*Sum includes $900 million of value-added-tax payments
*Minister says government committed to passing new mining code
16 September 2017, London — The Democratic Republic of Congo’s main business federation said miners are facing financial difficulties because the state failed to reimburse more than $1.2 billion of taxes and duties, as it warned a proposed new mining code may cause the industry to slow.
The sum includes non-reimbursed value-added-tax payments and customs duties, along with an unduly collected minimum tax on earnings, the Federation des Entreprises du Congo’s president, Albert Yuma, said in a Sept. 11 letter to Mines Minister Martin Kabwelulu. Withheld VAT reimbursements account for as much as $900 million of the amount, the federation’s managing director, Kimona Bononge, said by phone from the capital, Kinshasa, on Wednesday.
The outstanding VAT credits are causing “serious difficulties for the finances of actors present in the DRC,” according to the letter seen by Bloomberg and verified by the federation. The state’s failure to release the funds is “comparable to an interest-free and maturity-free loan,” it said.
Congo is the world’s largest source of cobalt, a key ingredient in batteries that power everything from Apple Inc. iPhones to Tesla Inc,’s new Model 3 electric car, and Africa’s biggest copper and tin producer. The government halted VAT on imports by mining companies for a year in July 2016 to prevent existing arrears from increasing. Finance Minister Henri Yav Mulang extended the waiver last month.
The government is working to find a solution, according to Kabwelulu, who said by text message Friday that there was “no problem” regarding the subject.
The letter also addressed the government’s plan to introduce a new mining code, which would increase taxes and royalties for companies. Kabwelulu said in May that a revised code will be presented to parliament, though a date has yet to be set. The same draft legislation was withdrawn in 2015 because of a decline in metal prices and industry opposition.
“The code constitutes for us true reform of the mining sector,” Kabwelulu said Friday. “For us, there is no more retreat, the code must pass.”
Modifying the law “presents the risk of slowing down the activities” of the mining industry, the federation said.
The federation also rebuffed a request by the government that mining companies exchange dollars for Congolese francs. The government is short of foreign exchange — the central bank said on Sept. 8 its reserves have fallen to $667 million, the equivalent of less than three weeks of imports.
Read a related article about dispute over foreign-exchange
Chamber of Mines Vice President Simon Tuma-Waku said in an Aug. 31 letter to Kabwelulu that the government had requested “the transfer of foreign currency repatriated to the bank accounts of mining operators resulting from the repatriation of 40 percent of sales revenue.” The country’s mining code requires miners to repatriate that value of their sales to Congo. The chamber is part of the federation.
Mining operators are conforming to the law and repatriating at least 40 percent of revenue in the form of taxation, salaries and paying local suppliers, according to both letters. The chamber’s members “do not have an obligation to convert into Congolese francs or to sell the sums repatriated in foreign exchange to the Congolese central bank,” Yuma said in his letter.
Mining companies may be open to the central bank purchasing foreign currency from them on the same terms as commercial banks, provided it can offer more favorable conditions, according to Yuma’s letter.
While there is no legal obligation for miners to transfer their foreign exchange to the central bank, the “FEC, as a partner, could temporarily support the state at this time when the economic situation is difficult,” Kabwelulu said.
*William Clowes – Bloomberg