Global value chain and global wealth chain analysis

4.1 Mineral discovery and survey stage

Mason (2009) classifies mineral resources into four main groups. The first comprises the basic raw materials for construction and infrastructure. The second is made up of the energy minerals: oil, natural gas, coal and uranium. The third group consists of the industrial minerals. The fourth group comprises precious and semi-precious stones. Tanzania has mineral wealth in each of the four categories.

4.2 Feasibility study and corporate modelling

It could not be established whether the government undertook independent feasibility studies on the mineral values before granting the mining concessions. The information that could be obtained shows the establishment of an agency called Geological Survey of Tanzania in 2005, whose responsibility is stated as acquisition and storage of geological data and information used in the mineral resources sector and

other sectors of the economy and promoting mineral exploitation and mining in Tanzania. On the other hand, corporate modelling appears more likely to be undertaken by consultant firms.

The modelling reports are not publicly available, but tax auditors are empowered by law to access them during the course of an audit.

4.3 Development of bilateral and multilateral agreements 4.3.1 Mineral Development Agreements

Section 10 (i) of the Mining Act, 2010 empowers the minister to, on behalf of the United Republic of Tanzania, enter into a development agreement with a holder of, or an applicant for, mineral rights for which the minister is the licensing authority. Such agreements may cover the granting of the mineral right(s), the conduct of mining operations under a special mining license, Table: Confirmed mineral resource wealth of Tanzanite 12.60 million tons Limestone 313 million tons Soda ash 109 million tons Gypsum 3.0 million tons Phosphate 577.4 million tons Coal 911.00 million tons Uranium 23,000 tons (Mkuju only) Rare Earth Metals No data

Source: Zito Kabwe Lecture to National Defence College

the granting of the government free carried interest and state participation in mining, and the financing of any mining operations under a special mining license²⁸².

4.3.2 Double Taxation Agreements

Currently Tanzania has 11 DTAs. In recent years practice shows that it is the Ministry of Finance that leads the negotiation team which normally includes representatives from TRA and Ministry of Legal and Constitutional Affairs. The DTAs with Canada and South Africa (as the major sources of capital in the sector) are used here as examples to highlight the issues involved:

whereas the DTA with Canada is a bit generous to Tanzania, the one with South Africa is not as generous. If we consider, for example taxation of dividends: in the Tanzania/Canada DTA, Tanzania can tax dividends up to 20 per cent where a participating interest is involved and 25 per cent in all other cases, the comparable rates in the DTA with South Africa are 15 per cent and 20 per cent. Likewise, interest can be taxed in Tanzania up to 15 per cent in the Tanzania/Canada DTA and royalties up to 20 per cent. The comparable rates in the Tanzania/South Africa DTA are 10 per cent for both interest and royalties.

4.4 Stages of mining, tax points and illicit financial flow potential Table 2 shows the stages in the mining process and tax points.

282 A special mining license is defined under Section 4 of the Mining Act, 2010 as a license for large scale mining operation, whose capital investment is not less than $100,000,000.

Table 1: Tax concessions under the Model MDA

Tax aspect MDA holders Non-MDA holders

VAT VAT relief has been granted to both imports and purchases Only available to Primary Licence holders Withholding tax on technical fees

for residents

3% 5%

Withholding tax on technical fees for non-residents

3% 15%

Withholding tax on management fees-for residents

3% for MDA holders, charged on payments made only if management fee does not exceed 2% of total operating costs. If management fee is greater than 2% of total operating costs, the applicable rate shall not exceed 20% of the gross payments made.

5% charged on payments made

Withholding tax on technical fees for non-residents

3% 15%

Author’s reconstruction of data extracted from http://www.tmaa.go.tz/uploads/MPF_IMPLEMENTATION_STATUS_TANZANIA.pdf

4.5 Global wealth chains and illicit financial flow potential

The best starting point in relating global wealth chains (GWCs) to DRM, which is the focus of the report, is the role of Tanzania in the GWC. As is typical of many developing countries, GWC place Tanzania at the receiving end in terms of capital, technology and skills, with the companies operating in the country being mostly subsidiaries of MNEs. In taxation terms, this positions the country as a country of source. Potential for IFFs will therefore depend on the effectiveness of its source taxation and related rules.

4.6 Government service: water electricity infrastructure

Water supplies in Tanzania are basically the responsibility of local government authorities.

Therefore, no subsidies are offered to mining companies. In the case of electricity, there are no specific tariffs for mining companies.

4.7 Capacity building and data access

In recognition of the need for capacity-building initiatives, Paragraph 7.2 (iv) of the Mineral Policy, 2009 provides for strengthening cooperation between higher learning and research institutions and investors to foster the development of the mineral sector.

Table 2: Stages in the mining process and tax points

Tax/other revenue point Type of tax Rates

Prospecting/exploration (Acquisition of mineral rights)

License application fees Licensing Fees

$100

$500 for initial period, $2,000 for 1st renewal and 3,000 for 2nd renewal

Importation of equipment Annual rents for prospecting license $40 Import taxes (Import duty, excise

taxation and Value Added Tax) Exempted under the EAC Customs Management Act 2004 and VAT Act, 2014

Production (including goods purchases and service acquisition)

Royalties 4% for metallic minerals, 5 per cent for germs and 3% for others.

For cut diamonds (gem), the rate is 1%

Withholding taxes Range from 5 to 15%, as amended by MDAs-details shown above

Sales/export Corporate Income Tax

Additional Profit Tax VAT

30%

Currently does not exist-mentioned as possibility Zero-rated

Financing transaction Withholding taxes Source: Author’s own construction