The Global Financial Integrity has disclosed that Zambia lost over US$8.8 billion in ten years through illicit financial flows.
According to the Swedwatch report, which has also been endorsed by Diakonia and its Zambian partners, the loss is largely due to tax planning conducted by international corporations where they are said not to have been declaring the full value of their exports of minerals from Zambia.
But according to the calculations conducted by the Global Financial Integrity (GFI) in Washington, developing countries lose at least US$783 billion every year through illicit financial flows, including tax evasion. The figure represents six times more than that of the world’s collective aid budget to the same countries.
The report further states that approximately 60 per cent of Zambia’s population lives beneath the poverty datum line.
It states that despite the country having experienced remarkable economic growth during 2012 and was upgraded to a lower-middle-income country by the World Bank, it is still considered by the United Nations to be one of the Least Developed Countries (LDCs) in the world.
Swedwatch has investigated how some of Sweden’s largest multinational corporations, Ericsson, Atlas Copco, Sandvik and SKF reason and act in regard to tax payments in developing countries and in Zambia specifically.
It has concluded that, despite the fact that all four corporations have operations in Zambia, there is, in principle, no information about Zambia in the corporations’ annual accounts
statements and none of the corporations wishes to reveal any figures regarding profit and tax payments in Zambia.
The report reveals that Sandvik has a yearly turnover of approximately US$134 million and Atlas Copco has a turnover around US$114 million per year for their operations in Zambia, while SKF and Ericsson have considerable smaller operations in the country.
It notes that none of the companies have, to date, defined how they manage tax planning globally as an issue of corporate responsibility.
The report was launched in Lusaka yesterday and stakeholders, including the Bank of Zambia were present to scrutinize it.
Zambia is a country that has been hit hard by tax avoidance with the recent one involving Zambia Sugar, a company owned by Associated British Foods group.
ActionAid Zambia’s report, dubbed sweet nothings, did a research and discovered that since 2007, Zambia Sugar Company has generated profits of KR550 million and admits to paying virtually no corporate tax but just 0.5 per cent.
A new investigation released by ActionAid Zambia revealed that Zambia Sugar and its parent company, the Associated British Foods group (ABF) owners of the white spoon sugar and other household brands, was avoiding millions in taxes and that the company enjoys special tax
breaks which further reduce its tax bill in Zambia.
The report stated that the company found legal ways to avoid taxes on both profits and cross border payments moving over KR62 million a year via Mauritius, Ireland and the Netherlands.
The report further alleged that the Zambian public services such as healthcare and schools have lost an estimated KR116 million as a result of the company’s tax avoidance schemes and special tax breaks since 2007.
ActionAid Zambia has since called for urgent national and international action to end tax dodging stating that Zambia Sugar and other companies must start paying their fair share of tax in Zambia and come clean about their tax affairs everywhere they do business.
It further called on the Zambian government to close loopholes in the national tax codes and treaties and stop giving away vital funds through unnecessary corporate tax breaks.
But Zambia Sugar Company Secretary, Lovemore Sievu denied in February this year that the company was involved in tax evasion and anything illegal in its operations.
Mr. Sievu said then that Zambia Sugar was not engaged in “anything illegal, immoral or in any way designed to reduce the tax rightly payable to the Zambian government. We are very proud of Zambia Sugar and the major contribution that it makes to the Zambian economy”.
He explained that, “Since 2008 Illovo has invested KR960 million (R1.6 billion) to double the production capacity in Zambia and so create the largest sugar mill in Africa. This expansion and related activities provide employment and benefits for more than 5,000 people and their dependants”.
Mr. Sievu further said Zambia Sugar paid corporate taxes of KR27.3 million between 2006/7 to 2011/12.
“Corporate tax is clearly low during the years of the expansion which is perfectly normal, as the allowances are being utilised. Once these capital allowances have been fully utilised, Zambia Sugar will continue to pay corporate tax for generations to come,” he explained further.
He added that during the year 2008 to 2012, Zambia Sugar paid withholding taxes of KR28.7 million and customs and excise duty of KR78 million.
He pointed out that employment related taxes increased to KR136 million over the same period from jobs generated as a direct result of the expansion of Nakambala Sugar Estates.
“In addition, the increased production capacity arising from this expansion has allowed the company to earn additional foreign exchange earnings, increasing from US$78 million in 2007 to US$164 million in 2012 and as such, has been an important contributor to the economic stability of the country,” he said.
Meanwhile, the Bank of Zambia Act chapter 360 of the Laws of Zambia has been amended in Part V, which deals with international reserves and foreign exchange operations, by inserting a new section 40A and Part VI, which deals with relations with banks and financial
Institutions, has been amended by insertion of a new section 44A. Section 56 has also been amended to include a default penalty where none is provided.
The new section 40A authorizes the Bank of Zambia to take measures to monitor foreign exchange inflows and outflows and amounts remitted and also watch imports and exports of goods and other inflows and outflows.
It will also empower the Bank of Zambia to monitor international transactions in services such as international transfers to or from non-residents, profits or dividends received in respect of investments abroad and the borrowings and trade credits from non-residents plus international money transfers into and out of Zambia.
In order to operationalise the amendments, the Minister of Finance, on 29th April 2013, issued the Bank of Zambia (Monitoring of Balance of Payments) regulations 2013 whose commencement date was initially 16th May 2013 but has been moved to 1st July 2013 by Statutory Instrument No.35 of 2013.
Bank of Zambia Assistant Director for Legal Services Leonard Kalinde explained during the launch of the Swedwatch report that the recent amendments and the attendant regulations were not meant to re-introduce exchange controls in Zambia.
Dr. Kalinde stressed that government’s intention through these amendments was to improve the management of monetary policy by curbing abuses in the economy and enhancing transparency in the management of foreign exchange and the cost of credit.