The Citizen (Dar es Salaam)
13 June 2008
The government yesterday introduced a 0.3 per cent Alternative Minimum Tax (AMT) of the turnover on corporate entities making losses for three consecutive years, a move aimed at the lucrative mining industry.
Companies that post losses annually can't pay the 30 per cent corporate tax, a provision mainly benefiting large mining sector firms which for the past decade have been declaring losses, with $1billion annual turnover.
Presenting his Sh7.2trillion ($6billion) budget yesterday, Finance Minister Mustafa Mkulo said the government has decided to amend the Income Tax Act, Cap 332, to reverse the growing tendency where some companies declare losses annually to avoid paying corporate tax.
"Such corporate entities make commercial profits, however when incorporating tax adjustments they record losses on account of generous investment incentives.
These are provided in the legislation, including accelerated capital deductions and investment allowances," he stated.
However, Mr Mkulo didn't introduce major tax reforms in the lucrative mining sector, contrary to earlier expectations.
Early in May, Mr. Mkulo said in Mozambique that the government was planning to review the mining sector tax structure in this year's budget, to boost domestic revenue collections.
But in his budget speech presented to the legislature yesterday, Mr Mkulo failed to implement major tax reforms, shifting the burden to other traditional sources of revenues.
The minister made it clear in his earlier remarks that the review would particularly target the mining sector.
During the past decade, a debate has raged on the taxation structure granted to mining companies, with Parliament and wide public opinion urging major tax reforms in the sector.
Gold mining companies pay royalties of three per cent on their profits, while a five per cent tax is levied on diamonds and other gemstones.
Companies like Barrick Gold Corporation, the world's largest producer of the precious metal, and Tanzanite One Ltd, the only miner of the rare blue gem, are leaders in the sector.
Early last month, the Presidential Committee on Mining Sector Review proposed a 40 to 70 per cent increase in royalties paid by the mining companies.
The committee chaired by retired Judge Mark Bomani among other things recommended that royalties levied in gold, copper and silver be increased to five per cent, from the current three per cent.
In its recommendations, the Presidential Committee also demanded that royalties on uncut diamond be increased to seven per cent, from the current five per cent.
For uranium, a highly demanded industrial metal, the Bomani Committee recommended a 10 per cent royalty, from the current three per cent.
Recommendations contained in the full report submitted to President Jakaya Kikwete over the weekend seek that the current taxation system tied to 'net-back value' system to be changed to 'gross value' as it is done in other countries with a large mining sector, like Ghana and Zambia.
The committee formed by President Kikwete early November last year to investigate and come up with recommendations on how Tanzania can benefit from the $5billion mining industry similarly advised suspending section 145 of the Income Tax Act of 2004, in order to stop massive loss of revenues.
None of these recommendations have been included in this year's budget, observers noted.
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