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ZAMBIA Revenue Authority (ZRA) says mining companies are involved in a lot of tax avoidance to maximise profits from their operations.
ZRA said some mining firms charge their subsidiaries for transportation of copper, insurance and sea freight from mine sites to final destinations at prices higher than the industry average.
ZRA mining audit assistant director Joseph Nonde said this at the just-ended International Association of Prosecutors’ (IAP) conference in Livingstone on Tuesday.
“You find a situation where the amount charged for transport, insurance, and sea freight charge [known as realisation charge] is US$330 for a subsidiary but what is charged for an independent customer is US$125. The question is why charge a sister company higher than an independent customer,” Mr Nonde said.
He said there are a lot of tax avoidance activities that mining companies have engaged in and that the question is whether these schemes could be looked at as tax evasion.
Mr Nonde said there are situations where a mining company buys all the copper mined by a subsidiary on credit with a contract clause that payment for the copper will only be made to the subsidiary mine after the parent company sells the copper to the final customer.
He said when the sale is done, it is agreed that as a way of improving cash flow for the operations of the subsidiary, the parent company should advance money to the subsidiary before the due date based on the commercial invoices.
He said for all these advance payments, mining companies charge the subsidiary interest from the time an advance is disbursed to the time when the copper is sold to the final consumer.
“Issues are that no records in form of requests or application for advance payments are available and the said advance payments are not even taken into account when preparing cash flow forecasts,” Mr Nonde said.
He cited inadequate capacity to monitor production and quality of minerals produced and possible under-declaration of mineral content in mineral ores as some of the challenges faced in mining taxation.
Mr Nonde said other challenges faced by ZRA in taxing mines included transfer pricing, hedging transaction and possible non-disclosure of recoverable precious metals from mineral ores and concentrates.
