Sishen audit raises Kumba tax liability

THE South African Revenue Service (SARS) has told Kumba Iron Ore it owes it at least R1bn for 2011, adding to the R5.5bn for the previous five years.

The R1bn finding after a SARS audit of its 73.9%-held subsidiary, Sishen Iron Ore Company (SIOC), excludes penalties and interest, and could be increased once the tax authority has finalised its assessment.

Kumba’s shares fell hard on Tuesday, retreating 5.5% to R125.25, extending its five-day losing streak to 11% and valuing the company at R40bn.

“As a responsible corporate citizen, Kumba and its subsidiaries believe that all taxes owed under South African tax legislation have been paid and that we comply with all applicable tax laws in all jurisdictions in which we operate,” said Kumba CEO Themba Mkhwanazi.

SA’s largest iron-ore miner, and a 70%-held subsidiary of Anglo American has objected to the R5.5bn demand for the years 2006 to 2010.

Kumba told the market about the demand in February 2016 and has asked SARS that it not have to pay the bill until consideration of its objection to the assessment has been finalised.

“Kumba has now received a similar letter of findings from SARS in relation to the 2011 tax year, indicating potential

adjustments to the company’s taxable income, which would result in an additional tax liability of about R1bn, excluding any potential interest and penalties, should Kumba ultimately be assessed on this basis,” Kumba said on Tuesday.

“SIOC has co-operated fully with SARS during the course of the audit but, supported by its specialist tax and legal advisers, disagrees with SARS’s audit findings and will respond to the letter accordingly and within the prescribed period,” it said. A field audit was under way for 2012 and 2013.

Kumba has come through a difficult few years as it changed its mine plan to reduce the amount of waste rock it had to move to access fresh ore as well as deal with a steep fall in the global iron ore price from more than $100 a tonne to about $40 a tonne. Kumba had R5bn in total cash at the end of June and has not appeared to make any provision for a large payment to SARS. One market source said the R5.5bn included interest and penalties that were at the upper end of severity and were unlikely to be enacted.

Kumba has the right to approach the courts to contest the SARS assessment.

In its June results, Kumba noted there was a R5.5bn contingent liability, but it made no notes on a R2.9bn provision it recorded on its balance sheet, meaning the provisions were unlikely to be related to the SARS claim.

“The group believes that all matters relating to SARS have been appropriately treated in the results to 30 June 2016,” said Nikki Wetzlar, Kumba’s spokeswoman.

Group believes matters relating to SARS have been appropriately treated