Edited by Chiwoyu Sinyangwe
COMMENT - So the state borrows $1 billion through a Eurobond, and they don't know what to do with it? And they have the gall to say we need another Eurobond, because 'we need something for agriculture'? If they ran out of ideas, I have few ideas that not only spend the money well, but would create massive returns to the state - a concept that seems to elude the present government. And no, I don't trust the UPND, let alone the MMD who had 20 years to develop the economy. Giving borrowed money to the mines! Outrageous. - MrK
FINANCE minister Alexander Chikwanda wants the government to pay mining companies the disputed US$600 million (about K3.6 billion) in value-added tax repayments over a staggered period.
ZRA has withheld over US$600 million in value-added tax repayments to mining companies that have failed to provide importer documentation required to qualify them for VAT reclaim on the zero-rated copper exports.
“The minister [Chikwanda] says our current fiscal space is severely constrained for us to refund these mining companies of their VAT but that we can only clear the huge backlog by negotiating staggered repayments with the mining companies after we have instituted a more prompt VAT refunds regime,” according to the sources within Ministry of Finance.
The sources said the government currently did not have sufficient funds to offset the VAT refunds being claimed by mining companies.
“The minister says the only way for the government to clear this backlog promptly is to allow Treasury access some funds from the recently-acquired US$1 billion which currently was ‘sitting’ at the Bank of Zambia. Of that US$1billion Eurobond, only US$300 million has been disbursed so far and remaining the US$700 million is still with the Central Bank.”
The sources also said that Chikwanda contended that VAT General Administration Rule Number 18, which required ZRA to obtain information from importers outside Zambia’s jurisdiction had proved impractical and was blamed for delayed processing of VAT refunds for the mines.
VAT Rule 18 was aimed at assisting the government collect more accurate trade statistics.
In line with VAT general administration Rule Number 18, for any exporter to qualify for VAT zero rating of its exported goods, they must satisfy requirement which included copies of export documents for the goods bearing a certificate of shipment provided by ZRA, copies of import documents for the goods bearing a certificate of importation into the country of destination provided by the customs authority of that country.
Rule Number 18 also required exporters to provide proof of payments by the customer for the goods, tax invoices for the goods exported, documentary evidence, proving that payment for the goods has been made by the customer into the exporter’s bank account in Zambia [as introduced in January 2013], and such other documentary evidence that might reasonably be required by the authority.
But according to sources, Chikwanda had proposed that ZRA should amend Rule Number 18 to limit it to regulation and verification of exports and bank certification of receipt export proceed in order to clear the uncertainty and restore the confidence in the economy that was undermined by adjustment to Rule 18.
Last year, the government streamlined administration of the VAT refunds for the mining sector which included introducing rules requiring provision of documents from importers of copper to authenticate the final destination of copper being exported out of Zambia and the export revenue needed to be paid directly to a Zambian bank although some mining companies were paid through foreign accounts.
Konkola Copper Mines (KCM) has taken ZRA to the Lusaka High Court over a K3.2 billion tax bill relating to a retrospective 16 per cent VAT charge on exports from January 2011 to March 2013.
Some companies, including those in the mining sector, found to be complying with Rule Number 18 include KCM, Mopani Copper Mines and Zambezi Portland.
“The problem is that some mining companies and even other exporting companies allude that ‘they sell their products mostly to international traders who take ownership of the product either at the mine/factory gate or as soon as they are put in a ship at Dar es Salaam, Dubai or Durban,” the sources within ZRA said. “For purposes of VAT, a sale at the mine/factory gate is a local sale and should therefore be standard rated sale at 16 per cent of the sale and not zero-rated.”