Engie, a prominent French multi-national energy company specialising in cutting edge off-grid solar solutions for villages, homes, public services, and businesses, is currently facing allegations of suspected tax evasion of over US$3 million in unmet Value Added Tax (VAT) obligations in Zambia.
This accusation comes at a critical stage for the impoverished country, grappling with substantial indebtedness of over US$13 billion, and relying on tax revenue to navigate its economic challenges.
ENGIE is a prominent international participant in low-carbon energy and services, with a presence in 31 countries, nine of which are located in Africa, including Zambia.
Engie, operating in Zambia as Engie Energy Access-Zambia, has invested US$25 million in the country over the last five years, according to a company official.
The official said this significant amount has been dedicated to providing access to clean and reliable solar energy for 425,000 families. Furthermore, she said the company currently employs 275 individuals.
Engie provides a range of solar products and services, collectively known as Solar Home Systems (SHS). These offerings include solar lights, solar TVs, solar fridges, and solar stoves.
SHS products are sold on both cash and credit terms, with customers taking ownership immediately upon completion of the purchase payment.
Allegations of tax evasion
MakanDay has obtained information suggesting that Engie has reportedly not met its VAT obligations for products sold on credit in Zambia.
This development raises concerns regarding the company's compliance with tax regulations and the potential implications for Zambia's financial stability.
Documents obtained by MakanDay reveal that while the company regularly declares and pays the Zambia Revenue Authority (ZRA) all VAT collected from customers, based on the cash price (product revenue), it has neglected to do so on the finance income, as mandated by the country’s tax law.
But Engie asserts that it has not neglected to pay, and “until now, there has been no obligation to pay tax in this regard, … as all known taxes are fully compliant”.
Reports from within the company indicate that the issue of VAT on products sold on credit was initially raised earlier in 2023 with the Engie Energy Access Global leadership.
MakanDay has established that the Engie Zambia office sought the services of Ernst and Young (EY), a global financial and tax expert, to seek a professional opinion on the issue. EY recommended that Engie adhere to Zambia's tax laws by settling VAT on the finance revenue.
Based on the September 01, 2023 EY’s tax advisory opinion document seen by MakanDay, “from the above law (the Banking and Financial Services Act) it is our view that the selling of the SHS on credit may be deemed as a financial service to the extent that it appears to be a consumer financing service”.
The BFS law provides guidance on all financial services.
EY also quoted the Income Tax Act, noting that revenue from credit sales should be acknowledged as a distinct source for tax considerations. They recommended, “it may be required that a separate entity be registered for the purposes of streamlining the financial business aspect of ENGIE”.
Furthermore, a source confirmed to MakanDay that tax experts from Engie Group held a meeting with EY Lusaka office in November 2023 regarding the same issue, and EY maintained its stance.
In October 2023, the Engie Zambia office sought guidance from the revenue authority regarding the applicability of VAT to the finance charge included in instalment payments to Engie.
ZRA advised that finance income is subject to VAT and recommended Engie to pay, according to a letter seen by MakanDay.
"We wish to advise that the finance charge is subject to VAT at a standard rate of 16%,” stated ZRA in a letter addressed to Engie. “This guidance is in accordance with Item 7(c) (iii) of the Value Added Tax (Exemption) Order, which only exempts the provision of credit and the interest component of finance leases.”
The excerpt from the Financial and Insurance Services 7(c) (iii) referenced in the letter reads: “the provision of credit and the interest component of the finance leases, excluding the principal, interest and other finance charges charged by institutions engaged in hire purchase.
Despite the recommendations from the revenue authority, it remains unclear whether Engie has made any payments.
The VAT on finance income is incorporated into the pricing of Engie products sold to customers, mostly poor Zambian farmers.
Engie Energy’s response
In response to MakanDay's request for comments regarding the allegations, the company refuted claims of tax evasion.
Through the emailed response, the company asserted, "ENGIE Energy Access will pay what is legally obliged to pay, once the experts have provided their recommendations and we have a clear answer from the authorities".
"Moreover, it should be noticed that the auditors of the company’s annual financial accounts have never flagged tax irregularities,” said Katja Damman, responding on behalf of Chief Executive Officer Catherine McGregor.
Katja also said the company fully subscribes to the importance of tax compliancy, as any non-compliance with any regulation (including tax) would constitute a formal and unacceptable breach of our ethical code and our core values. Furthermore, she stated, "The case is currently being analysed by ENGIE Energy Access tax experts, in close consultation with the Zambia tax authorities and with the support of external specialists from a reputable audit company." Zambian tax law
Under the Zambian Tax law, making incorrect or false returns and declarations is a criminal offense. Producing any false document, statement, or information is also a criminal offense, punishable by heavy penalties and/or imprisonment for up to two years. Fraudulent evasion carries severe fines, including imprisonment for up to three years.
ZRA has not yet responded to MakanDay's request for comment sent on November 27, 2023, addressed to Commissioner General Dingani Banda.
Oliver Nzala, the Corporate Communications Manager, has acknowledged receipt of the query. However, he informed MakanDay that additional time is required to facilitate a comprehensive response from the Commissioner General, who was reported to be out of the office at the time.