Zambia sugar responds to tax evasion charge, says did nothing illegal or immoral

Illovo/Zambia Sugar Statement on ActionAid report:

The Facts

Illovo and Zambia Sugar deny emphatically that the group is 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.
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.

Corporate taxes
Capital allowances on this investment have resulted in almost no corporate tax being payable since the investment was made. The availability of these allowances, used by governments all over the world, has nothing to do with tax avoidance. African governments should be as free as any other to attract investors.
The investment in the 2007 Nakambala expansion, which was made possible through the available and legitmate Zambia Development Agency investment incentives, has brought considerable benefits to the Zambian economy. The investment has enhanced sustainable employment and business opportunities for Zambian people. Without these investment incentives, the Nakambala expansion would not have materialised. Zambia Sugar and Illovo complied with all of the obligations specified in the relevant Investment Promotion and Protection Agreement. The multiplier effects have led to increased taxes being paid through import duty, income taxes, withholding tax and VAT for sugar sold along the sugar value chain.
Corporate taxes of KR27.3 million (rebased Kwacha), were paid 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.
It is important to note that during the five year period 2008 to 2012, Zambia Sugar paid withholding taxes of KR28.7 million and customs and exise duty of KR78 million. Employment related taxes have increased to KR136 million over the same period from jobs generated as a direct result of the expansion.
In addition, the increased production capacity arising from this expansion has allowed the company to earn additional foreign exchange earnings, increasing from US$78 million in 2007 to US$164 million in 2012 and as such, has been an important contributor to the economic stability of the country.
Management fees
Payments made by Zambia Sugar for the services of third party contractors, expatriate personnel in Zambia and export services provided by Illovo, are made at cost. As a result there is no artificial reduction in profit in Zambia Sugar. These payments are made to overseas companies, largely for commercial reasons, and are not driven by tax considerations.
ActionAid alleges that US$13.8 million is paid out of Zambia annually via “tax haven” sister companies. Given the availability of the tax losses in Zambia, generated from the capital allowances, there is absolutely no motivation for Zambia Sugar to reduce its taxable profit in Zambia. Management fees and export commissions are for specific specialist technical, agricultural, financial and marketing services provided to the company at cost. If there had been any profit mark up, then these would have ultimately been taxed at the group level in South Africa at 28%; clearly no tax motive, simply recovery of costs for specialist services provided.
Social Investment
Zambia Sugar is proud to be a good corporate citizen, complying with all the laws of Zambia and contributing to the community and small scale farmer schemes. The company’s community projects amounting to KR112.7 million over the past six years, benefit education, health, small business development, sports and culture. Zambia Sugar operates an estate with 2 900 housing units providing municipal type services such as roads, schools, potable water, electricity and security. The company will continue to invest heavily in social spend as it continues to grow.
We have responded in a transparent and detailed manner to ActionAid and despite this they have produced a report written in inflammatory language that is designed to mislead. The fact is that neither Illovo nor Zambia Sugar have ever engaged in anything illegal and it denies categorically any allegation of “tax evasion” or “siphoning of profits offshore”.
Issued by: Management

The statement was emailed the Zambian Watchdog by  Lovemore M Sievu

Company Secretary/Corporate Affairs
Zambia Sugar Plc

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