Johannesburg - Kumba Iron Ore tumbled 5.43 percent to R125.25 a share on the JSE after the South African Revenue Service (Sars) slapped the company’s subsidiary, Sishen Iron Ore Company (SIOC), with a secondary claim of R1 billion for the 2011 financial year, bringing the company’s total tax liability to R6.5bn since 2006.
The R1bn bill follows the hefty R5.5bn claim Sars issued against the company for the financial years between 2006 and 2010 for SIOC’s overseas sales and marketing business, to which Kumba objected. The liability included R3.7bn in interest and penalties.
Similar letter
Kumba said yesterday it received a similar letter of findings from Sars for the 2011 tax year, indicating potential adjustments to the company’s taxable income, which would result in an additional R1bn tax liability for SIOC, excluding penalties and interest.
It said its holding company Anglo American - with a R41bn market capitalisation - disagreed with the claim.
“SIOC has co-operated fully with Sars during the course of the audit but, supported by its specialist tax and legal advisers, disagrees with Sars’ audit findings and will respond to the letter accordingly and within the prescribed period,” the company said.
Kumba said the field audit, covering the 2011 to 2013 years of assessment, was in progress.
Chief executive Themba Mkhwanazi said Kumba and its subsidiaries believed that all taxes owed under South African tax legislation had been paid and that it had complied with all applicable tax laws in all jurisdictions in which the company operated.
“Kumba generates substantial value for all its stakeholders and is fully committed to the transformation of the South African mining industry and to the wider societal and economic benefits that we bring; for example in 2015 alone, a year during which the iron ore price fell sharply, our business contributed R900 million in corporate taxes and mineral royalties, R4.7bn in salaries and wages, R15.2bn in local procurement, R6.8bn of capital reinvested in the business and R174m in social investment in health, housing, education and small business development,” Mkhwanazi said.
The company said it had submitted its objection to the assessment and an application to Sars for a suspension of payment on the 2006 to 2010 financial year claim. It said it was awaiting a response on both matters.
Legal defence
Peter Major, the director of mining at Cadiz Corporate Solutions, said it was likely that Kumba would take strong legal defence in this case as a bad outcome could easily run into many billions of rands.
“This is not just about a R1bn tax bill from a number of years past. Oh no. If one adds up supposed still owed taxes of the past 10 years - as claimed by Sars, and the interest and penalties as claimed by Sars - you are talking R10bn and more, that Sars is now claiming is owed. No way that Kumba can afford to not fight these claims tooth and nail,” said Major.
He said Sars and the company would engage behind closed doors and would most likely agree on a negotiated settlement.
“But what most likely will happen is that the headlines are used to frighten each other. But then behind closed door both sides (which actually need each other) will compromise on something fairly reasonable that allows both sides to clear the past and walk away feeling they did okay. That would be my guess,” said Major.
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