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Zambia slaps miner First Quantum with $8bn tax bill

For unpaid import duties.

First Quantum Minerals said on Tuesday that Zambia’s tax agency had slapped it with 76.5 billion Zambian kwacha ($8.04 billion) bill for unpaid import duties, a potentially huge blow for the Canadian miner that earns most its profit in the southern African country.

First Quantum, which owns two copper mines in Zambia and has a market value of $11 billion, denied it owed the funds.

The tax assessment would be a “new significant risk for the company”, Jefferies analyst Christopher LaFemina said in a client note, as almost half of First Quantum’s estimated value and around 80 percent of its estimated pre-tax earnings in 2018, come from its Zambian copper assets.

First Quantum’s stock dropped 12.4% to C$18 on the Toronto Stock Exchange before it was halted.

The massive tax assessment comes at a time when host governments, including Indonesia, Tanzania and Democratic Republic of Congo, are demanding a bigger slice of revenue from miners amid rising commodity prices.

“The company unequivocally refutes this assessment which does not appear to have any discernable basis of calculation …” First Quantum said in a statement. The miner said it would continue working with the Zambian Revenue Authority (ZRA) to resolve the issue.

The ZRA said earlier on Tuesday it had issued a preliminary tax assessment of 76.5 billion Zambian kwacha to an unnamed “prominent mining company” for classifying imported goods as mining machinery, which attract no custom duty. The assessment is nearly double the total amount the country collected in taxes in last year.

TD Securities analyst Greg Barnes said in a note to clients that he found it “difficult to reconcile the ‘misstatement’ of around $8 billion of imports with First Quantum’s reported operating and capital costs, which were around $8 billion for the same period.

The import duty on items other than mining machinery ranges from 15 to 25%, ZRA said. It said the company had been engaged in the conduct for the last five years.

ZRA’s assessment suggests the total value of goods imported was between $30 billion and $51 billion.

Almost a year ago, tax chief Kingsley Chanda invited companies and people living in Zambia to declare their hidden assets as part of a tax amnesty. There are dozens of mining companies operating in Zambia, mainly extracting copper, including global miners Vedanta and Glencore.

ZRA said it has started detailed audits on all companies for compliance.

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That old trick! Slap on a fine or a tax. Seems to be a new government revenue stream for successful companies operating in Africa! Remember MTN in Nigeria…or Glencore in South Africa. And now talk that Tiger Brands are facing a R1billion fine here now.
But this sort of corporate highjacking started in India, if I’m not mistaken – with Nestle having to pay the government a huge fine for supplying low grade baby milk!
To face fines over and above increased corporate tax, is such a disincentive – yet another case of killing the goose that lays the golden egg!

Make sure that egg is really gold and not just gold plated (the corporates are their own worst enemies, they supply crap and then expect payment for that, aka the dog/cat food with the bad stuff in it, listeriosis, addictive opiate pain killers handed out like sweets by US pharma and more).

End of comments.

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