Congo’s Government Drops VAT on Imports for Mining Companies

(Bloomberg) -- Democratic Republic Congo will suspend value-added tax on imports for mining companies to ease operating conditions for struggling miners, Finance Minister Henri Yav Mulang said.

In April, the government ordered the central bank to temporarily stop reimbursing VAT in order to reduce pressure on the domestic currency. That suspension remains in force and the country has now agreed to halt the collection of VAT on imports in the mining industry for 12 months to prevent tax arrears owed by the government, currently estimated at $750 million, from increasing further, Mulang said Thursday.

“The global conditions are already difficult for mining companies and we cannot afford to create further problems through the non-reimbursement of VAT,” Mulang said by phone from Kinshasa. “It is the mining sector that drives economic growth in this country, we need to reassure them.”

The drop in the price of copper in the last year has cut operating margins for miners including Freeport McMoran Inc. and Glencore Plc in the copper-rich Katanga region and slashed revenues for Congo's government. The state has reduced its economic growth forecast for the year from 9 percent to 5.3 percent and seen foreign exchange reserves fall from $1.5 billion in December to $1.17 billion last month.

Copper has declined 15 percent in the past year and traded at $4,691.50 at 7:02 a.m. on the London Metal Exchange. The metal, used in pipes and cables, peaked at $10,190 a ton in 2011.

The decision to temporarily suspend the reimbursement of VAT was intended to protect the value of the Congolese franc, which has weakened against the dollar this year, but placed further strain on mining-company cash flows.

The government had wanted to halt VAT on imports for mining companies sooner but was delayed by legislative hurdles, Mulang said. In the next 12 months the government will seek to reduce the size of its VAT arrears and increase revenue collection to improve its ability to reimburse, he said.

The government decree, which was approved at a cabinet meeting July 7, will now be signed by the prime minister and counter-signed by the minister of finance before it comes into effect, he said.

To contact the reporter on this story: Tom Wilson in Kinshasa at twilson128@bloomberg.net. To contact the editors responsible for this story: Karl Maier at kmaier2@bloomberg.net, Jacqueline Mackenzie, Andre Janse van Vuuren