Zambia Says Tax Avoidance Led by Miners Costs $2 Billion a Year

Zambia, Africa’s biggest copper producer, said it’s losing as much as $2 billion annually to tax avoidance, with the mining industry the biggest culprit.

Only one or two mining operations are actually declaring positive earnings, Deputy Finance Minister Miles Sampa told reporters in Lusaka today.

“The other mines for one reason or another, some genuine, some not, are always making losses,” Sampa said. “Most of it is due to transfer pricing or tax avoidance. We’re looking at developing a law that will criminalize false reporting.”

Zambia’s governing Patriotic Front has opted not to impose a windfall levy on miners in favor of optimizing tax collection and doing away with fiscal incentives. Barrick Gold Corp. (ABX), Vedanta Resources Plc, Glencore International Plc (GLEN) and First Quantum Minerals Ltd. (FM) all operate mines in the country.

Businesses commonly avoid paying tax through transfer pricing, which distorts inter-division transactions so that a Zambian subsidiary appears to suffer a loss, Sampa said. In other cases, parent companies have loaned money to local units at interest rates higher than the market, creating losses.

A change in the law is being pursued to close loopholes that cost Zambia at least $1.5 billion a year, said Sampa.

“How many hospitals can that build?” he asked “How many roads can that help us to develop?”

To contact the reporter on this story: Matthew Hill in Lusaka at mhill58@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net

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