Indebted Zambia pays $400 million in VAT refunds to mining firms

LUSAKA (Reuters) - Zambia paid 8.5 billion kwacha ($400 million) in value-added tax refunds to mining companies last year, the head of the tax authority said on Wednesday, equal to about 3.5% of the external debt that the southern African country is struggling to repay.

Zambia, Africa's second-largest copper producer, is negotiating with creditors to try to get debt relief, after it defaulted on a $42.5 million coupon in November.

The economy was already struggling even before the coronavirus pandemic owing to low prices for copper, its main export, and the IMF had classified it as in debt distress.

The VAT refunds to the mining sector represent 67% of the total such refunds made, Zambia Revenue Authority (ZRA) Commissioner-General Kingsley Chanda said at a media briefing, adding it was "in line with our desire to dismantle all outstanding refunds."

Zambia's Chamber of Mines President Goodwell Mateyo said the government still owed around $1.6 billion in VAT refunds to mining companies as of the end of 2020.

"It is encouraging that the government is paying VAT refunds as and when they arise, but there's still the matter of (the VAT) ... backlogs," he said.

Mining companies operating in Zambia include Barrick Gold, First Quantum Minerals, Eurasian Resources Group, and Glencore, which is in the process of selling its majority stake in the Mopani copper mine to Zambia's state mining investment arm.

(Reporting by Chris Mfula; Additional reporting by Helen Reid in Johannesburg; Editing by Tim Cocks and Mark Potter)