TRA Commissioner General, Mr Harry Kitilya

In a wake of poor tracking of mining revenue in the country, a model has beenintroduced with optimism to filling the vacuum, which so far has seen the country losing billions from its vast mineral resources.

Though some mining firms have already started paying various taxes, the Tanzania Revenue Authority (TRA) is still convinced that the country doesn’t get what it deserves. However investors on the other hand maintain that what they pay reflects the country’s accounting requirements and other international standards.

Basically, the model’s primary usefulness, just like any other model, is acting as an analysis tool to help policy makers properly assess incomes of mining firms and thus come up with appropriate recommendations in policy terms where the need arises.

Specifically, at a mine-level, the model provides instruments for microeconomic analysis to evaluate the multiple value streams where as an individual mine is evaluated across several tax regimes. The model would aggregate mine-level analyses and evaluate macroeconomic policies as applicable to what is noticed at the primary level.

As a forecast model, the tool can be used to analyze production, total costs and revenue levels with respect to taxes both at micro and macroeconomic level, while as an audit model it would point to discrepancies between reported and forecasted results.

The model can also be used as a benchmarking tool to compare or/and contrast macroeconomic and taxation policies between countries, as it has the ability to specify multiple tax systems and scenarios, as an analysis of the effects of taxation policy evolution.

It is through Norwegian support that the workshop for introduction of this model was held, where inspiration for adopting this model was drawn from other countries like Zambia and Chile. They are said to be enjoying greater mining revenue thanks to this kind of model.

However, there is an argument that having the model in place is one thing and its bearing fruit is a totally different thing. It means that, in order for the mining model to provide the desired results, a careful interpretation of results and experts involvement in modeling are some of the things that should be observed.

“We cannot lie to ourselves that having the model alone will solve every revenue mischief that we are having in mining sector,” affirmed a workshop participant who preferred anonymity, adding: “There are plenty of other reforms involving mining revenue that have to be made.”

In closing the workshop, the commissioner general of TRA Harry Kitilya warned that any weaknesses in laws relating to mining activities would definitely hamper controlling for meaningful revenue from the sector.

“Investors look at the country’s laws and negotiate from that. And so, it is the laws’ weakness that gives them a loophole to benefit more than the government,” said Kitilya.

If not handled accordingly, poor cooperation, unclear procedures and systems of information gathering and exchange among government agencies responsible for natural resource management is a source of potential setbacks likely to affect  the realistic output of the model.

Experts said weak control of natural resources quantity, quality, cost and value due to lack of reliable sources of information locally and abroad needs a third eye. This is because the result is that it may lead to improper assessment of taxes involved such as royalty and corporate taxes.

Apart from that, there is also a need to curb the capacity gap in the area of gain taxes from indirect transfers of interest in the country’s mineral assets, sector specific audit capacity, specialized revenue forecasting expertise and the like.

The mining sector fiscal regime has constantly drawn criticism regarding its weakness. Fingers are specifically pointed at the Mining Act of 1997 which until recently had no rules on ring-fencing, loss carry forward and the presence of additional capital allowances and royalty relieves.

As per current status, companies are calculating their tax liabilities based on the expenditures of all its pits even though some are still at the initial stage and have not yet started producing profit, hence offsetting benefits of profitable pits against unprofitable ones, something which calls for introduction of ring-fencing rules, experts noted.

The Income Tax Act under section 19 was also finger pointed as it provides for indefinite loss carry forward, thus has been a pushing factor for mining companies to arrange their transactions in a way that will declare a loss as they are sure to deduct it from taxable income.

Under other sections such as Section 145 of the Income Tax Act as amended in 2004, mining companies are allowed a 15% additional capital allowance on unredeemed capital expenditure. It is argued that this has the effect of prolonging the period in which such companies will start paying taxes and in some circumstances this period can be prolonged until the mineral deposit is depleted.

Section 87 (1) of the Mining Act gives the Minister power to defer payments of royalties if the cash operating margin of a company falls below zero. “This incentive is highly uncalled for considering the fact that royalty is the only revenue that the government is entitled to get when a mining project turns sour even though extraction continues,” they said.

In managing this model, a team of 10-15 members, preferably from the workshop experience, has been suggested to be appointed. This team is to be permanently involved in mining revenue forecasting using the developed model.

A TRA officer, who declined to be mentioned as he is not formal spokesman, also cautioned that investors must be fully involved in the process of introducing this model to the system.

“In Zambia, where they also use this same model, investors were initially not very sufficiently involved in incorporating the model in the revenue system. As a result, investors declined positive cooperation in required data and information necessary for feeding the model,” the official noted.

However it wasn’t clear why TRA still wants to introduce another data monitoring system in the mining sector while there’s already an executive agency, the Tanzania Minerals Auditing Agency, which audits all production of minerals,  and exports to ensure that the country gets a fair deal.

TMAA is a semi autonomous institution established under the Executive Agencies Act, Cap. 245. The Agency took over the functions previously undertaken by the Minerals Auditing Section with increased scope to cover large, medium and small scale mines for all minerals produced so as to maximize the benefits from the mining industry, thereby enhancing socio-economic development.

The aim of TMAA is to maximize Government revenue from the mining industry through effective monitoring and auditing of mining operations and ensuring sound environmental management in mining areas. The major roles and functions of the Agency are: to monitor and audit the quality and quantity of minerals produced and exported by large, medium and small scale miners.

It is also tasked with determining revenue generated to facilitate the collection of payable royalty, to audit capital investment and operating expenditure of large and medium scale miners.

That is meant to gather taxable information and providing the same to the Tanzania Revenue Authority (TRA) and other relevant authorities; and to monitor and audit environmental management, environmental budget and expenditure for progressive rehabilitation and mine closure.

The Agency is also mandated to counteract minerals smuggling and minerals royalty evasion in collaboration with relevant Government authorities. It is crucially charged with examining monitoring the implementation of feasibility reports, mining programs and plans, along with annual mining performance reports, environmental management plans and reports of mining companies.

According to a recently released statement from the Bank of Tanzania (BoT), between October 2010 and October 2011, Tanzania gold exports have witnessed a 33 percent increase as a result of an increase in the price of gold on the world market.

Based on estimates from the BoT Monthly Economic Review for November 2012, the value of gold export increased from a total of USD 1.496 billion to a total of USD 2.096 billion in Tanzania, a country that is currently ranked third along with Mali as the largest producer of gold in Africa.

But as the gold export surges many Tanzania still believe that the country doesn’t get its deserved share from the fast growing mineral sector.

By Sammy Awami, The GUardian



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