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Tanzania to Discuss Proposed Super Tax With Existing Miners

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Tanzania will discuss with mining companies operating in the country how a so-called super-profit tax might be implemented if parliament approves the proposed levy, Mines Minister William Ngeleja said.

New entrants to the industry would automatically be subjected to the tax if lawmakers backed it, Ngeleja said in an interview yesterday in Dar es Salaam, the commercial capital.

Legislators discussed the broader development plan that the levy is a part of, while not debating the tax itself today, said Zitto Kabwe, an opposition lawmaker, by phone from Dodoma, the capital. The session will continue tomorrow, he said.

“We can’t impose the super-profit tax,” Ngeleja said. “If it is passed, we will negotiate with existing companies on how to go about with it. But it will be an automatic catch for new companies.”

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. Last week, the country’s Planning Commission published a document that said it may be “optimal” to introduce a super-profit tax in the mining industry as a way to fund a proposed 42.9 trillion-shilling ($27 billion) economic-development plan. It said the levy may be appropriate “considering the increasing trend in mineral prices.”

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.

IMF Support

The International Monetary Fund said it backs additional taxes on mining projects with “particularly high” returns and a technical assistance mission from the Washington-based lender’s Fiscal Affairs Department held talks with the Tanzania’s Finance Ministry about the issue.

“The IMF supports the idea of what we call a resource rent tax on mining projects,” John Wakeman-Linn, the IMF’s representative in the East African country, said in an e-mailed response to questions today. He didn’t say when the mission met the Finance Ministry officials.

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.

Existing Arrangement

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.

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.

“When we changed the mining law and increased royalties, we negotiated with the companies and they accepted,” Ngeleja said.

The commission said the proposed super-profit tax is similar to one being implemented in Australia, where a planned 30 percent levy on iron-ore and coal profits will earn A$7.7 billion ($8.1 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.

“If we implement the tax, we will not be the first,” Ngeleja said. “It is the practice in many other countries.”

The five-year plan proposed by the commission 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 government has yet to decide on when the proposal, if approved, would be implemented, Ngeleja said.

“The plan is five years and the revenue measure is for that period,” he said. “We will discuss the actual timing later.”

Tanzania’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.

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