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% of Zambia’s population lives beneath the poverty datum line.
[pullquote]
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.
[/pullquote]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”.
[pullquote]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[/pullquote]
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.
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.
A very nice and thoughtful article. Too much money has been lost through tax evasion especially in developing countries like Zambia. The same concept is quite rife in developed countries but it is the developing countries that suffer the most. We need to close loopholes in the law. What these companies are doing is legal because the law provides for such activities. Elo if you look at these companies they tend to be subsidiaries of bigger companies that have their headquarters in the west. So they pay their tax in the west but avoiding taxation on their subsidiaries in developing countries. A ploy to increase their profits. Developing countries cant do this tax thing by themselves they needs to be a conceited effort by all to stop this disease. 8 billion. Just think how many hospitals
We need to support our government because the multi national companies have powerful governments behind them. If our president tries to go at them alone, he will find himself in trouble. Africa is in a demonic choke hold from the west.
Well said Spartan
Once our African leaders begin to think SERVICE for the people and not only their wives, kids, family and friends then responsibility will come…
We are toooo educated to allow such financial irregularities to happen…the problem is that our leaders across the continent are in bed with MNCs…
All you need is a clever Accountant Google and Apple pay less tax in the UK,it happens everywhere.It’s not new.
SI 32 pLIZ Help.
Most Zambians have been to school but lack education. How do we allow other people to take advantage of us when we have professors, doctors degree holders in all manner of fields? Amano yaba fye pa mapepela!
MY FRIEND,WHEN A FOOL BECOMES EDUCATED HE BECOMES AN EDUCATED FOOL!
This report made one suggestion, that of ”calling 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”.
Why can’t govt go further, add some more measures to the one suggested above. The Kenyan senior citizens sued for their suffering during Mau Mau uprising, and they have worn compensation.
Why can’t we assemble a team of lawyers who can use such information being availed in addition to own detailed analysis of tax avoidance and then use what we have to sue and claim back the tax the avoided to pay? How can we claim back this historic robbery that these companies have inflicted on the ever poor Zambians. We can win.
We do not need Armterdam, who is eager to take away from…
OK So what should we do to avoid this in future? Dont give us anything. we will find our own balance. We know that Europe is in recession, so we are not bothered by your findings.
Exactly my point Spartan though I do not understand the last statement. Where is yamba-yamba, Dr Lelo and the other communists and not forgetting their no value add Mushota ending every sentence with a thanks but no thanks.
Sorry boss, I got carried away. The last sentence means that we only accumulate high academic papers with nothing tangible to show for it. Its only a means of finding job and earning a fat salary with no corresponding output.
I am sure these investors know that they can get away with a lot of money in Africa. The government needs to do something. The corporations that have been culprits should be made to pay the taxes they avoided for the last five years. We need proper laws and a good revenue system. I don’t know how ZRA works but I know they are tough on small businesses from the stories I hear. Take some of those big corporations to Parliament and have it live on ZNBC and stream live on CNN, bloomberg and other major news channels and slap in the face with the news bill. You will see how their shares will plummet on the on wall street. They are taking our kindness for weakness. Apple and other big guys have been taken to parliament by the Brits to explain their tricks . We are being taken for a ride…
Quantum, well said- these are the ideas we need to be employing as a new generation and not support everything the government does or says just because you cast your vote for them and hate the other parties. We want to salvage our country not egos. As long as PF can do good by us the they can remain in power but they need to start listening. We are young, we are hungry, we have the solutions but we need to be more daring. Zambians are known for being pushovers and that’s a fact. We are civilised, in unity, tribalism is almost dead through intermarriages which is a good thing as a Lozi will not burn a ngoni village as his children are married there. The honeymoon sadly ends there. We need to harden up a bit more, say no to bullies and stamp our authority and drive our country forward.
…. I am not confused for nothing. It’s the elements and vices causing it. The political atmosphere and the status quo are not right at the moment. Cleanup these elements and I will be as good as rain and my new name will be: atlast.com. I am doing my best to that end and I will continue to do so. If we can change some mentality through cyber space then my job would have been done. Only worry is that the readership of this blog might be outside the country. Remove duty, not even a penny on ICT equipment for personal use. Remove government bureaucracy in wiring the country for Internet connectivity and encourage competition to reduce the abnormal charges in effect at the moment. Internet is now a basic human requirement and so I declare. I paid $260.00 p/m for 256kb when £10.00 is max
i know many bloggers are content and even happy to maintain their status quo of poor English just like LT! With this story we are left to wonder whether it is the “Flow” of money or the “Flaws” of money transactions which have cost us. Which leaves me wondering what bloggers above are really commenting on – I presume commenting on mis-comprehension!! Iwould encourage folks & LT to report & blog in vernacular becoz by some fat chance, you might just know what you are on about!!
@bauze,
From my experience on this forum you dare not point out spelling or grammar mistakes by LT or other bloggers because you will be told off and chided thus: ‘We are not English but Zambians and as long you know what someone is trying to say, why bother’. Any wonder why the country is stagnant, the don’t care arrogance.
… in most countries. $260 flipping dollars!
No need to guess who the culprits are. Africonnect based at the former Ridgeway Hotel now Southern Sun. These are the companies exploiting us and government has not had a sniff of what these guys are up to. I paid the price because I was on a critical mission based in Zambia and needed a dedicated line night and day with an uncapped download speeds of just 256kb, quarter of a gig can you fathom it? There goes some of the issue we face as a country. Internet is not for a rich few, flying is not for a rich few, driving is not for a rich few – on the latter I can honestly say government are passing the right legislation to help ownership of automobiles what lacks is the governments’ inability to collect revenue from transport/road use tax.
Bauze, let’s not go into semantics right now. Take your pick and replace flow for flaw where you find it suitable to please your acceptable register of the you version of the queens language. In either case, flow is herein referencing the movement of cash. Flaw in your instance is the unscrupulous movement of cash and that is what is in the title above ‘illicit’ flow. ‘flawed flow’ in your register.
Not economically independent yet. Donchi compuleni, epulogilamu
Do these NGOs know anything about business.
The only problem in Zambia is that some well young educated guys don’t want to be part of building a better Zambia for all. The fact is, most of our leaders we have at the moment are not fully educated. Yes, some political leaders do have experience because of their age but experience is not enough. Talk about precious minerals GUYZ IN ZAMBIA, WHICH CURRENTLY ARE IN THE HANDS OF FEW INDIVIDUALS. Young guys, lets fight for our country. Zambia is ours!!! We need to form a political party for the young and old serious people. PF, MMD, UPND, BWALYA’S NONSENSE IS NOT WHAT IS NEEDED FOR NOW. WE NEED TO READ THE SIGNS OF TIME GUYS. LETS GO BACK AND FIGHT FOR THE BETTER MOTHER ZAMBIA.
@bauze, there goes the English police.Ba examiner
Well said #15 these old leaders are too backward,too much politics less focus on the country and so prone to corruption it easy for these corporations to buy them and get away with a lot of things
These multinationals just use legal loopholes in the system. It’s done all over the world and even by high net worth individuals who set up charities and the like to dodge high taxes.
Glencore and its subsidiary Mopani Copper are the worst looters and crooks
Political interference is the root cause of a lot problems.
Let us put our heads together and sacrifice our learned resources to move us forward. Too much talk and no action does not add value.