TANZANIA REVENUE AUTHORITY TRA 1 TOPIC: CONSTRAINTS TO MORE EFFECTIVE TAXATION OF EXTRACTIVE...

TANZANIA REVENUE AUTHORITYTANZANIA REVENUE AUTHORITYTRATRA 1

TANZANIA REVENUE AUTHORITY

TOPIC: CONSTRAINTS TO MORE EFFECTIVE TAXATION OF

EXTRACTIVE INDUSTRY IN TANZANIA

Lusaka, Zambia

April, 2012

Presented By: Neema G. Mrema (Mrs)Presented By: Neema G. Mrema (Mrs)

COMMISSIONER FOR LARGE TAXPAYERSCOMMISSIONER FOR LARGE TAXPAYERS

TANZANIA REVENUE AUTHORITYTANZANIA REVENUE AUTHORITYTRATRA

Contents

1.0 General Overview

2.0 Constraints To Taxation Of Extractive Industry

3.0 What Needs To Be Done?

4.0 Conclusion

2


1.0 GENERAL OVERVIEW

1.1 Introduction

Tanzania is endowed with a vast and very valuable extractive resource industry.

It is ranked fourth in Africa, after South Africa, DRC and Nigeria.

The contribution to the GDP increased from 1.4% in 1998 to 3.0% in 2008;

Declined to 2.5 percent and 2.4 percent respectively between 2009 and 2010 due to the World economic crises.

3


1.0 GENERAL OVERVIEW (Cont’d)

Source: Economic Survey 2010

4

Figure 1: Mining Sector Growth and Contribution to GDP


Taxes for mining companies are administered by TRA

Tax revenue collected contributed to an average rate of 2.2% of the total tax revenue for the period 1999 - 2010.

Tax revenue from the sector has been increasing from US $ 2.1m in 1999 to US $71.6m in 2010. (Source:Ministry of Energy and Minerals- Economic Survey 2010).

The increase has been attributed to the increase in;

mineral production resulting from expansion of investments.

increase in world minerals prices - gold. (Fig 2).

5

Tax Revenue Performance



Figure 2: Taxes Paid by Large Scale Mining Companies (1999-2010)

6

Source: Tanzania Revenue Authority (TRA) and Ministry of Energy and Minerals (MEM)

1.0 GENERAL OVERVIEW ... Cont’d...


Royalty Payments by Major Gold Mines

Actual royalties paid to the Government by the major gold mines have been increasing from US$ 1.6m in 2001 to US$ 40.5m in 2010.(Ministry of Energy and Minerals- Economic Survey 2010).

Petroleum and gas exploration companies have not yet paid royalty to the Government since they are still under exploration stage.

7



1.2 The Extractive Resources In Tanzania

1.2.1 MineralsThe mining sector in Tanzania includes small– scale and large-scale operations Gold accounts for 90 percent of the value of Tanzania’s mineral exports. Current major multinational mining companies in Tanzania are: Barrick Gold Corporation, Anglo-Gold Ashanti Ltd., Resolute Mining Ltd., Tanzanite One Ltd., and Petra Diamonds Ltd.

8



1.2.2 Natural Gas

Exploration is accelerating and there have been substantial offshore gas discoveries. Currently Tanzania has signed several PSAs with the MNCs including: BG Group of Britain Maurel & Prom of France Petrobras of Brazil Artumas Group of Canada Pan African Energy of Britain Shell International of Holland Tullow Oil of Britain Ophir Energy Company of Australia

9



1.3 Tanzania Extractive Industry Tax Structure The Central Government is collecting revenue from

extractive industry in form of royalty, and Corporate Income Taxes:

Royalty (Gold - 4% and Germstones - 5%) Taxes Corporate Income Tax (30%) Withholding tax on non-residents for service fees is 15%. Employment tax rate is 30%(Max.) VAT on export is zero rated. Custom & Imports Duties on capital goods are zero rated.

10



1.3.1 Relevant Legislations The legislations applicable to the Industry in Tanzania

include: Tanzania Mining Policy of 2009 Mining Act 2010 The Income Tax Act, Cap 322 The VAT Act, Cap 148 The East African Customs (Management and Tariff) Act,

Cap. 403 Petroleum (exploration and production) Act, 1980.

