) income before income taxes for the years ended June 30, 2022, 2021 and 2020:

		2022		2021		2020
South Africa		$	(31,266)	$	(30,825)	$	(26,230)
United States			(8,509)		(6,686)		(8,984)
Liechtenstein			(509)		(810)		(17,519)
Other			384		32,702		(12,283)
	Loss before income taxes	$	(39,900)	$	(5,619)	$	(65,016)

Presented below is the provision for income taxes by location of the taxing jurisdiction for the years ended June 30, 2022, 2021 and 2020:

		2022		2021		2020
Current income tax expense (benefit)		$	2,309	$	859	$	1,652
	South Africa		2,309		866		1,552
	United States		-		(75)		12
	Other		-		68		88
Deferred taxation (benefit) charge			(2,044)		6,691		932
	South Africa		(2,154)		(2,039)		653
	United States		-		9,136		-
	Other		110		(406)		279
Foreign tax credits generated – United States			62		10		72
	Income tax provision	$	327	$	7,560	$	2,656

There were no changes to the enacted tax rates in the years ended June 30, 2022, 2021 and 2020. The South African corporate income tax rate is expected to reduce from 28% to 27% from July 1, 2022, however, the change in the income tax rate had not been enacted as of June 30, 2022 (and has still not been enacted as of the date of this report), and accordingly all deferred taxes assets and liabilities related to the Company’s South African operations are still recorded using the enacted corporate income tax rate of 28%.

The Company’s current income tax expense for the year ended June 30, 2022, was higher than the previous year due to the acquisition of Connect, which is profitable and generates taxable income.

18.INCOME TAX (continued)

Income tax provision (continued)

During the years ended June 30, 2022, 2021 and 2020, the Company incurred net operating losses through certain of its South African wholly-owned subsidiaries and recorded a deferred taxation benefit related to these losses. However, the Company has created a valuation allowance for these net operating losses which reduced the deferred taxation benefit recorded. The deferred tax benefit for the year ended June 30, 2022, includes the deferred tax benefit related to amortization of intangible assets acquired in the Connect transaction.

The Company incurred a net capital gain, after the application of capital loss carryforwards, related to the internal restructuring of a wholly-owned subsidiary during the year ended June 30, 2020. The Company also generated taxable capital gains during the year ended June 30, 2020, related to the disposal of FIHRST (refer to Note 24) and the sale of DNI (refer to Note 9) but utilized capital loss carryforwards to reduce the capital gains on these transactions to zero ($0).

A reconciliation of income taxes, calculated at the fully-distributed South African income tax rate to the Company’s effective tax rate, for the years ended June 30, 2022, 2021 and 2020, is as follows:

			2022		2021		2020
Income taxes at fully-distributed South African tax rates			28.00	%	28.00	%	28.00	%
	Movement in valuation allowance		(22.05)	%	(250.16)	%	1.64	%
	Non-deductible items		(6.59)	%	(58.40)	%	(10.38)	%
	Foreign tax rate differential		0.02	%	51.21	%	(4.17)	%
	Capital gains differential		0.11	%	93.03	%	(1.59)	%
	Prior year adjustments		0.01	%	1.77	%	(0.01)	%
	Release from FCTR		(0.33)	%	-	-	(14.65)	%
	Subpart F inclusions		-	-	-	-	(2.85)	%
	Foreign tax credits		-	-	-	-	(0.08)	%
	Taxation on deemed dividends in the United States		-	-	-	-	-	-
	Transition Tax		-	-	-	-	-	-
		Income tax provision	(0.83)	%	(134.55)	%	(4.09)	%

Percentages included in the 2022, 2021 and 2020 columns in the reconciliation of income taxes presented above are impacted by the loss incurred by the Company during the year ended June 30, 2022, 2021 and 2020. For instance, for the year ended June 30, 2022, the income tax provision of $0.3 million represents (0.83%) multiplied by the net loss before tax of $( 39,900).

Movement in the valuation allowance for the year ended June 30, 2022, includes allowances created related to net operating losses incurred during the year. Non-deductible items for the year ended June 30, 2022, includes the transaction costs related to the acquisition of Connect.

Movement in the valuation allowance for the year ended June 30, 2021, includes allowances created related to net operating losses incurred during the year. Non-deductible items for the year ended June 30, 2021, includes the impact of the allowance for doubtful loans to equity-accounted investments created. The foreign tax rate differential relates primarily to the difference between the fully-distributed South African income tax rate and the rate used (21%) to measure the deferred tax liability created related to the fair adjustment to the Company’s investment in MobiKwik (refer to Note 9). The capital gains differential for the year ended June 30, 2021, represents the impact of the reversal of the deferred tax liability related to one of the Company’s equity-accounted investments following its impairment (refer to Note 9).

Movement in the valuation allowance for the year ended June 30, 2020, includes allowances created related to net operating losses incurred during the year and valuation allowances created for a deferred tax asset recorded related to the deconsolidation of CPS and other corporate transactions. Release from FCTR for the year ended June 30, 2020, relates to the releases from accumulated other comprehensive loss (refer to Note 15) that are not deductible for tax purposes. Non-deductible items for the year ended June 30, 2020, includes the option termination fee paid and the goodwill impairment loss recognized.

