Tax irregularities forces Zambia to conduct forensic audits on mining firms

The uncovering of tax evasion by a known miner estimated at 76.5 billion kwacha ($7.9 billion) has prompted the Zambia Revenue Authority (ZRA) to seek the services of an auditing or investigation firm to undertake forensic audits on mining companies in the country.

Choosing to keep the identity of the “prominent” miner anonymous, the tax authority in a statement said “We are announcing the preliminary assessment of 76.5 billion kwacha issued to a prominent mining company for misclassifying consumables and spare parts at importation for the last five years,” adding that “the said items were declared as mining machinery, which attract customs duty at zero percent, when in fact not.”

“This audit will focus on value added tax (VAT) and will also aim to identify any other areas of non-compliance with legislation, fraud, tax evasion and avoidance schemes perpetrated by the mining companies to, on the one hand, minimize their tax obligations and maximize their profits on the other,” the revenue authority said, “the firm will be required to produce a comprehensive report outlining the issues observed and recommend ways in which ZRA should conduct future audits.”

ZRA also noted that the audit would cover the last five accounting period of the mining firms, and there is the possibility of extending the year-period if it discovers “consistent, systematic, premeditated” tax evasion pattern.

Financial Intelligence Centre (FIC) assistant director, Clement Kapalu, had recently disclosed that Zambia loses US$3 billion annually to illicit financial flows from the minerals sub-sector mostly. Tax evasion malpractices such as transfer pricing, over and under-invoicing, as well as trade mispricing is rampant in the sub-sector.

As at Monday, First Quantum Minerals Ltd. was hit with a $7.9 billion tax bill from the Zambian revenue authority.