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Tanzanian Commission Proposes ‘Super Profit’ Tax on Minerals

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Tanzania, which vies with Mali to be Africa’s third-biggest gold producer, may study a “super profit” tax on minerals similar to a levy put forward in Australia, the East African nation’s planning commission said.

“Considering the increasing trend in mineral prices, it is optimal to introduce a super-profit tax on the windfall earnings from the mineral sector,” the commission said in a report today in Dodoma, the capital.

African Barrick Gold Ltd., the biggest producer of the metal in Tanzania, fell 7.8 percent in London trading to the lowest price since the shares started trading in March 2010. AngloGold Ashanti Ltd., a gold miner that also operates in the country, declined 3.1 percent in Johannesburg.

African Barrick said 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 today. African Barrick operates four mines in the country that account for all of its gold production.

AngloGold said its Geita mine in Tanzania won’t be affected because an existing arrangement is valid for the life of the mine.

Tanzania Exports

Gold exports from Tanzania have increased to $1.5 billion, or 7 percent of gross domestic product, from $500 million over the past five years, the commission said. At the same time, annual government revenue from sales of the metal has remained at $100 million, or 0.5 percent of GDP, it said.

Tanzania’s main opposition Chama Cha Demokrasia na Manedeleo plans to oppose the proposal when it's debated in parliament next week, said Zitto Kabwe, the country’s shadow finance minister. Instead, it will suggest changes to income-tax laws to ensure the government raises more revenue from the mining industry, he said in an interview today in Dodoma.

The proposal is “vague, irresponsible and sends the wrong signal to investors,” Kabwe said. It also doesn’t appear as a source of funding in next fiscal year’s tax measures, he said.

Australia’s planned 30 percent tax 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.

Scaled Back

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 Tanzanian levy was proposed in a five-year planning report that targets an annual average economic growth rate of 8 percent from 2011/12 to 2015/16, the commission said. The expansion is expected to accelerate to 10 percent by 2025, it said.

Over the next five years, Tanzania plans to increase tax revenue as a percentage of gross domestic product to 19 percent from 15 percent, the commission said. Annual government spending over that period is expected to be 8.6 trillion shillings ($5.48 billion), it said.

The government will also “continue with the process of accessing the external sovereign debt market as a source of infrastructure financing,” the commission said.

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

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