18.Income tax (continued)

Deferred tax assets and liabilities

Deferred income taxes reflect the temporary differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The primary components of the temporary differences that gave rise to the Company’s deferred tax assets and liabilities as of June 30, and their classification, were as follows:

					June 30,		June 30,
					2022		2021
Total deferred tax assets
	Capital losses related to investments				$	42,587	$	47,518
	Net operating loss carryforwards					40,384		36,329
	Foreign tax credits					32,671		32,737
	Provisions and accruals					3,163		2,123
	FTS patent					95		163
	Other					2,063		654
		Total deferred tax assets before valuation allowance				120,963		119,524
			Valuation allowances			(117,101)		(118,777)
				Total deferred tax assets, net of valuation allowance		3,862		747
Total deferred tax liabilities:
	Intangible assets					43,876		100
	Investments					10,354		10,354
	Other					67		87
		Total deferred tax liabilities				54,297		10,541
Reported as
	Long-term deferred tax assets					3,776		622
	Long-term deferred tax liabilities					54,211		10,415
		Net deferred income tax liabilities			$	50,435	$	9,793

Increase in total net deferred income tax liabilities

Capital losses related to investments

Capital losses as of June 30, 2022 and 2021, comprises the capital loss arising from the difference between the amount paid for Cell C in August 2017 and the its fair value as of the respective year end, of $0.0 million, and difference between the amount paid for CPS in 2004 and the its fair value as of the respective year end, of $0.0 million. The change in capital losses related to investments relates primarily to the impact of currency changes between the South Africa Rand against the United States dollar.

Net operating loss carryforwards

Net operating loss carryforwards have increased due to losses incurred by certain of the Company’s subsidiaries and the impact of currency changes between the South Africa Rand against the United States dollar, which was partially offset by net operating losses carryforwards forfeited following the substantial liquidation of certain of the Company’s subsidiaries.

Intangibles assets

Intangible assets increased during the year ended June 30, 2022, as a result of the recognition of intangibles assets related to the acquisition of Connect (refer to Note 3).

Investments

Investment increased during the year ended June 30, 2021, primarily as a result of the fair value adjustments to the carrying value of MobiKwik (refer to Note 9).

18.Income tax (continued)

Deferred tax assets and liabilities (continued)

Decrease in valuation allowance (continued)

At June 30, 2022, the Company had deferred tax assets of $3.9 million (2021: $0.7 million), net of the valuation allowance. Management believes, based on the weight of available positive and negative evidence it is more likely than not that the Company will realize the benefits of these deductible differences, net of the valuation allowance. However, the amount of the deferred tax asset considered realizable could be adjusted in the future if estimates of taxable income are revised.

At June 30, 2022, the Company had a valuation allowance of $117.1 million (2021: $118.8 million) to reduce its deferred tax assets to estimated realizable value. The movement in the valuation allowance for the years ended June 30, 2022 and 2021, is presented below:

		Total		Capital losses related to investments		Net operating loss carry-forwards		Foreign tax credits		Other
	July 1, 2020	$	106,433	$	36,721	$	32,273	$	32,799	$	4,640
Charged to statement of operations			16,376		3,532		13,264		-		(420)
Reversed to statement of operations			(14,840)		-		(13,687)		(62)		(1,091)
Utilized			(1,422)		-		(135)		-		(1,287)
Foreign currency adjustment			12,230		7,265		4,555		-		410
	June 30, 2021		118,777		47,518		36,270		32,737		2,252
Charged to statement of operations			8,119		195		7,647		-		277
Reversed to statement of operations			(301)		-		(167)		(66)		(68)
Utilized			(1)		-		(1)		-		-
Foreign currency adjustment			(9,493)		(5,126)		(4,097)		-		(270)
	June 30, 2022	$	117,101	$	42,587	$	39,652	$	32,671	$	2,191

Net operating loss carryforwards and foreign tax credits

United States

Net operating loss generated are carried forward indefinitely, but the loss carryforward that may be used against future taxable income is limited to 80% of taxable income before the net operating loss deduction.

In March 2020, the Coronavirus Aid, Relief and Economic Security Act (the “Cares Act”) was enacted. The Cares Act, among other items, provides for a temporary repeal of the 80 percent net operating loss limitation and provides temporary modifications to the limitation on deductibility of business interest.

As of June 30, 2022, Lesaka had net operating loss carryforwards that will expire, if unused, as follows:

Year of expiration	U.S. net operating loss carry forwards
2024	$	775

Lesaka had no net unused foreign tax credits that are more likely than not to be realized as of June 30, 2022 and 2021, respectively.

Uncertain tax positions

As of June 30, 2022 and 2021, the Company had no unrecognized tax benefits which would impact the Company’s effective tax rate. The Company files income tax returns mainly in South Africa, Germany, Hong Kong, India, Malta, the United Kingdom, Botswana and in the U.S. federal jurisdiction. As of June 30, 2022, the Company’s South African subsidiaries are no longer subject to income tax examination by the South African Revenue Service for periods before June 30, 2018. The Company is subject to income tax in other jurisdictions outside South Africa, none of which are individually material to its financial position, statement of cash flows, or results of operations. The Company does not expect the change related to unrecognized tax benefits will have a significant impact on its results of operations or financial position in the next 12 months.