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Tanzania Reconsiders Gas Windfall Tax Proposal

by Lorys Charalambous,, Cyprus

16 April 2014

Tanzania may choose not to introduce a windfall tax on production, which had been proposed as part of the National Natural Gas Policy, according to President Jakaya Kikwete..

Tanzania's current estimates of 46 trillion cubic feet of onshore and offshore gas reserves are expected to increase as further exploration is ongoing. The natural gas industry is expected to overtake gold extraction as the country's leading economic sector.

The NNGP is to include the introduction of regulation to govern the industry and, in particular, was intended to include fiscal policies to finance a dedicated Tanzanian economic development fund. However, Kikwete admitted that these fiscal policy plans have yet to be finalized.

Formulated in October 2013, the draft NNGP envisages that midstream and downstream natural gas operations would be treated as general business entities or industrial projects, subject to standard income taxation as well as indirect taxation, such as value added tax, excise taxes, and import duties. On the other hand, it was proposed that upstream production activities would be treated as separate commercial entities with fiscal terms that, in addition to corporate income and indirect taxes, would also include royalties, and super profit taxes. Public-private partnership requirements may also be enforced.

Kikwete has now disclosed, however, that, despite the likelihood that the tax measures will be broadly similar in the NNGP when it is finalized later this year, the Government is now reconsidering whether the proposed introduction of a windfall tax would be appropriate, at least during the initial stages of natural gas extraction. The Government ditched a similar proposal affecting the gold industry in 2011.

TAGS: tax | business | royalties | fiscal policy | energy | corporation tax | oil and gas | Tanzania

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