The Mining Act, 2010 provides for the imposition of royalty.

The Gas Act is under preparation to cover midstream and downstream of petroleum and natural gas production.

11



1.3.2 Fiscal Incentives in the Extractive Industry1.3.2.1 Corporate Income Tax (CIT)

Exploration and development capital expenditure for extractive industry operations are deductible at 100%.

All assets used in extractive industry are expensed at 100%

1.3.2.2 Value Added Tax VAT reliefs on imports and domestic purchases is provided for

exploration, prospecting, drilling and mining expenditures.

1.3.2.3 Excise Duty Extractive Industry is exempted from excise duty on imported or

domestically off-bond purchased oil for mining/exploration purposes.

Mining/exploration companies buying tax paid fuel are refunded for fuel consumed in mining operations.

12



1.4 Extractive Industry Revenue Management & Administration Management and administration of revenue is administered by 2

ministries: Ministry of Energy and Minerals and Ministry of Finance.

Ministry of Energy and Minerals deals with issuance of Mining licences, entering into MDAs, and PSAs through TPDC for exploration of oil and gas.

Ministry of Finance is charged with fiscal policy issues in relation to tax administration(TRA-Revenue Collection, advises to MOF).

Other collaborating institutions include: Tanzania Mineral Audit Agency State Mining Corporation (STAMICO) Tanzania Extractive Industries Transparency Initiative (TEITI) National Environmental Management Council (NEMC).

13



2.0 CONSTRAINTS TO TAXATION OF EXTRACTIVE INDUSTRY

2.1 Gaps on legal, Fiscal and Contractual RegimesSome of the flaws and imbalances include:

Limited state control over the mineral reserves. Limited fiscal regime controls on issues like hedging

transactions. Tax exemptions and concessions of 15% Additional

Capital Allowances on un-recovered Development Capital Expenditure given to the investors especially those who entered into contract before September, 2009.

Long term concessions on MDAs. E.g. The first large gold mining company started to pay CIT 10 years after commencement of commercial production.

14


2.0 CONSTRAINTS (Cont’d)2.2 Regulatory and Institutional Set up

The set up poses a risk of conflict of interest and inadequacy

of proper skills for one regulator to perform all duties.

2.3 Tax Compliance Issues-Skills GapTRA is blessed with tax officers with knowledge in taxation and auditing skills, but lacking expertize in industry itself such as geologists, financial analysts etc.Tax Authority had been in disputes with the extractive industry on the correctness of their declarations on:Resource quantity and resource prices.Non-benchmarked resources – Gemstones - Tanzanite Hedging arrangements.Cost issues (physical reality, ring fencing, cost classification).

15


2.0 CONSTRAINTS… (Cont’d)2.4 Related party transactions Harmful tax practices such as:

Transfer pricing. Thin capitalization and Gain on licence /interest transfers where most mergers

and acquisitions are done overseas and commonly in a tax haven jurisdiction.

2.5 High Investment Costs and Technology ChallengeCosts of exploration and extraction of the underground resources are exorbitantly high and cannot be affordable by the underdeveloped countries. Hence modern technology is required for tax authorities to be able to effectively capture and analyze actual costs.

16


2.0 CONSTRAINTS… (Cont’d)

2.6 Limitation on Exchange of informationLimitations on exchanging information between Tax Authorities especially where there is no DTAs. Not easy to get information on actual costs of the equipments acquired.

2.7 Staff Retention It has been difficult to retain competent staff with speciality like geologists, economists, statisticians due to insufficient remuneration and allowances.

17



2.8 Delays in clearance of importsDelays in imports do occur due to limited facilities and capacity of the TPA and other players eg TBS, TFDA etc.

2.9 CorruptionDue to human weaknesses, there had been some few underground events of corruption which increase costs of operations.

2.10 UndervaluationFalsification of invoices by declaring unrealistic prices in order to defraud the revenue by unfaithful importers.

18



2.13 Lack of Proper InfrastructureThis affects automation and transport/movement of cargo to the destinated locations eg unreliable sources of power generation.

19


3.0 WHAT NEEDS TO BE DONE?3.1 Elimination of gaps in the legal, fiscal and

contractual regimesThe Government control on the resource reserves.Fiscal regime should capture a share of upside profits trend The government should review the existing contractual regimes and re-negotiate the applicable terms to the balanced level between the parties. Capturing additional take for the Government from projects with high degree of profitability.

