Friday, March 29, 2024

BOZ to scrutinize companies’ external loans servicing, they could be used to avoid paying tax

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Dr. Michael Gondwe
Dr. Michael Gondwe

The Bank of Zambia (BOZ) says it will now strictly scrutinize all external loans servicing in the country after discovering that some of the debts are being contracted at high interest rates of up-to 35 percent on the US dollar.

BOZ Governor Michael Gondwe says it is unacceptable to contract external debts at such interest rate level when the interest rates on the international market are much lower and the US dollar lending rates in the country are also below 35 percent.

Dr. Gondwe, who could not name those charging exorbitant interest rates, notes that such a trend could be a move by some companies to avoid and evade payment of taxes.

Dr. Gondwe however states that the Central Bank will leave the tax aspects to the Zambia Revenue Authority to ascertain the tax implication of the said high interest rates being charged and related party loans.

The BOZ governor was speaking this morning at media briefing where he was highlighting the performance of the Statutory Instrument (SI) no. 55 from the time it was effected to-date.

And Dr. Gondwe has also disclosed that the Central Bank is in the process of establishing an appropriate electronic reporting and monitoring system to implement the requirements of the SI no.55 regulations.

He notes that the electronic reporting and monitoring system will have linkages to other government agencies responsible for the collection of revenue and administration of the import and export formalities.

12 COMMENTS

    • If the local financial institutions continue with their rigid lending policies, one is prompted to get money from flexible lenders regardless of interest rates. Let boss pioneer financial sector reforms, and these blue-greenish banks will become more accessible in tune with prevailing standards of the zambian impoverished economy

    • Related party loans is the reference / key word. means that these are PARENT company loans to Zambian subsidiaries. Foreign controlled companies use such schemes to repatriate earnings / profits, as interest or loan repayments are not subject to withholding tax, or other surcharges and are fully chargeable against taxable income. ZRA will now squeeze the companies and seek to deem the transaction as one other than an intra group term loan transaction.

  1. Dollar loans are 6 to 12 pc.the boz boss was very economical,why not tell which industries are loading costs to evade tax.zra should recover all lost monies.

  2. It is a legal way to evade tax, but it raises moral issues. So basically, in the eyes of the law, no offence committed. What you can do is to give this information to ActionAid so that they make a lot of noise about it. This will cause embarrassment to the suspected tax evaders.

    • You are wrong.. TAXATION is a complex filed that works on substance over any legal form. The Tax Authorities and empowering legislation (acts & SI) strengthen this position and have the power to deem transactions as they seem fit. parliament must be apt, sharp and be quick to pass legislation that closes all identified loop holes..

    • ActionAid already pointed this out in their report. BOZ is reacting to this. Zambian’s finally waking up? Thank goodness!

  3. Related party loans is the reference / key word. means that these are PARENT company loans to Zambian subsidiaries. Foreign controlled companies use such schemes to repatriate earnings / profits, as interest or loan repayments are not subject to withholding tax, or other surcharges and are fully chargeable against taxable income. ZRA will now squeeze the companies and seek to deem the transaction as one other than an intra group term loan transaction.

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