Tax evasion worries Bank of Zambia

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SOME business houses are charging high interest rates on external loans as part of schemes to evade tax, the Bank of Zambia (BoZ) has disclosed.
BoZ Governor Michael Gondwe, who described the high interest rates as unacceptable, said the central bank has instituted proceedings to scrutinise the matter and establish whether there are elements of tax evasion in the transactions.
“We suspect that some of the high interest rates and related party loans could be vehicles for avoiding and evading taxes. These will be strictly scrutinised before the unique identification document can be assigned,” he said.
The BoZ chief was speaking at a media briefing in Lusaka yesterday.
He said it is unacceptable to contract external debt at interest rates of up to 34 percent to the US dollar, especially given that the levels on the international market are much lower and US dollar lending rates in Zambia are also much lower.
Dr Gondwe said the Zambia Revenue Authority will take up the responsibility of checking on the tax implications of unrealistically high interest rates and related party loans.
The central bank is also working with the ZRA to endorse the requisite export and import monitoring forms that are expected to validate the movement of goods in and out of Zambia.
On the implementation of Statutory Instrument (SI) number 55, Dr Gondwe said there has been overwhelming support and feedback from industry and the public.
Commercial banks have been supportive of the instrument and have put in place mechanisms of implementing it, he said.
Dr Gondwe said under SI 55, the central bank monitors all inflows and outflows of foreign exchange and all transactions relevant to the country’s balance of payments.
BoZ has put in place a SWIFT Inform mechanism which is capturing all inflows and outflows through this platform and a technical team of ZRA and BoZ officials has been formed to constantly liaise on issues regarding the SI.
Dr Gondwe said BoZ is in the process of establishing an appropriate electronic reporting and monitoring system to implement the requirements of SI 55 and will also work with ZRA on the enhanced Asycuda World, expected to become operational in October this year.
He reiterated that the issuance of SI 55 did not amount to the re-introduction of exchange controls as believed but is an instrument to provide credible BoP statistics to inform policy interventions and the economy better.
Meanwhile, the governor says the country’s copper potential is huge and projects that end-year production would be higher than last year’s output.
He said Zambia has large investments in the mining industry and expects the sector to continue contributing positively to the country’s development.