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TAX INCENTIVES IN TANZANIA’S MINING SECTOR

TAX INCENTIVES IN TANZANIA’S MINING SECTOR. NGOWI, HONEST PROSPER SENIOR LECTURER IN ECONOMICS MZUMBE UNIVERSITY, DAR ES SALAAM CAMPUS COLLEGE. pngowi2002@yahoo.com ; +255 754 653 740 P. O. BOX 20266 DAR ES SALAAM, TANZANIA. 1. BASIS OF THE PAPER: 1 BILLION $ QUESTION REPORT.

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TAX INCENTIVES IN TANZANIA’S MINING SECTOR

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  1. TAX INCENTIVES IN TANZANIA’S MINING SECTOR

  2. NGOWI, HONEST PROSPER SENIOR LECTURER IN ECONOMICS MZUMBE UNIVERSITY, DAR ES SALAAM CAMPUS COLLEGE pngowi2002@yahoo.com; +255 754 653 740 P. O. BOX 20266 DAR ES SALAAM, TANZANIA 1

  3. BASIS OF THE PAPER: 1 BILLION $ QUESTION REPORT • LEGAL FRAMEWORK FOR TAX EXEMPTION IN TANZANIA • SECTION 17 OF 1997 INVESTMENT ACT • 2010 MINING ACT: ONLY FOR NEW MINING PROJECTS • PRE-2010 MINING INVESTORS HAVE INDIVIDUAL (SECRET) AGREEMENTS WITH THE GOVERNMENT

  4. INCENTIVES OPEN TO MINING SECTOR • HOLDERS OF TIC CERTIFICATE OF INCENTIVES • IMPORT DUTY EXEMPTION ON CAPITAL GOODS • 0% VAT ON IMPORTS • CARRY OVER LOSSES FOR 5 YEARS AGAINST FUTURE PROFIT • EXEMPTIONS FOR INVESTORS IN SEZs & EPZs • CORPORATE INCOME TAX FOR 1ST 10 YEARS • WHT ON RENT, DIVIDENDS & INTEREST RATE FOR 1ST 10 YRS • VAT ON UTILITIES ; ALL LGAs TAXES FOR 1ST 10 YEARS • UNLIMITED REPATRIATION OF PROFIT • INDIVIDUAL FISCAL AGREEMENT WITH GOVT

  5. SPECIFIC TAX INCENTIVES FOR MINING SECTOR • ZERO IMPORT DUTY ON FUEL (STD IS TSHS 2000 PER LITRE) • ZERO IMPORT DUTY ON EQUIPMENT UP TO END OF 1ST YEAR OF OPERATION, THEN PAY 5% • NO CAPITAL GAIN TAX (OTHER SECTORS PAY) • NO VAT ON LOCAL SUPPLIES AND THEIR SUBCONTRACTORS • REDUCED STAMP DUTY AT 0.3%; NORMAL RATE IS 4% • MAX PAY OF LGAs TAXES UP TO $200,000 P.A … LOWER THAN 0.3% OF TUROVER REQUIRED BY LAW

  6. GOVT REVENUE LOST IN MINING SECTOR IN SELECTED YEARS: EROSION OF TAX BASE • INCENTIVES/EXEMPTIONS: TSHS 72.6B P.A • ONLY SMALLEST COY WAS AMONG 15 MAJOR TAX PAYERS IN 2011 • TMAA AUDIT QUERIES: UP TO $176M P.A ALLEGED OVERCLAIMS • FUEL LEVY EXEMPTION: TSHS 39.8B (2006/7); TSHS 58B IN 2007/08; COYS CLAIMED $274M IN 2011 • IMF: NO MATERIAL TAX PAID IN MINING SECTOR • GOLD XPORT: FROM $500M TO $1.5B, BUT GOVT REVENUE CONSTANT AT $ 100M P.A

  7. BREAKDOWN OF TAXES PAID BY LARGE SCALE MINING COYS IN 2008 • 65.4% IS PAYE: PAID BY EMPLOYEES NOT COYS • 11.2% IS SDL • 8.3% IS WITHHOLDING TAX • 6.0% (ONLY) IS CORPORATE/INCOME TAX • 5.9% IS VAT • 3.1% IS ‘OTHER TAXES’ • ... SEE THE PIE • SOURCE: TMAA, ANNUAL REPORT 2010, P.31

  8. EMERGING ISSUES • 1997 INVESTMENT ACT TOO OLD (15 YEARS) • ARE ALL INCENTIVES NECESSARY? • TOO GENEROUS INCENTIVES IN TANZANIA • REASONS FOR INCENTIVES INVALID THEN AND NOW • CONDITIONAL INCENCTIVE: EMPLOYMENT; TECH-TRANSFER; INTERLINKAGE WITH LOCAL ECONOMY • LOST IN MINING, CAN TZ WIN IN GAS AND OIL? 3

  9. MANGE TAKK

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