Bloomberg News

Tanzania Says Super-Profit Tax for Mines Remains a Proposal

June 15, 2011

(Updates with comment by Mines Ministry official in fifth paragraph.)

June 15 (Bloomberg) -- Tanzania’s Mines Ministry said a so- called super-profit tax for mining companies mooted by the country’s Planning Commission remains a proposal and won’t be implemented unless it is justified by economic conditions.

“We understand that miners need profits to cushion them when prices fall and that policies should direct the sector for say 15 years,” David Jairo, permanent secretary in the ministry, said in a phone interview today from Dar es Salaam, the commercial capital. “We will not impose any tax. It will depend on prevailing circumstances and time considerations.”

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. Lawmakers in the East African nation’s parliament yesterday approved a 42.9 trillion-shilling ($27.4 billion) economic-development plan that proposed using the levy to help fund the program. The tax may be appropriate “considering the increasing trend in mineral prices,” the commission said, without providing a timeframe.

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.

“The super-profit tax is a statement that remains a proposal and will not be implemented unless it is economically justifiable,” Jairo said.

IMF Discussions

The International Monetary Fund’s Fiscal Affairs Department held talks with the Tanzania’s Finance Ministry about the tax 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 Tanzania, 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.

Tax Guarantee

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.

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.

The Tanzania Chamber of Minerals may meet on June 16 to discuss the tax, Godvictor Lyimo, chairman of the chamber’s finance committee, said in a phone interview today.

“We discussed this issue earlier when Australia introduced the resource rent tax, which is also a windfall tax, because some of the members at the chamber have interests there,” Lyimo said. “We thought it was not a good tax. Government has not talked to us about this tax yet.”

Australian Levy

Australia is planning a 30 percent levy on iron-ore and coal profits that will earn the country A$7.7 billion ($8.2 billion) in its first two years, the 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.

Tanzania’s 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.

The country’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.

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.

--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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