Current legal framework

2.1 Constitutional law (mining and tax)

According to Article 138. -(1) of the Constitution of the United Republic of Tanzania, 1977, no tax of any kind shall be imposed, save in accordance with a law enacted by Parliament or pursuant to a procedure lawfully prescribed and having the force of law by virtue of a law enacted by Parliament. Furthermore, Article 99. -(1) of the Tanzania Constitution prohibits the National Assembly from dealing with a Bill “…to levy a tax or to alter taxation otherwise than by reduction”, unless the president has proposed that the matter be dealt with by the National Assembly and the proposal has been submitted by a minister.

2.2 Fiscal mining, illicit financial flow legislative and policy framework 2.2.1 Accounting rules and regulations

In the area of accounting, companies operating in the mining sector are subject to a set of standards and regulations. The general regulatory framework of accounting practice in Tanzania is based on the International Financial Reporting Standards (IFRS), which the country adopted whole sale in July 2004. The focus of all these standards is transparency in the affairs of all reporting entities. Disclosure requirements appear also, albeit partially, as the subject of Sections 129 to 131 of the Companies Act 2002. Furthermore, Section 472 of the Companies Act 2002 makes it an offence to willfully make a false statement in any particular material.

Section 474 provides for the production and inspection of books where offences are suspected.

These provisions are supplemented by the reporting requirements under the Capital Markets and Securities Act, 1994. Specific to the mining sector is Regulation 9 of the Mining (Mineral Rights) Regulations, 2010, which requires holders of prospecting operations to keep accounts with prescribed detail, including all expenditures incurred, supported by receipts, vouchers and other documentary evidence.

2.2.1 Mining tax laws and policies

The policies and legislations applicable to the Industry in Tanzania include: Tanzania Mining Policy of 2009; Mining Act 2010 and its Regulations; The Income Tax Act, Cap 322; The VAT Act (2014); and The East African Customs (Management and Tariff) Act, Cap. 403; and the Petroleum (exploration and production) Act, 1980.

• Income tax: The CIT rate for the mining sector is 30 per cent, the same as all other sectors. Companies offering 30 per cent or more equity to the public are taxed at 25 per cent, provided they list on the Dar es Salaam Stock Exchange. In addition, permanent establishments (PEs) are taxed at 10 per cent on deemed repatriated income. The provisions unique to mining include: ring-fencing of mining operations; loss carry forward (an alternative minimum tax is charged to companies with consecutive losses in three years at 0.3 per cent on turnover); and the deductibility of provisions for decommissioning costs, which is subject to conditions which the commissioner is empowered to establish, including setting a date by which actual expenditure must be incurred. Ring-fencing refers to restriction of deductibility of losses to each mining areas and non-transferability to other areas, even if operated by the same company.

• Withholding tax rates are prescribed in Paragraph 4 of the Third Schedule to the Income Tax Act 2004. The rates are as follows: dividends-10 per cent irrespective of residence of the shareholder (reduced to 5 per cent when distributed by companies listed in the Dar es salaam Stock Exchange, interest 10 per cent irrespective of residence of the receiver (save for resident financial institution to which withholding does not apply);

royalties-15 per cent irrespective of residence of the receiver; natural resource payments-15 per cent.²⁷⁸ The withholding tax from service fees and contract payments is as follows:

management or technical service fees paid by a resident person to another resident person in conducting a mining business-5 per cent; service fees paid to a non-resident person-15 per cent; insurance premium paid to a non-resident -5 per cent.

• Additional profits tax: Currently, Additional Profits Tax (APT) does not exist, but is mentioned in Article 17 of the Model Production Sharing Agreement in the oil and gas sub-sector. Discussions seem to point to a special tax regime for the extractives industry.

There is therefore possibility for an APT for the industry as a whole.

• Deductibility of provisions for decommissioning costs: Section 15 (1) of the Income Tax Act 2004 provides for deduction of decommissioning costs with the condition stated as

“ ...the Commissioner shall specify a date by which the expenditure must be incurred...which shall not be more than two years after the date by which resources extraction has substantially ceased...”. Where these conditions are violated by the taxpayer, the commissioner is empowered to make adjustments and to charge interest and penalties.

• Customs duty: The EAC provides for zero per cent duty rate on capital goods and raw materials for all importers, including equipment for mining companies.

• Royalty payments: According to the Mining Act 2010, every authorized miner shall pay the Government of the United Republic of Tanzania a royalty on the gross value²⁷⁹ of

278 Natural resource payment is defined in the Income Tax Act 2004 a “..any payment, including a premium or like amount, for the right to take natural resources from land or the sea or calculated in whole or part by reference to the quantity or value of natural resources taken from land or the sea”.

279 Note: Gross value for purposes of calculating royalties payable is defined by the Mining Act, 2010 as the market value of minerals at the point of refining or sale

minerals produced under his license at the rate-(a) in the case of uranium, of five per centum:(b) in the case of gemstone and diamond, of five per centum; (c) in the case of metallic minerals such as copper, gold, silver, and platinum group minerals, of four per centum; (d) in the case of gem, of one per centum; and (e) in the case of other minerals, including building materials, salt, all minerals within the industrial minerals group, of three per centum.

2.2.1 Illicit financial flow concerns

This research did not come up with a specific definition of Illicit Financial Flows (IFFs) in Tanzania. The Anti-Money Laundering Act, 2006 only contains a concept of “predicate offence”, which is defined to include “...terrorism, including terrorism financing; corrupt practice; theft; forgery; tax evasion...” In the context of the definition of IFF by the Global Financial Integrity (GFI), also referred to by the Report of the High Level Panel on Illicit Financial Flows from Africa viz., “money illegally earned, transferred or utilized”, the definition of predicate offence can be seen as an attempt at addressing some aspects of IFFs.

2.3 Anti-money laundering and anti-corruption laws

Both Money Laundering and Corruption have been criminalized in Tanzania. The Anti-Money Laundering Act of 2006 (which came into effect in July 2007) is the main law for countering money laundering and related criminal acts. The actors are the Financial Intelligence Unit (FIU) and the Prevention and Combating of Corruption Bureau (PCCB).

2.4 Status of domestic resource mobilization in the country

Domestic Revenue Mobilization (DRM) refers to the generation of savings from domestic sources and their allocation to economically and socially productive investments²⁸⁰. In Tanzania, DRM is a common theme in the annual budget speeches, with the focus in recent years being on reduction of donor-dependency. Performance has shown a positive trend, with donor-dependency estimated a t over 6 per cent according to the 2015/2016 budget speech, down from 24 per cent in 2004/2005 and 17 per cent in 2010/2011 (Salum 2015). Tax revenue as a major component (measured as a percentage of GDP) in Tanzania remains low. The 2015/2016 budget speech, for example, notes the current yield as only 12 per cent (projected to reach 13.1 per cent in the year 2015/2016), lower than most neighboring countries.

Currently, domestic revenue is collected from just about 2.0 million registered taxpayers.

Approximately 70 per cent of domestic tax revenue comes from 450 large taxpayers (80 per cent of which is generated by only 53 per cent of the 450)²⁸¹ the majority of which are subsidiaries of foreign Multinational Enterprises (MNEs).

280 www.oecd.org/site/devaen10/44272298.pdf

281 TRA’s key performance indicators report for 2014/2015