It was reported last year that government earnings from the extractive industry surged from 956 billion/- in 2013 to 1.221 trillion/- during the fiscal year 2014 which was according to findings of a report by the Tanzania Extractive Industries Transparency Initiative (TEITI).
The outgoing Chairman of TEITI, Judge (Rtd) Mark Bomani, noted with concern that the country could earn more from the lucrative industries if the government had implemented recommendations by the presidential commission which he chaired in 2008.
Some of these recommendations included the royalty paid by mining companies should be increased from 3 to five per cent but the government reluctantly settled for 4 per cent of gross revenues rather than net profits as previously pegged. Others were that the companies should repatriate to Tanzania 60 per cent of their earnings but this has not been implemented at the expense of dwindling value of the local currency.
Tanzania joined the Extractive Industries Transparency Initiative on February 2009 following a recommendation as part of the 2007 Mineral Sector Review Study. A Multi-Stakeholder Working Group (MSG) was established to lead the implementation of the EITI in Tanzania and comprised of representatives from civil society organizations, extractive companies and the Government.
To date five (5) annual EITI Reports have been published covering the period from 1 July 2008 until 30 June 2013. Each report demonstrates the improvements made compared to the previous year in relation to the number of reporting companies and the total revenue reported.
In 2008/2009 government revenues amounted to 102,110,000 US Dollars and 138,762,430 US Dollars of company payments while in 2012/2014 the figures skyrocketed to 602,119,124 US Dollars and 596,547,648 US Dollars respectively.
Earlier this week, the sixth TEITI reports were made public and from the outset, it is still clear that the recommendations that Judge Bomani and his commission gave to the government have yet to see the light of day.
Some of the startling highlights of the report includes the fact that only 16 companies out of 59 paid corporate income taxes. Panafrican Energy Tanzania Limited, Songas Limited and Ophir Tanzania (Block 1) Ltd, who are involved in oil and gas paid corporate tax; the rest of the 18 oil and gas entities covered in this report are still involved in exploration activities and not in production without taxable income and therefore corporate tax was not applicable.
Ophir Tanzania (Block 1) Ltd paid corporate tax of 361bn/- despite the company not being involved in any production. This tax was paid by the company based on the profits from the disposal of some assets in the period.
According to the company and also a position agreed by TRA, the reason this disposal was subject to corporate tax rather than capital gains tax is because it was a disposal of business assets rather than investment assets. Thus it formed part of taxable income which is subject to corporation tax. This was a one off payment and is not expected to recur in future years.
Bulyanhulu Gold Mine Limited, Pangea Minerals Limited, North Mara Gold Mine Limited, Shanta Mining Company Limited and TanzaniteOne Mining Limited, all companies with MDA's are not paying corporation taxes as they are still in loss making position.
Corporate tax is based on company profits earned and since these companies are not making taxable profits, corporate tax does not arise. According to the TEITI report, the seven companies that have declared profits to pay corporation taxes are led by Geita Gold Mine with tax payment of 108bn/- followed by Resolute Tanzania Limited with tax payment of 30bn/-.
Resolute Tanzania Limited which opened its Golden Pride mines in Nzega, Tabora, closed them in 2013. Other companies that declared profits with corporation taxes in brackets are PanAfrican Energy Tanzania (27 billion), Portland Cement Company (24 billion), Tanga Cement Company (15 billion), Songas (6 billion) and Mbeya Cement Company (5 billion).
The net difference between the payments declared by extractive companies and the Government at the beginning of the reconciliation amounted to 20,687,375,865/- or 1.69 per cent of the total amount declared by the government.
At the end of the reconciliation, the remaining net differences amounted to 2,428,572,571/- or 0.20 per cent of the total Payments declared by the Government. After adjustment, the net difference of 2,428,572,571/- represents the aggregate of the positive (government reporting more) differences amounting to 4,245,931,594/- and the negative (government reporting less) differences of (1,817,359,022/-).
By and large, the sixth report paints a gloomy picture especially when you take into consideration that the issue of the payment of corporate income tax has been a thorn for many years and it was the belief of many that the government had found a lasting solution with the enactment of the Petroleum Act of 2015.
A positive aspect of the report however despite the decrease in the number of companies reporting in the sixth report by 10 per cent, government revenues from the extractive sector increased from 956bn/- in 2013 to 1,221bn/- (an increase of 28 per cent.
This significant increase amounting to 265bn/- is explained mainly by the increased gold production in the year by 10 per cent as well as payment of corporate tax by Ophir Tanzania (Block1) Limited of 361bn/-.