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Zambia Said to Withhold Up to $500 Million of Mine Refunds

Zambia’s government has withheld as much as $500 million in value-added tax repayments from mining companies failing to provide importer documentation, according to two people with knowledge of the matter.

Zambia’s revenue authority is holding back the repayments after last year introducing rules requiring the provision of documents from importers, the people said, asking not to be identified because the matter isn’t public. They said they estimated the amount because they don’t have the exact figures.

Vedanta Resources Plc (VED) and other miners in Africa’s biggest copper producer say they can’t comply with the rules because they sell to commodity traders and don’t know the final destination of their output. The tax authority also stipulated that export revenue must be paid directly to a Zambian bank, while some mining companies are paid via foreign accounts.

Mumbuna Kufekisa, a spokesman for the Zambia Revenue Authority in the capital, Lusaka, declined to comment. Emmanuel Mutati, president of the Chamber of Mines of Zambia, couldn’t immediately comment when called on his mobile phone. John Gladston, a spokesman for First Quantum Minerals Ltd. (FM), and Cephas Sinyangwe, a spokesman for Glencore Xstrata Plc (GLEN)’s Mopani Copper Mines Plc unit, declined to comment.

“Although by the letter of the law the government may be in the right, it should be pointed out that the letter of the law raises the cost of doing business in Zambia, and as a result now exposes companies to random confiscations,” Chris Becker, a market strategist at ETM Analytics in Johannesburg, said in a note today.

Tax Avoidance

Zambia loses as much as $2 billion a year to tax avoidance, with the mining industry the biggest culprit, then Deputy Finance Minister Miles Sampa said in November 2012. The government introduced a law in July to better monitor exports and earnings. While copper accounts for about 70 percent of export earnings, revenue from the industry makes up less than 5 percent of the country’s budget.

Vedanta’s Konkola Copper Mines took the revenue authority to the High Court in Lusaka over a 3.2 billion kwacha tax bill relating to a retrospective 16 percent VAT charge on exports from January 2011 to March 2013. Joy Sata, a spokeswoman for Konkola, didn’t return calls seeking comment.

Zambia copper output increased 21 percent to 916,000 metric tons in the first 11 months of 2013 from a year earlier, according to the Bank of Zambia. With some operators paying other companies to smelt their copper concentrate, there may be some double-counting as both are required to report the production, the Chamber of Mines said last week. Output last year was probably less than 700,000 tons, it said.

The biggest producers include First Quantum, Mopani, Konkola and Barrick Gold Corp. (ABX), which owns the Lumwana copper mine in the northwest of Zambia.

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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