Tanzania May Abolish Tax Refund for Miners to Boost Revenue

Tanzania, Africa’s third-biggest gold producer, may abolish a tax refund for mining companies as a way to generate more revenue from the industry, a Mines Ministry official said.

Tax policy in the East African nation provides for a refund on fuel used to generate electricity to power mines. The government plans to begin talks with companies about halting the practice, Ally Samaje, acting commissioner of minerals, said in an interview on Oct. 20.

“It is not immediate, but it is something we will definitely start negotiating with the companies,” Samaje said. Existing arrears “will be fully paid,” he said. In April, the Tanzania Chamber of Minerals and Energy, or TCME, said companies are owed $274 million in tax refunds.

AngloGold Ashanti Ltd., the world’s third-largest producer of the metal, and African Barrick Gold Ltd. are among mining companies that operate in Tanzania, which ranks behind South Africa and Ghana, and alongside Mali, as the third-biggest producer in Africa. Gold exports from Tanzania climbed to $1.7 billion in the year through June from $1.5 billion, a year earlier, the central bank said in a report last month.

African Barrick hasn’t received any communication about the proposed scrapping of the tax, Teweli K. Teweli, the company’s Dar es Salaam-based spokesman, said by phone yesterday.

Enforce Agreement

AngloGold, based in Johannesburg, said it will seek to enforce an agreement it has with the Tanzanian government should the refund be canceled.

“Fuel refunds are provided for in the Mining Development Agreement,” Garry Davies, managing director of AngloGold’s Geita Gold Mining Ltd. unit in Tanzania, said in an Oct. 20 phone interview from the northern city of Arusha. “We intend to use the agreements to defend our business.”

Tanzania previously scrapped the tax refunds in 2009, before reinstating them last year.

“Under the current legislation, for new investors, tax refunds have already been abolished except for companies with MDAs,” Teweli said. “Those MDAs are still there.”

Mining companies are owed tax refunds dating back to 2002, according to the TCME, which represents private companies in the industry. AngloGold and Barrick said they have agreed with the government on a mechanism to settle the outstanding amounts, without providing details.

Tanzania’s mining industry consumes about 13.5 million liters (3.57 million gallons) of fuel per month, while gold-mining companies estimate gasoline accounts for 30 percent of their operating costs, the TCME said in April.

Higher Royalties

Before the tax refund is discussed, the Mines Ministry’s priority is to get companies to begin paying higher royalties, Samaje said.

Mines Minister William Ngeleja said last week mining companies agreed to pay a royalty rate of 4 percent, compared with 3 percent previously. AngloGold and African Barrick said no agreement had been reached and that negotiations on the levy were continuing.

“The most urgent issue is the royalty rate, so that government gains from current gold prices also,” Samaje said. “After this, we shall begin negotiating scrapping the fuel levy, and reviewing the MDAs every five years.”

Government reviews of agreements with mining companies increase risk and uncertainty and may make it difficult for them to access capital, Mark Parker, managing director of African Eagle Resources Plc, said in an interview on Oct. 20.

African Eagle is in the process of negotiating an MDA for its Dutwa nickel project, and has yet to begin talks with banks that will provide half of the $600 million needed as seed-capital, Parker said.

“We could trust government’s word that the investment climate will be good, but banks need things to be agreed and written before they commit their money,” Parker said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE