A whopping tax bill for 76.5 billion Zambian kwacha, or about US$8 billion, that the Zambian Revenue Authority claims First Quantum Minerals Ltd. owes, stems from a relatively small claim of allegedly improperly applied import duties.
First Quantum broke down the tax bill on a March 21 conference call.
Chairman and CEO Philip Pascall said the US$8 billion claim relates to imports of US$540 million of equipment and consumables it brought into the country between January 2012 and December 2017 for the Sentinel mine at its Trident - Sentinel copper-nickel operation.
The tax bill includes roughly US$5.7 billion in interest, Pascall said, with US$2.1 billion in penalties and a US$150 million duty-related assessment.
The Zambian Revenue Authority alleges First Quantum did not pay the correct duties on the imports. In this case, Pascall said the company paid duties of between 0% and 15%, while the agency believes that it should have paid a 25% duty.
Addressing the claimed interest charge of US$5.7 billion, the executives were befuddled on how it was calculated. "We just don't know," First Quantum CFO Hannes Meyer said.
The penalty calculation also raised eyebrows. Meyer said there is a 300% penalty on smuggled goods but argued that could not be the case given the imports in question have documentation. A more typical penalty on duty-related issues is 5%, he said.
Pascall called the Zambian Revenue Authority's move to make the claim public "unusual," noting that such issues are usually privately negotiated with a company.
More than half of the US$540 million of equipment and consumables were imported in 2013 during Sentinel's ramp-up, Meyer said.
The imports comprise 23,000 separate bills of entry, according to Pascall, with many more line items therein. He said it would take a team of six between four and six months to go over the documentation.
Pascall also said there were some errors in the application of duties based on a preliminary review of some of the bills of entry but the errors went both ways. Sometimes the duty should have been higher and sometimes lower.
He also noted that the duties applied, which are subject to interpretation, were government approved at the time they were reported.
As of March 20, US$1 was equivalent to 9.59 Zambian kwacha.