Tanzania: Geita Gold Mine Loses Appeal On Sh6 Billion Tax Dispute With TRA

Dar es Salaam — Geita Gold Mine's (GGM) fight to escape a Sh6 billion tax liability ended in discontent following a recent decision of the Court of Appeal that the mining giant was liable to pay VAT on fuel supplied to its contractors.

The decision has ended a decade-long legal fight between the Tanzania Revenue Authority (TRA) and the mining company that had previously lost the tax case twice.

"As rightly held by the tribunal, the supply of fuel to the appellant (GGM)'s contractors constituted a taxable supply for which the appellant was bound by section 58 of the VAT to charge VAT from the contractors for the supply and remit it to the respondent (TRA)," said Justices Gerald Ndika, Lugano Mwandambo and Lucia Kairo.

The tax dispute arose over a decade ago after the taxman made a tax audit into the affairs of GGM, only to discover that the company had supplied fuel to Geita Power Limited (GPL) and DTP Terrassment, for which VAT was chargable but not remitted.

Following the audit, TRA made an assessment for additional VAT splashed GGM with a Sh6.2 billion tax bill.

GGM has throughout opposed the liability contending there was no outstanding VAT for the fuel it supplied to the contractors on the ground that the law has exempted them from that liability.

TRA has rejected the objection, maintaining that the exemption from payment of VAT for imported fuel did not extend to GGM's contractors.

GGM's first attempt to fault TRA's tax bill suffered blow at the Tax Revenue Appeals Board (Trab) which sided with TRA and dismissed the tax case.

The company's second avenue to challenge the Trab decision was at the Tax Revenue Appeals Tribunal (Trat). It faulted Trab's decision on grounds that the board was wrong in disregarding Mining Development Agreement (MDA) that company had with the government.

It was their contention that Trab was wrong in holding that there was a taxable supply to the contractors in respect of fuel she supplied for exclusive use in the mining activities.

GGM's also argued that Trab erred in failing to rule that GGM enjoyed relief from VAT pursuant to Third Schedule to the VAT Act.

In its judgment of October, 2012, Trat sustained Trab's decision and dismissed the appeal. The tribunal's reasoning was that despite the board's disregarding the MDA, such approach did not have any bearing on the ultimate decision on the appeal.

The tribunal also concurred with the board that there was a taxable supply of fuel to GGM's contractors which was chargeable with VAT.

The tribunal maintained that the tax relief did not extend to contractors irrespective of the fact that such contractors were delivering mining services on behalf of the appellant.

GGM at the Court of Appeal

Dissatisfied with the decision of Trat, GGM went to the Court of Appeal at the Capital Dodoma to challenge the decision.

Its first ground of appeal faulted the tribunal for making a contradictory finding that the MDA was binding and yet holding that the minister responsible for minerals and energy had no power to enter into agreements which provide fiscal/tax reliefs under section 15 of the Mining Act, 1979.

At the highest court in the land, GGM also faulted the tribunal for holding that the fuel supplied to the contractors for exclusive use in the appellant's mining activities constituted a vatable supply. Finally, GGM criticized the tribunal for reading and interpreting section 11 of the VAT Act without regard to Article 6 of the MDA it had entered with the government.

For their part, TRA did not dispute the fact that in terms of section 11 of the VAT Act read together with item 8 of the Third Schedule to the Act, GGM was relieved from VAT on importation of fuel.

The only TRA's contention was that such relief extended to supplying the exempted fuel to its contractors engaged to perform certain mining services on its behalf free from VAT.

At the hearing, GGM was represented by a team of three lawyers--Allan Kileo, Wilson Mukebezi and Stephen Axwesso, where TRA enjoyed the service of state attorneys--Hospis Maswanyia, Gloria Achimpota and Thomas Buki in resisting the appeal.

Written and oral submission made by the lawyers finally left the court to decide on correctness of the tribunal's decision holding that the fuel supplied to the contractors was taxable supply to which section 58 of the VAT Act applied.

GGM appeal fails

The three judges begun their discussion on GGM's dissatisfaction with the alleged contradictory finding of the tribunal on the MDA.

"We do not think that there is any such contradiction in the judgment. We say so because all that the tribunal said was that despite the board's disregarding the MDA, there was nothing suggesting that the MDA created an automatic right for the appellant to enjoy fiscal relief without more. The criticism against the tribunal on the treatment of the MDA was misplaced because the MDAs were to be followed by specific legal instruments to operationalise them on the relevant aspects," said the judges.

The went on: "In our view, in so far as the appellant supplied fuel to her contractors who had no similar exemption, we are, with respect, in agreement with the tribunal that the special relief by way of exemption from payment of VAT on imported fuel did not cover the appellant's contractors.

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