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ZRA demands over K580 million from Airtel in indirect taxes

ZAMBIA Revenue Authority has asked Airtel Networks Zambia Limited to pay K588,213,860.23 towards indirect taxes covering the period January 2013 to December 2017.

In a letter dated July 27, 2018, addressed to Airtel Zambia managing director and signed by Zambia Revenue Authority (ZRA) excise unit assistant director Patience Siame, the authority stated that its position was based on Section 76B and 139A of the Customs and Excise Act as well as the Seventh and Eighth Schedules to the Act.

“Dear Sir, INDIRECT TAXES-ASSESSMENT AFTER AUDIT- K 588,213,860.23 with reference to the Comprehensive Audit covering the period January 2013 to December 2017 which was duly explained to you in our exit meeting held at both ZRA offices on July 25, 2018 and Airtel House on July 27, 2017, a formal assessment to Airtel Network Zambia Plc is hereby issued. Following the engagement mentioned above, our held position is that the fair assessment is K588, 213, 860.23. This comprising of K151,395,351.58 as the principal Excise duty amount, K23,326,035.95 being VAT, K4,807,411.50 as interest and K408,685,061.20 as penalty at 35 per cent of the duty paid value,” Siame stated. “The breakdown of the assessment is here provided in narrative below: 1. Airtel Mobile Commerce SMS: We would like to note that principal assessment of K19,212,476.58 in Local Excise Duty and K22,106,196.55 in Value Added Tax has been issued. Therefore, the revised penalties and interest are K48,357,305.00 and K4,412,014.07 respectively. The assessment has been revised downwards from the previously discussed assessment. This follows your submission that the current level of business for Airtel Mobile Commerce is not the same as it was at the start of the business and thus an estimate of 50 million SMS per month which is based on 2018 will be an over estimation. In that regard, the turnover ratios based on Airtel Mobile Commerce Financial Statements for the period under review have been used to come up with a reasonable volume of SMS per month. You will appreciate that this is highly considerate as it has taken into account the SMS generated in 2011 and 2012.”

Siame requested Airtel to consider the fact that Airtel Mobile Commerce and Airtel Networks Plc were two separate legal entities and that a service was provided as an SMS, which was taxable supply.

On Airtel Network Plc SMSs, Siame stated that in view of the fact that the Airtel had been supplying itself with airtime (SMS-text messages) such as its advertisement and notifications of balances, an assessment of K132,135,000.00 had been raised and that a penalty of K360,197,250.00 had been charged.

She stated that the assessment was based on the minimum estimate of 200 million of SMS that were noted to have been sent by Airtel for its various products ranging from SoChe, SoChe Daily, SoChe Weekly, SoChe Monthly and many others.
Siame stated that the penalty was charged at 35 per cent of the Duty paid Value being a second offence.

“Kindly note that consideration was given to exclude in this assessment flash messages and SMSs that are for public benefit such epidemic warnings or awareness. Airtel Money USSD Services: An assessment of Excise Duty and K59,660.00 as VAT has been made on Airtel for the USSD services that Airtel Networks provide to Airtel Mobile Commerce. A penalty of K130,506.25 has also been charged at 35 per cent of the Duty paid value. Duplicate VAT input Claims. It was also noted that Airtel claimed input VAT more than once and the duplicated VAT amounted to K1,160.179.40. In considering the time value of money, interest of K395,397.43 has been charged,” Siame stated. “100 per cent Bonus Airtime on SoChe Pack, Acquisition Offers: The final assessment on this issue will be communicated to Airtel once the proof from Airtel is verified by the auditors. Post Paid Airtime and Prepaid Airtime: We would like to advise that the final assessment on this item with regard to Credit notes will be communicated in the course of next week once the information submission on this item from Airtel is received. If the required information is not made available by August 2, 2018, the current assessment amount shall be upheld. Regarding exemptions, the position will be reviewed once guidance is provided in line with Section 92 of the Customs and Excise Act as well as Regulation 81B of Customs and Excise General Regulations.”

Siame advised that the assessment was now due and payable.

“Kindly make necessary arrangements to liquidate this amount within five working days of receipt of this letter, after which interest will start accruing pursuant to Section 171 (1) of the Customs and Excise Act and will continue to accrue for the period it remains unpaid. As for VAT, you are required to liquidate the assessment within 30 days as provided by Section 21 of the VAT Act. Further, you are advised to conduct a self-assessment for transactions after the audit period which should include correction of errors advised to avoid stiffer penalties in our next audit,” stated Siame. “Voluntary disclosure will not attract penalties. Please submit the self-assessment in the subsequent return (July 2018 return). For future return submissions, you are advised to ensure that correct taxes are accounted for, Furthermore, kindly be advised that you have the right to appeal as provided under Section 30 to 32 of the VAT Act and Section 190 of the Customs and Excise Act if you do not agree our determination.”

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