Tanzania Tax: Firm pays Sh34bn after pact review

Mwanza, Tanzania -- A gold mining company, Resolute Tanzania Limited, has paid Sh33.9 billion as corporate tax during the 2010/11 fiscal year following a successful review of the Mining Development Agreement .

According to the Tanzania Minerals Audit Agency chief  executive officer, Mr Paul Masanja, the review of the mining agreements took place in 2006 following President Jakaya Kikwete’s directive in response to the public outcry that the mining sector’s contribution to the economy was too low.

“Generally, the government was expected to benefit from operations of major gold mines through payment of corporate tax, royalty, local levies, and other indirect benefits,” he said.

However, as of 2006, none of the major gold mines had started paying corporate tax; instead, they mainly paid royalties, pay as you earn (PAYE), skills and development levy, withholding tax and local levies.

According to Mr Masanja, between 1998 and 2006, the government received $94 million from major gold mining companies as royalties and $115.8 million cumulatively in form of taxes and local levies.

During the same period, no corporate tax was paid by any of the companies except on goodwill due to the inclusion of the 15 per cent additional capital allowance on unredeemed capital expenditure clause in the agreements.

He said the clause allowed mining companies to take long to recover their initial investment, hence paid no corporate taxes contrary to their original projections in feasibility reports.

In July 2006, Resolute Tanzania Limited, North Mara Gold Mining Limited and Bulyanhulu Gold Mining Limited accepted the removal of the 15 per cent additional capital allowance in the agreements following a successful negotiation with the government.

“Without removing the 15 per cent clause, probably none of the mining companies would have paid corporate tax during their life span,” said Mr Masanja in an exclusive interview with The Citizen.

An analysis conducted by the Tanzania Minerals Audit Agency on the impact of abolishing the 15 per cent additional capital allowance by the three major mining companies, revealed that allowable cost between 2007 and 2009 could have amounted to $721 million had the provision not been abolished.

“Translating this amount into payable corporate tax, it is equivalent to $216 million government revenues being rescued,” he said.

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