Behind Zambia’s decision to clear Gemfields of tax evasion
The Kagem probe is one part of a wider effort by the government to track down billions it is suspected of losing to foreign miners
Gemfields subsidiary Kagem, the world’s largest emerald mine, has been cleared of any wrongdoing by the Zambia Revenue Authority following a probe into alleged tax evasion.
JSE-listed Gemfields, a world-leading producer of coloured gemstones and owner of the Fabergé jewellery brand, announced on Tuesday that the country’s tax authority’s four-month long investigation had found no wrongdoing by Zambian-based Kagem, which produces a quarter of emeralds globally.
The investigation began on August 16 when the tax authority served two search warrants during a raid at Kagem and which authorised to take wide-ranging documents and files including those used by the company, and an onsite service provider, to allegedly “evade the payment of value added tax, income tax, withholding tax and other taxes”.
Each year, the Zambian government is believed to lose billions in illicit financial flows mainly related to its mineral resources sector. The Kagem probe is one part of a wider effort by the government to derive more benefits from the sector.
SP Angel analyst John Meyer said the investigation into Gemfields’ operations had come as a surprise but was just one in a raft of probes into the tax affairs of foreign miners in Zambia, which was sparked years ago by “revelations” that Vedanta Resources, another multinational mining in Zambia, made use of transfer pricing through an entity in Dubai to avoid paying tax on exports.
Anil Agarwal, founder and chair of Vedanta, an India-based resources company, told a business forum in 2014 that its Konkola copper mines in Zambia made $500m a year. Meanwhile, the Vedanta subsidiary had declared a loss at the end of its 2013 financial year.
“The news upset many in Zambia who demanded a broader investigation into many, more honest and honourable, miners,” Meyer said.
In 2018 the revenue authority embarked on an audit of all major mining companies and, according to Reuters, slapped Konkola Copper Mines with an $18m bill.
Eugene Chungu corporate affairs manager at Konkola Copper Mines said the company paid all taxes according to Zambian laws and was one of the country's largest tax payers.
“All the issues raised in the query have been duly addressed by KCM in the past,” he said. “We are, and have always been, committed to transparency in all aspects of our work.”
Chungu said the company is audited by one of the big four international audit firms and conducted all its business transactions on an arm’s length principle either when dealing with Group companies or other companies.
“Kagem was an obvious entity to investigate due to the valuation of emeralds in Zambia for export though the sale process is relatively simple and straightforward,” said Meyer.
In Tuesday’s statement, Gemfields said the Zambian Revenue Authority has advised Kagem that the matters it had been looking into have been suitably addressed. “There were no findings of wrongdoing or late payment … and as such no penalties were levied,” it said.
The company said the tax authority confirmed the investigation was now closed.