Vodacom is readying for a face-off with Congolese tax authorities over an alleged multibillion-rand auditing variation that could plunge the mobile operator into turmoil.
This follows last week’s seizure of Vodacom’s bank account and sealing of its premises by the Democratic Republic of the Congo’s Directorate General of Taxes (DGI) over a long-running tax dispute.
Vodacom becomes the latest SA-based telco to clash with tax authorities on the continent following its peer MTN, which ceased hostilities with Nigerian revenue authorities after years of squabbling over tax.
In Vodacom’s case, the matter emanates from a fiscal audit for 2016-2019 initiated by the DGI, which resulted in an adjustment of $243 million (R4 billion) on 16 July 2021. Vodacom appealed the variation, which reduced the assessment to $165 million in August this year.
In a statement, the company said: “At this stage of the proceedings, Vodacom requested, on 13 September 2022, from the minister of finance, the review of the said decision on the one hand, and appealed to the judicial authorities on 4 and 15 November 2022.
“However, and against all expectations, the DGI has instead initiated bulk actions of forced recovery of the unadjusted sum; going so far as sealing the offices of Vodacom and the freezing of its bank accounts, in flagrant violation of, and in disregard of, the legal procedures set out in Articles 72 and 110 of Law No 004/2003 of 13 March 2003 as amended and completed to date.”
As a result, Vodacom said it continues to use all means of recourse provided by the legislation, and has initiated a review of the decision by the DGI, while it put in place measures to ensure the continuity of its services.
“Vodacom reminds the public and all authorities that it is and remains a good corporate citizen, respectful of the laws and regulations in force in the Democratic Republic of Congo, as its services always show a high sense of fiscal civic-mindedness and that it rigorously applies the policy of good governance, respect for the rule of law and transparency,” said the company.
Reacting to the news, analysts say the situation is complex and may drag down the company and scupper investment plans.
Mark Walker, associate vice-president, Sub-Saharan Africa at IDC, comments: “Vodacom is, like any other business, required to achieve commercial performance objectives related to costs, revenues and profitability.
“If these goals are not met, then investment is questioned and, if found unsatisfactory, then reduced or ended.
“This has significant implications for rollout of telecoms services, hiring of staff and building capacity for future growth.
“A significant tax bill like this hits directly on the profitability of the company and will certainly be factored into ongoing strategic and operational planning. The fine is around 4% of Vodacom’s 2022 revenue, so the impact is significant overall.”
Similarly, Peter Takaendesa, head of equities at Mergence Investment Managers, says the DRC has been a tricky operating environment for a while, and the authorities there “are now getting bolder and looking for a bigger piece of the pie”.
He comments: “The amounts involved are quite material and will surely impair most of expected returns from the capital invested in that country. This is not unique to Vodacom and the operating environment is unlikely to change as this is an institutional setup.
“Fortunately for Vodacom, its South African operations still dominate group cash flows and the market has mostly been comfortable to look past issues from the rest of Africa.”
However, Takaendesa says this will change significantly over the next few years, as Vodacom is accelerating its investments and exposure to the rest of Africa by acquiring parent Vodafone’s stakes in Kenya and Egypt, as well as recently entering the Ethiopian market.
“The Vodacom investment case is therefore changing into a higher risk and higher potential growth story, compared to a relatively safe and steady growth play.”
