Tanzania may be losing millions of dollars because mining companies reportedly cheat the government on declaration of profits in order to pay reduced taxes.
General weaknesses in mining tax management and possibly deliberate under-declaration of profits by mining companies in their bid to pay reduced or no taxes has cost the country US$207 million in 2007.
Commissioner General of the Tanzania Revenue Authority (TRA), Harry Kitilya, told the Nairobi-based newspaper The Nation that there were major weaknesses in mining tax management and that his organization lacked capacity in handling mining tax management.
Kitilya's comments comes hard on the heels of findings by an audit company, Alex Stewart Assayers, which revealed that deliberate under-declaration of profits by mining companies was eating away revenue in the mining sector. Major mining companies operating in Tanzania include Barrick Gold and AngloGold-Ashanti.
In a bid to rectify the anomaly, TRA has, through the International Monetary Fund (IMF), engaged the Canadian Revenue Authority to train their Tanzanian counterparts in mining tax management and increase TRA's capacity in handling tax issues. Kitilya said the training was vital because officials at the Tanzania Revenue Authority were competent in finance and audit, but lacked mining taxation expertise.
However, tax experts told The Nation that Tanzania's mining laws in general have major flaws. The Executive Director of Lawyers Environment Association of Tanzania, Tundu Lissu, said the problem was not in the mining tax management, but with the whole tax regime, which is overly complex and needed to be simplified.
The audit report was clear on how some mining companies were deliberately inflating their losses, a development, which he said, calls for massive overhaul of the policy and legal framework of the mining sector, in order to empower government, local authorities and villagers to have equitable access to the accrued revenue.
"The problem is with the government, which has given too many tax exemptions to mining companies, thus making it difficult to manage taxes from the sector effectively," Lissu said.
A 2005 Parliamentary Public Accounts report indicates that mining companies in that year had declared losses of up to US$1.045 billion, which reveals that the government does not have the capacity to ensure mining companies do not cheat the government.
Tanzania, currently Africa's third largest producer of gold, is touted as having a conducive mining environment that has seen miners pumping into the country US$2 billion in the past decade, according to the Tanzania Chamber of Minerals and Energy (TCME). However, the companies have only paid a total of US$255, 526,893 in taxes over the past 10 years. (25 million per year!)
Tanzanian President Jakaya Kikwete in November, 2007 named an 11-member committee to review all mining contracts the country signed with foreign investors, after accusations from individuals and civil organizations that most mining contracts are tailor-made to suit the investors rather than the locals, who are the owners of the mineral resource.
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