Novi Weekly Wrap - August 31 Edition

VAT rule 18 set to be amended

Zambia plans to amend VAT rule 18 which requires exporters to produce import certificates from destination countries because of feasibility issues. The Minister of Finance wrote to the President asking that the VAT rule be limited to export verification.

What is VAT rule 18? To cut a long story short, this rule is basically there to ascertain whether an export transaction has actually taken place. The particular section in whose enforcement has led to the accumulation of over $600m in VAT refunds payable is 1 (b) which says:

“..Copies of import documents for the goods, bearing a certificate of importation into the country of destination provided by the customs authority of that country”

Why is it important? Exporters are eligible to claim a VAT refund on their exports provided that they show proof of the transaction – and provision 1(b) is an important component of that proof.

The rule has been around since 1997 but has never been fully enforced by the Zambia Revenue Authority (ZRA) until late last year. Miners are the biggest exporters in Zambia and account for over 80 percent of export revenues. Their bone of contention is that provision 1(b) is difficult to comply with as they do a lot of exporting via middlemen. The ZRA did their job according to the rule (even though it hadn’t been done for a long time!)and withheld refunds for non-compliant miners who then took legal action against the ZRA. On top of that, they flexed their muscles by slowing down or postponing capex spending.

Provision 1(b) is clearly a pain in the ass for the miners but what really matters here is that the numbers should add up i.e. miners produce X amount and Y amount is exported – which should all verifiable by relevant authorities. The rest are just details. If the numbers don’t add up then clearly someone is not playing by the rules and should be punished for it. Having said that, mining companies are light-years ahead of the ZRA in terms of skills, technology and personnel – these glaring deficiencies need to be addressed and quickly too. 

Ebola fears maroon DRC trucks at Kazungula on Zambia side

More than 80 copper and cobalt-laded trucks originating from the Democratic Republic of Congo (DRC) have been blocked from entering Botswana after cases of ebola were confirmed in the remote North-West of the country. Trucks originating from Zambia and other non-ebola affected countries remain free to enter. The block is “until further notice”. The ebola strain in DRC is not the same as the one affecting West Africa.

It’s hard to blame Botswana for their response – they have a very small population of just over 2 million people which was previously decimated by AIDS. An ebola outbreak could do further damage. Ebola is affecting people’s lives as well as their livelihoods in West Africa and DRC is also starting to feel the effects. Zambia’s borders are quite porous and very difficult to adequately monitor so it is crucial that preparation for potential outbreaks is intensified. That has already started to happen but it also needs to get to the rural areas as well – hopefully the mistakes of sim-registration sensitization are not replicated.

Data check

August inflation: 8%

ZMK: K6.04 per US dollar

LuSE all-share index: Closed Friday at 6,214.587

LME copper: $6971 per MT