20


3.2 Regulatory and Institutional set up In Tanzania, the management and administration of the extractive

industry involves separate ministries, (MEM and MOF) and organs (TRA, TPDC, NEMC, TMAA, STAMICO) within the ministries.

This calls for a coordinated and harmonized framework of operational set up which will ultimately:

Minimize overlaps and duplications. Streamline /coordinate procedures Develop joint workings Minimize compliance burden for companies Minimize conflict of interest

The roles of some of the institutions may need to be separated particularly in the situation where the institution is the regulator and the commercial participant as is a case with TPDC in Tanzania.

21

3.0 WHAT NEEDS TO BE DONE? .. (Cont’d)


3.3 Tax Compliance Issues/Skills GapThere is a great need to the TA’s to have competent staff with necessary skills and knowledge. The state should invest and undertake deliberate efforts to evaluate and administer the exploration, development and operations of such projects by doing the following:

Capacity Building – sufficient administrative capacity to: Negotiate DTA’s, APA’s, etc. Evaluate and administer the exploration, development

and operation of such projects. Cross check and audit the declared profits of MNE’s. Analyse Hedging transactions and harmful Tax

Practices Analyse offshore mergers and acquisitions.

22



3.4 Related Party Transactions Review the Income Tax Act, 2004 and finalize development of TP regulations/guidelines to provide for a ‘look through’ rule to enable taxation of gains from off shore indirect transfers of interest in Tanzania assets and other cross border transactions in general. 3.5 Technology ChallengeThe Government has to move fast with the rapid change in technology in modernizing tax regime to enhance revenue collection. One of the methods is for instance, introduction of Transfer Pricing Database.3.6 Limitation on Exchange of InformationThere is a great need for States to exchange information and share experience among tax jurisdictions by encouraging more tax treaties.Tax authority should promote consultative meetings with the taxpayers to discuss taxation issues.

23



3.7 Staff RetentionThe government is making efforts to establish special packages/allowances for newly recruited and existing specialists. Alternatively, the TRA may borrow specialities from other government institutions or work together during audits of complex sectors.

3.8 Delays in clearance of importsAction plan is in place to have initiative to improve cargo handling. The target is to minimize number of days to handle cargo at a minimum of five (5) days. Also conducting final release study involving all parties

3.9 Corruption TRA have systems in place for example whistle blowing, code of conduct and displinary mechanisms. Other mechanisms include; putting self assessment system in place and minimization of direct contacts between TRA Officers and Taxpayers through automation of tax revenues operations.

24



3.10 UndervaluationSensitization through stakeholders forums and full automation of port port operations3.12 Lack of Proper InfrastructureGovt introduced short & long term measures to minimize problem of power shedding & improve quality of roads.TRA has introduced the risk and cargo management systems to minimize risks of loss of revenue due to cargo delay and theft.

25



4.0 CONCLUSION AND WAY FORWARD There have been continued efforts in the

improvements of revenue collection in the TRA. Such improvements include: Introduction of forensic lab Establishment of the International Taxation Unit.

Procurement of new computer systems for customs and domestic revenue operations and other IT systems together with data warehouse, transaction price database, transfer pricing database, etc. Cement partnership with our Development

Partners.

26


4.0 CONCLUSION... (Cont’d) The Government should obtain not only a bigger share

of profits but also stronger control over the natural reserves.

Nevertheless, a well balanced approach should guide the taken initiatives, decisions and measures so as not to affect adversely the investments.

Sufficient platform for state control (technical capability) should be the core of the matter.

Consultations and revenue modelling should be the way forward to establish an optimal and dynamic tax structure.

27


Thank You For Your Kind

Attention

28

TANZANIA REVENUE AUTHORITYTANZANIA REVENUE AUTHORITYTRATRA 29

Date post:	25-Dec-2015
Category:	Documents
Upload:	gabriella-campbell
View:	215 times
Download:	0 times

TANZANIA REVENUE AUTHORITY TRA 1 TOPIC: CONSTRAINTS TO MORE EFFECTIVE TAXATION OF EXTRACTIVE...

Documents