Media statement on ActionAid report
10 February 2013
With limited detail, ActionAid has attempted to use Zambia Sugar’s tax affairs to gain publicity at the expense of accuracy.
Illovo denies emphatically that it is engaged in anything illegal, immoral or in any way designed to reduce the tax rightly payable to the Zambian government. We are very proud of Zambia Sugar and the major contribution that it makes to the Zambian economy.
Despite Illovo’s attempts to persuade ActionAid to improve its report by correcting errors and introducing more balance into its analysis, ActionAid has decided to publish a highly inflammatory account of the company’s tax position that is incomplete at best and factually wrong in places. Illovo has engaged openly with ActionAid to set out the correct position. ActionAid has failed to reflect this in its report. ActionAid has clearly decided that its campaign should take priority over the facts.
Illovo does not engage in aggressive tax planning. In fact, the group has an open and transparent relationship with all the tax authorities in the jurisdictions in which it operates. For the year ending 31 March 2012, the Illovo Group’s effective tax rate was 30.3%. The group has paid R1.3 billion (£120m) in taxes over the last five years and collected another R1.9 billion (£180m) in employment and sales taxes.
Illovo’s contribution to Africa is not limited to tax payments. The group employs 14,500 permanent employees and another 17,000 seasonal workers, and its substantial investment in facilities has brought huge benefits to the African nations in which it operates, including Zambia, the country which ActionAid has selected for particular focus in its report. The group’s businesses form the economic and social backbone of the local communities in which they operate, providing infrastructure, healthcare facilities and schools.
In Zambia itself, Illovo invested R1.6bn (£150m) to double the size of the sugar mill and improve productivity – gains that will benefit the nation for many years to come. The mill and related activities provide employment for more than 5,000 people. As a direct consequence of this investment in a sustainable business, capital allowances and tax incentives were available to the company as they are to other investors. The availability of these reliefs in Zambia serves to attract this type of long-term, substantial investment in the country in the same way that similar forms of relief are available to investors in most countries – including the UK. The mill and its associated operations will be making a substantial tax contribution for many years after the reliefs have expired. Rather than denigrate this investment, ActionAid should welcome it as an example of how governments in developing economies can drive economic growth by attracting inward investment, bringing long-term economic benefits to local communities. African governments should be as free as any other to attract investors.
ActionAid’s report alleges that Zambia Sugar pays fees to other parts of the Illovo group in order to reduce tax. This is absolutely not true. These payments are made in return for the services of real people, doing real jobs, adding real value in Zambia and have nothing to do with tax planning. There are no royalty payments, no franchise agreements. The payments are for export services, third party contractors, and expatriate personnel in Zambia. The payments are charged at cost, and there is no artificial reduction in profit in Zambia sugar as a result. The payments simply reflect the reality of the group’s operations.
Moreover, the ActionAid assertions are clearly illogical. There is no tax advantage in moving profits from Zambia where the tax rate is 10%, to other group companies where the income would ultimately be taxed in South Africa at 28% due to specific South African tax rules. If it were engaged in this activity, this has to be an example of spectacularly unsuccessful tax planning where profits are shifted into higher tax regimes.
Illovo believes that ActionAid’s work on the ground in many countries is laudable. However, this report is clearly designed with political campaigning in mind. It is inaccurate and misleading. As such, it demeans ActionAid and undermines the trust that should help NGOs and business to work together to bring swifter economic and social prosperity to communities in Africa.
For further information please contact:
Citigate Dewe Rogerson
Chris Barrie / Clare Simonds
Tel: 020 7638 9571
Mobile: 07968 727289