Zambia Sugar's Bitter Predicament

It is never fun to watch or read about how Zambia’s investment decisions are not benefitting as many people as they should be. First we had the BBC release a documentary on Mopani Copper Mines and how it is avoiding paying taxes to the government. While we were still recovering from this revelation Action Aid goes ahead and releases a report called ‘Sweet Nothings’ about how Zambia Sugar has successfully and lawfully managed to pay as little tax as they can. Action Aid’s investigative report has made Zambia Sugar’s public relations department go into overdrive as they attempt to salvage their image in the public’s eyes.

So who are Action Aid in the first place and why should we care about their report? Well in their own words, “We’re an international organisation, working with over 15 million people in 45 countries for a world free from poverty and injustice.”  This makes them a pretty credible organisation that has done their homework and has put their organisations name on the line by boldly releasing the report. In the other corner is Zambia Sugar which is owned by Illovo Sugar Ltd in South Africa who the report has been written about. If you have been reading the daily newspapers in the past week you would have noticed the full spread adverts from Zambia Sugar highlighting its social corporate responsibilities activities and press statements all in attempts to counteract the report.

According to the Sweet Nothings report Action Aid are claiming that Zambia Sugar which generated about KR 550 million are virtually paying no tax in Zambia only about 0.5% of that profit is paid in tax. This translates to KR275, 000. The report does admit that Zambia Sugar are doing nothing illegal, Zambia Sugar are playing within the law and are milking it for all its worth. This is where Action Aid has an issue with Zambia Sugar, raising an ethical question more than accusing them of Tax Evasion.

The manner in which Zambia Sugar are avoiding tax is a complex web that is rather complicated to understand. I will try my best to explain it the way I understood it from the report and based on my text book accounting knowledge. Zambia raises revenue (money) for civil servants salaries, building roads, schools, putting medicines in hospitals from taxes. There are various taxes in Zambia and one of these is corporate tax which Zambia Sugar is supposed to pay. The taxes are paid on profits made during the financial year, now this is where it gets interesting. Profit is arrived at by the income less expenses, the net effect of this is what gets taxed.

The report suggests that Zambia Sugar deliberately inflates its expenses in order to reduce its taxable profits. It does so by charging high management fees (for specialists, consultants, engineers etc) from Ireland who work at Zambia Sugar. Under our tax regime, management fees are supposed to be taxed at 15% with what is known as withholding tax. However, Zambia and Ireland have some kind of tax treaty signed some four decades ago that states that no withholding tax is to be charged on income earned from either country. My reader this is the first way in which Zambia loses out on the tax in what is popularly known as transfer pricing. There are more intricacies such as Zambia Sugar moving profits from Zambia to Ireland, to Netherlands and then Mauritius taking advantage of the tax havens. In order for Zambia to attract investors it provides tax holidays in the form of capital allowances. This is to allow companies to get back their investment on things like equipment, building facilities costs; until they recover they are excused from taxes. Zambia Sugar undertook an expansion project in 2007 hence qualifying for the capital allowances. This meant Zambia Sugar was also not paying taxes. The issue that the report raises is that corporate tax in Zambia is 35%. However, Zambia Sugar classifies itself as a farming operation and according to our tax laws were paying only 15%. Recently, this tax has been reduced further to 10% meaning lower taxes.

Sweet Nothings states that these are taxes if paid would improve the livelihoods of many Zambians, such as pay for the education of 180, 000 pupils. The report goes further to state that Zambia Sugar has not done that much for Mazabuka the community in which it operates in relation to the profits it is making. They are of the strong view that it is ethically wrong for Zambia Sugar to avoid paying taxes and it should own up and start contributing more to the revenue coffers. They make a pretty strong argument for this.

After the report came out, Action Aid is calling for a campaign to bring attention to this issue. Facebook was also abuzz with people advocating the boycott of Zambia Sugar and settle for options such as Kafue Sugar and Kasama Sugar.  Words such as being, ‘Ripped off’, ‘Useless Investors’, ‘Cheating Us of Our Resources’ were being tossed around. I too was initially furious and livid until I read the report. It was a really painful read and I became even more livid and upset not at Zambia Sugar but at our very own weak and inadequate laws.

Zambia Sugar did not create the laws, they found them and they have found a way to work within them. We cannot blame Zambia Sugar if our tax laws allow it to pay lesser tax. Let us not forget that they are in business and are not a charity organisation. Their main aim is to make profits and not to make the community happy by building roads and schools that is not their responsibility, it's governments. It is like if Game has their products on sale, would you go there and say give me the original price before the sale because I know you have employees and you need to pay them. Only an insane person would do that, they put their products on sale so you will buy them at that price. They are the ones who made the terms and conditions and you accepted. This is simply what Zambia Sugar is doing period.

We should be marching, protesting and throwing tantrums for our tax laws to be changed. We should not deceive ourselves that Zambia Sugar are the only company taking advantage of the tax loopholes, many companies are doing it in this country. But how many reports are we going to write exposing issues that we already know need to be fixed. We need to ask how we can fix the situation because we know it is broken. In order to mend it we need help. From the report I read, I do not think that Zambia has the capacity to have done such an in depth investigative report.  I would rather we pay Action Aid the millions to expose such irregularities instead of wasting it on bye-elections that are meant to benefit a few. May the so-called intellectuals and think tanks of this country please start screaming on top of their voices so that they may be heard. This is one protest I would gladly join. Vala jombo monko.

The only way I see Action Aid and Zambia Sugar putting an end to this war that is happening in the papers is to have a panel discussion and talk it through and then let us be the judges. This is a debate which borders on an ethically right issue versus a profit maximisation issue. Until that day, all we can do is take sides and hope that this report will not be shelved after a few weeks and we will go back to talking about Chipolopolo and Lionel Messi. As to whether the next time I go do my grocery shopping I will be picking up Zambia Sugar or Kafue Sugar only time will tell.

Please read the report ‘Sweet Nothings’ by Action Aid and make your own conclusion.