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Tanzania Increases Tax Take From Gold Mining

by Robert Lee,, London

07 November 2012

The Tanzanian government has been urged to adhere to existing agreements with gold mining companies operating in the country rather than implement the measures included in mining legislation passed in 2010.

Under the legislation, the government requires mining companies to increase their royalties on gold exports from 3% of netback value (essentially, the difference between total costs of bringing commodity to market and revenues from the sale of the commodity) to 4% of gross value, as well as paying the government 0.3% of their annual turnover, up from a capped maximum of USD200,000 a year.

The Tanzanian government has also introduced a special 30% corporate tax on mining profits this year.

According to the Managing Director of Anglo Gold Ashanti’s Geita gold mine, Gary Davies, Anglo Gold’s tax payments are expected to double to about USD200m this year after it pays its first full year’s corporate tax on top of the increased royalties. However, he revealed at a recent mining conference that the company is still in discussions with the government over tax payments because it expects the government to respect its mineral development agreement signed before the new legislation was put in place.

Tanzania, Africa’s fourth largest gold producer, has argued that it has not derived enough benefit from the high price of gold, and plans to increase the mining sector’s GDP contribution to 10% by 2025, up from 3.3% last year.

Following the rebirth of the Tanzanian gold industry over ten years ago, it has dominated the country’s mineral industry. With total investments of over USD2.5bn, Tanzania has become one of the fastest-emerging gold producers in Africa.

According to official figures announced in 2011, Tanzania’s gold exports increased threefold in the previous five years to total around USD1.5bn annually, largely because of increased global gold prices. However, government tax revenues from the mining sector have remained largely constant.

Tanzania’s new five-year development plan contains large-scale development projects that will need to be, at least partially, financed by increased revenue collections. The Planning Commission is said to be looking for an increase in the country’s ratio of tax revenue to gross domestic product from the present 15% to 19% in the next five years, partly by means of additional tax on the mining sector.

However, the mining companies in the country are pointing out that mineral extraction agreements in place are based on an agreed tax regime.

TAGS: tax | mining | royalties | corporation tax | agreements | legislation | Tanzania

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