Zambia withholds tax refunds to errant firms

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Matthew Hill Lusaka

Zambia’s government has withheld as much as $500 million (R5.4 billion) in value-added tax repayments from mining companies that failed to provide importer documentation, according to two people with knowledge of the matter.

Zambia’s revenue authority was holding back the repayments after introducing rules last year that required the provision of documents from importers, the people said, asking not to be identified because the matter was not public. They estimated the amount as they did not have the exact figures.

Vedanta Resources and other mining houses in Africa’s biggest copper producer say they cannot comply with the rules because they sell to commodity traders and do not know the final destination of their output. The tax authority also stipulated that export revenue must be paid directly to a Zambian bank, while some mining companies are paid via foreign accounts.

A Zambia Revenue Authority spokesman declined to comment and Emmanuel Mutati, the president of the Chamber of Mines of Zambia, was not available for comment. Spokesmen for First Quantum Minerals and Glencore Xstrata’s Mopani Copper Mines unit declined to comment.

“Although by the letter of the law the government may be in the right, it should be pointed out that the letter of the law raises the cost of doing business in Zambia, and as a result now exposes companies to random confiscations,” Chris Becker, a market strategist at ETM Analytics, said.

Zambia lost as much as $2bn a year to tax avoidance, with the mining industry the biggest culprit, then deputy finance minister Miles Sampa said in November 2012.

The government introduced a law in July last year to better monitor exports and earnings. While copper provides about 70 percent of export earnings, revenue from the industry makes up less than 5 percent of Zambia’s budget. – Bloomberg


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