Getting Tough Zambia clamps down on tax avoidance

The Zambian government has started enforcing tougher legislation to plug tax avoidance loopholes and curb transfer pricing by multinational corporations, which government says prejudices the state of close to US$2 billion annually.
Zambia, Africa’s top copper producer, recently signed into law Statutory Instrument 32 of 2013 (SI 32), introducing a raft of measures to monitor companies’ transfers of money earned from exports of goods and services.
While the law is generally targeted at every company that exports goods or services in excess of US$10 000, it is likely directed at the mining sector.
Apart from copper, foreign companies are also heavily invested in Zambia’s manganese and gemstones.
SI 32 came into force on May 16, 2013, and all companies are now subject to stricter monitoring and regulation by Zambia’s central bank.
The new law says an “exporter shall, within sixty (60) days of the date of shipment of any goods, remit the proceeds of the exports” into a commercial bank in Zambia.
Failure to comply with these provisions can result in up to 10 years in jail for offending company directors and management staff.
Companies are now compelled to provide supporting documents and to seek clearance should they require transferring money offshore; be it for dividends payments, loans repayment, payments of management fees or payment for imported equipment.
Companies that secure loans offshore are also compelled to disclose to the central bank details on rate of interest, tenure of the loan and the repayment schedule.
“The Bank of Zambia (BoZ) shall, in relation to outflows, monitor ‑ the value of any imported goods, the value of imported services, including management services, any amounts remitted out of Zambia whether unrequited or otherwise, the amounts if any, deposited abroad but generated by a person resident in Zambia from the supply of goods produced or services rendered in Zambia,” reads part of SI 32.
“The BoZ shall, in relation to inflows, monitor the value of any goods or services exported out of Zambia, profits or dividends received in respect of investments abroad, borrowings from non-residents, investment in the form of equity from abroad, investments in the form of debt securities from abroad and receipts of both principal and interest on loans to non-residents.”<br /> The central bank has also been given the power to monitor the value of imported or exported services or goods to or from non-residents, value of international transport and international money transfers in and out of Zambia.
“An exporter, or importer, shall open and maintain a foreign currency denominated account with a financial service provider for the purposes of these regulations,” SI 32 says.
Major mining companies in Zambia affected by the new regulations include Vedanta Resources’ Konkola Copper Mines, Glencore’s Mopani Copper Mines, First Quantum Minerals, Barrick Gold, Jinchuan and China’s CNMC among others.
In 1996, Zambia liberalised its Foreign Exchange Act to allow investors to externalise 100 percent of their profits.
The changes, Finance Minister, Alexander Chikwanda, said, were made in good faith and did not mean amount to enforcement of exchange controls.
“Exchange controls will never be introduced again in Zambia, at least not under this government,” Minister Chikwanda said.
“How do you plan your economy without sufficient information? We have introduced this law to know what goes on in the economy,” he added.
Vice-President Guy Scott recently said the government wanted to improve the livelihoods of ordinary people through its policies.
He said they were putting in place incentives to retain and attract investors.
BoZ Deputy Governor, Dr Bwalya Ng’andu, said the new regulations were designed to improve Zambia’s economic competitiveness.
“Regulation exists everywhere and in our case, it was necessary given the level of opening up that we did when the markets were freed after 1991,” Dr Ng’andu said.
Commerce and Industry Permanent Secretary, Stephen Mwansa, said the new law would bring sanity because multi-nationals had been allowed to “rob Zambia blind”.
“The decision to seal the loopholes will ensure that Zambia gets its fair share of money that is being generated here and put a stop to bogus companies that make fake external management fee pay-outs and sometimes service non-existent loans to parent companies abroad.”
Experts believe the law will add value to the kwacha.
They also pointed out that multinationals should not complain about the regulations because similar restrictions existed in their own home countries.
However, Chamber of Mines GM, Fred Bantubonse, said while the law had its advantages, it could also result in less foreign investment finding its way to Zambia.
“The new regulations will stop capital flight and compel investors to spend locally but the benefits will be very short-lived because the measures will dry up Foreign Investment and the country will be the loser,” he said.
Some foreign firms complained that they were being punished for the bad deeds of a few of their colleagues and that the government should have acted on companies that are siphoning money instead of targeting everyone.


May 2013
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