Bloomberg News

Tanzania Lawmakers Approve Plan That Includes Proposed Mine Tax

June 15, 2011

June 15 (Bloomberg) -- Tanzanian lawmakers approved a five- year development plan that includes a proposal for a so-called super-profit tax for mining companies, an official in the presidency said.

“The plan has been passed by Parliament,” Stephen Wassira, minister of state in the president’s office in charge of social relations and coordination, said by mobile-phone text message yesterday. “What follows is to start implementation.”

Wassira didn’t immediately respond to a question about whether approval of the five-year plan meant the proposed levy would be implemented. Mines Minister William Ngeleja referred questions on the tax to Finance Minister Mustafa Mkulo, who didn’t answer his mobile phone when called for comment.

Tanzania vies with Mali to be Africa’s third-biggest gold producer and is the world’s only known source of the blue gemstone tanzanite. The country’s Planning Commission last week published a document that said it may be “optimal” to introduce a super-profit tax in the mining industry as a way to fund a proposed 42.9 trillion-shilling ($27 billion) economic- development plan. It said the levy may be appropriate “considering the increasing trend in mineral prices.”

The commission cited data that showed gold exports from the East African country increased to $1.5 billion, or 7 percent of gross domestic product, from $500 million over the past five years, while annual government revenue from sales of the metal remained at $100 million, or 0.5 percent of GDP.

IMF Support

The International Monetary Fund’s Fiscal Affairs Department held talks with the Tanzania’s Finance Ministry about the issue prior to its announcement and backs an additional levy on mining projects with “particularly high” returns, an IMF official said.

“The IMF supports the idea of what we call a resource rent tax on mining projects,” John Wakeman-Linn, the IMF’s representative in the East African country, said in an e-mailed response to questions on June 13. He didn’t say when the mission met the Finance Ministry officials.

“The appropriate level for any tax would depend on many factors, including the broader economic policy framework, spending plans and any other measures being taken to increase tax revenue,” Wakeman-Linn said.

African Barrick Gold Ltd., the biggest producer of the metal in Tanzania, operates four mines in the country. The company said on June 8 its mines in Tanzania are subject to Mineral Development Agreements that guarantee tax and “fiscal stabilization” for projects. The accords can’t be amended without the company’s approval, it said in a statement.

Existing Arrangement

AngloGold Ashanti Ltd., the world’s third-biggest gold miner, said its Geita mine in Tanzania won’t be affected because an existing arrangement is valid for the life of the mine.

Other companies that have a presence in Tanzania include Bermuda-based Tanzanite One Ltd., and Tanzania Royalty Exploration Corp. of Canada.

Last year, Tanzania’s Parliament passed a mining law that increases royalties paid on minerals to 4 percent from 3 percent and gave the government a stake in all future projects.

The commission said the proposed super-profit tax is similar to one being implemented in Australia, where a planned 30 percent levy on iron-ore and coal profits will earn A$7.7 billion ($8.2 billion) in its first two years, the country’s Treasury Department said last month. The tax is scheduled to start in July 2012 after the laws are passed by parliament.

Australian Prime Minister Julia Gillard in July scaled back the original proposal for a 40 percent tax on all resource profits to a levy with a higher threshold that exempts most commodities.

The five-year plan targets an annual average economic growth rate of 8 percent from 2011-12 to 2015-16. The expansion is expected to accelerate to 10 percent by 2025, it said.

Tanzania’s gold output ranked behind South Africa and Ghana, and alongside Mali’s 44.6 metric tons in 2010, according to London-based research company GFMS Ltd.

--Editors: Paul Richardson, Emily Bowers.

To contact the reporter on this story: David Malingha Doya in Dar es Salaam via Nairobi at pmrichardson@bloomberg.net

To contact the editor responsible for this story: Paul Richardson at pmrichardson@bloomberg.net.


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