DRC to suspend value added tax exemption for mining imports

The Democratic Republic of Congo (DRC) is making significant changes to its tax policies in an effort to bolster the country's revenue. The DRC, known as Africa's top copper producer, has announced the suspension of the value-added tax (VAT) exemption on imports by mining companies. This decision comes as a response to the economic challenges posed by the COVID-19 pandemic impacting the mining sector in the country. Yves Kabongo, Vice Chairman at Makutano Foundation, shed light on the implications of this move during an interview with CNBC Africa. According to Kabongo, the effects of COVID-19 have been devastating for the DRC's mining sector, with production decreases and mines being shut down. With the mining sector being a substantial contributor to the country's GDP, the government is now facing a significant loss of revenue. Kabongo highlighted that in the first half of 2019, the country had already experienced losses from the closure of major companies like Mutanda and boss mining, marking a loss of $900 million. The reduction in production by 20 to 25 percent is expected to result in the country losing over a billion dollars within a five-year span. Kabongo pointed out that the main reason behind the suspension of the VAT exemption is the need to compensate for the lack of revenue. Initially, VAT had contributed around 4 percent to the national GDP, but the government had failed to repay mining companies the collected VAT. With the current lack of revenue due to COVID-19, the government has decided to suspend the exemption to boost its cash reserves. However, Kabongo criticized this move, stating that the government still owes mining companies between 1.2 to 1.5 billion dollars. He emphasized the importance of finding a balanced and appropriate solution that benefits both parties, as mining companies require support during this challenging time, while the government needs additional revenue to address the pandemic crisis. The reaction from players in the mining sector towards the government's decision has been largely negative, given the substantial amount of money owed to them. Kabongo highlighted the possible damaging effects on companies' treasuries and stressed the importance of constructive dialogue between the government and the mining sector. Despite the negative reception, Kabongo expressed hope that discussions between the government, private sector, and mining industry players could lead to a mutually beneficial solution. When asked about the government's willingness to engage in conversations and address the outstanding debt, Kabongo noted that the government is open to dialogue, emphasizing the need for collaboration and support between the parties involved. Reflecting on the past decision in 2016 to exempt mining companies from paying VAT on imports, Kabongo acknowledged the positive impact it had on revenue generation and the country's GDP. The mining sector plays a crucial role in the DRC's economy, accounting for a significant portion of exports and government revenues. The lifting of the VAT exemption provided a much-needed break for the industry, allowing it to contribute to social services, infrastructure development, and public services. Kabongo suggested continuing this policy for the next five years to support the sector's recovery and address the challenges posed by the ongoing pandemic. As the DRC navigates the repercussions of COVID-19 on its mining industry, finding a balance between revenue generation, debt repayment, and industry support remains a critical task for all stakeholders involved.