The Companies Act No.18 of 2011 defines a director in broad terms and makes no distinction between executive and non executive directors. This may have been workable ten years ago, but today governance roles have become far more specialised.

Executive directors are part of the organisational structure. They manage daily operations and clearly fall within the employment income category.

Non executive directors operate differently. They do not engage in operational management. They often serve multiple boards and maintain independence that is inconsistent with the characteristics of an employment relationship. Yet the law does not provide clarity on whether their fees should be classified as employment income or business income.

This silence has become a source of compliance risk.

Why the Old Tests No Longer Work

The Revenue Services Lesotho still relies on traditional employment indicators such as continuity of service, provision of working tools and workplace location. These indicators no longer match the realities of modern board work.

Virtual board meetings have removed the relevance of a fixed workplace.

Company provided laptops blur the question of tools of trade as these devices facilitate governance administration rather than operational labour.

Directors exercise independent judgment rather than supervised work which makes the control test outdated.

The mismatch between modern governance practices and traditional tax tests results in misclassification and uncertainty.

The Reality: Companies Must Interpret the Law Themselves

In the absence of statutory guidance, companies adopt different approaches based on their own interpretations.

• Some apply 20 percent PAYE which treats the director as an employee.
• Some apply 5 percent or 10 percent withholding tax which treats the director as an independent contractor.
• Some apply the 30 percent rate assuming that directorship constitutes an ongoing economic activity.

These positions are not driven by legal certainty but by risk management. What a company files with the RSL does not determine the true nature of the relationship. It is merely an administrative stance. Errors in classification, however, can expose both the organisation and the director to significant compliance and financial consequences.

Why This Issue Matters Now

Lesotho is digitising its tax systems and updating elements of its corporate regulatory environment. At the same time, boards are becoming more sophisticated and increasingly cross border. Non executive directors are often independent professionals who serve in advisory and oversight roles across multiple entities.

Uncertainty in tax treatment affects corporate compliance, investor confidence, director recruitment and overall governance integrity. A growing economy requires clarity especially in areas that directly affect personal tax liability.

A Call for Regulatory Guidance

It is time for the Revenue Services Lesotho and policymakers to establish a uniform position on the taxation of non executive directors. This does not necessarily require an amendment to the Companies Act. Administrative guidance alone would significantly improve consistency.

Where the law remains unclear, the contra proferentem principle applies which means ambiguity is interpreted in favour of the taxpayer. While this protects directors in dispute scenarios, it does not provide the certainty companies need to structure remuneration or plan compliance processes.

Clarity in this area is vital for the credibility of the governance system.

Conclusion

Lesotho’s boardrooms have evolved, but the laws governing the tax status of directors have not kept pace. Remote attendance, digital governance tools and new fiduciary expectations have transformed board participation. Traditional employment tests no longer provide accurate classification.

Modern corporate practice requires modern tax interpretation. Until clear guidance is issued, companies should seek specialist legal and tax advice when structuring director remuneration to reduce compliance risk and protect both the organisation and the individuals who serve on its board.