KCM drags ZRA to Court over $586 bill

Vedanta Resources Plc (VED)’s Zambian unit is suing the Southern African country’s revenue authority over a 3.2 billion-kwacha ($586 million) tax charge relating to exports of copper cathode.

Konkola Copper Mines Plc wants the Lusaka High Court to quash Zambia Revenue Authority’s decision to charge a 16 percent value-added tax on the exports from January 2011 to March this year, according to Court papers. KCM also wants the court to reverse the authority’s decision to levy the tax from July.

“There are serious legal questions to be determined with regard to the legality of the assessments,” Joel Chitambala, business controller at KCM, said in an affidavit filed on October 31, 2013. The tax charge would “heavily impact” the company’s ability to service its financial obligations, including paying workers, he said.

Zambia implemented a law in July to allow better monitoring of exports by the government, which says mining companies are avoiding as much $2 billion a year in tax. KCM’s relationship with the government has deteriorated since March amid proposals for job cuts and Zambia’s President Michael Sata threatened to cancel the company’s license after it announced a plan to retrench 1,529 workers on November 1, 2013.

KCM said Zambia Revenue Authority notified the company on June 7 that it had not complied with laws, after carrying out a tax audit in April, according to court filings. The authority said the company was required to supply import certificates from the country of destination for copper sales, KCM said in the filings.

The authority also said KCM received payments for its exports in a U.K. account instead of a Zambian one.

Tax Charge

The authority is charging the 16 percent tax on the sales because the audit found no import certificates for KCM’s copper, according to the court filings.

The ZRA, based in Lusaka, has yet to file a response in court and didn’t immediately reply to e-mailed questions seeking comment. Joy Sata, a spokeswoman for KCM, declined to comment.

KCM sells its copper cathode exports to traders including Traxys SA, Marubeni Corp. (8002) and Ambrian Metals Ltd., and is not privy to who the final buyers are or where they are located, Chitambala said in his affidavit.

The company routed sales proceeds through a UK bank account to honor loan security requirements before depositing the money in a Zambian account, KCM said.

Courtesy of Bloomberg