Govt makes fortunes from gas, gold



19th December 2015

The government revenues from the extractive sector jumped to Sh1. 2tr last year from Sh956bn in 2013, an increase of 28 per cent against 10 per cent decline in the number of companies during the period.

“This significant increase amounting to Sh265bn is explained mainly by the increased gold production in the year by 10 per cent as well as payment of corporate tax by Ophir Tanzania (Block1) Limited of Sh361bn,” says the Tanzania Extractive Industries Transparency Initiative (TEITI) Sixth report released last month.

Total revenue reported by companies in the extractive industries decreased by 10 per cent despite the increase in gold output to $2,146,062,181 (Sh4.6tr) in 2013/14 from the previous record of $2,361,169,479 (Sh5.0 tr) mainly due to falling gold prices last year, says the report that was signed by Juvinal Betambira, reconciliation team leader for BDO East Africa who co-prepared the findings.

It says gold reported lower prices of $1,264.99 (Sh2.7 million) in Tanzania last year, plunging by 17 per cent compared to 2013 when it fetched $1,530.88 (Sh3.3 million) per tray ounce.

Major gold producers also reported 11 per cent increase last year by producing   1,404,960 ounces against production of 1,265,164 ounces in the previous year, according to the report. 

However, the revenue from natural gas production extraction was less impressive last year following 2 per cent decline from the 22.3 billion cubic feet production in 2013.

The Tanzania Revenue Authority (TRA) received last year Sh989bn being more than three quarters of the total government receipts as compared to other government entities in the year under review. 

TRA increase in revenue represents 81 per cent of all government entities receipts from extractive industries and 35 per cent revenue growth from the previous report. 

The Ministry of Energy and Minerals received Sh130bn as its dues from extractive industries representing 11 per cent of the government receipts, while the National Social Security Fund (NSSF) fetched Sh49. 6bn amounting to 4 per cent. Other government entities received revenues amounting to Sh51.6bn which is also 4 per cent share of the total government receipts.            

“Despite the decrease in the number of companies reporting in the six reports by 10 per cent, government revenues from the extractive sector increased to Sh1, 221bn from Sh956bn in 2013 to (an increase of 28 per cent) the report says in part. TEITI is chaired by retired Judge Mark Bomani. 

According to TEITI, 95 per cent amounting to Sh1, 159bn of the total government receipts were tax revenues while 5 per cent equivalent to Sh62bn were contributions for the retirement benefits made by companies. In this regard, corporate tax contributed 42.49 per cent worth Sh492bn of tax revenue being an increase of 125 per cent from the previous period.

Value Added Tax contributed Sh176bn, 15.21 per cent of tax revenue. But VAT dropped by 8 per cent compared with the duration covered by the fifth report.  Further Sh62.8bn was paid as Pay As You Earn (PAYE) representing 14.05 per cent while royalties and ground rents contributed Sh136bn, an 11.77 per cent contribution but a 12 per cent fall from the previous period.

Included in the VAT receipts is VAT on imports received from companies with Mineral Development Agreements (MDA), amounting to Sh72bn, 6 per cent of tax revenue received by government. 

“Sh120bn, 10 per cent of tax revenue was paid by the companies in withholding taxes. These withholding taxes were deducted by the companies from the payments of their suppliers and paid to TRA on behalf of these suppliers,” the report indicates. 

Sixteen companies out of 59 paid corporation income taxes taxes (CIT). They include Ophir Tanzania (Block 1) Limited, Geita Gold Mine, Panafrican Energy, Tanga Cement, Songas Limted, Tanzania Portland Cement, Resolute Tanzania Limited, Mbeya Cement Company and Minjingu Mines & Fertilizers.

Others are Midwest Minerals Processor Limited, Willy Enterprises Limited, Nyanza Mines, TOL Gas, Tanzanite One Trading Limited H.J.Stanley & Sons Limited and Songshan Geology Minerals. 

The report explains that Panafrican Energy Tanzania Limited, Songas Limited and Ophir Tanzania (Block 1) Ltd, who are involved in oil and gas paid corporate tax; the rest of the 18 oil and gas entities covered in this report are still involved in exploration activities and not in production without taxable income and therefore corporate tax was not applicable 

Ophir Tanzania (Block 1) Ltd paid corporate tax of Sh361 billion despite the company not being involved in any production. This tax was paid by the company based on the profits from the disposal of some assets in the period. 

“According to the company and also a position agreed by TRA, the reason this disposal was subject to corporate tax rather than capital gains tax is because it was a disposal of business assets rather than investment assets. Thus it formed part of taxable income which is subject to corporation tax. This was a one off payment and is not expected to recur in future years,” says the TEITI report. 

Bulyanhulu Gold Mine Limited, Pangea Minerals Limited, North Mara Gold Mine Limited, Shanta Mining Company Limited and TanzaniteOne Mining Limited, all companies with MDA’s are not paying corporation taxes as they are still in loss making position. Corporate tax is based on company profits earned and since these companies are not making taxable profits, corporate tax does not arise. 

Basing on revenue by sectors, minerals contributed 53 per cent which is Sh647bn of the total government revenue, representing a decrease of 15 per cent from the previous report. However, oil and gas injected in Sh573bn represent 47 per cent and an increase of 196 per cent as compared to the previous report. 

The decrease in the minerals revenue is mainly due to decreased gold prices in the year by about 15 per cent, despite the fact that production of gold increased by about 10 per cent as compared to the prior year. Also there was a decrease in the number of mining companies reporting from 46 companies in 2013 to 38 companies in 2014 because some of these closed operations in Tanzania. 

The increase in gas revenues is mainly due to the payment of corporate tax from Ophir Tanzania (Block1) Limited. As it has been explained above, this was a one off payment is not expected in the future years, the report says.  

It names names top ten tax payers from the extractive industries as Ophir Tanzania (Block 1) Limited, Geita Gold Mine, Bulyanhuru Goldmine, Panafrican Energy , North Mara Gold Mine, Pangea Minerals, Songas Limited, Tanga Cement, Tanzania Portland Cement and Statoil Tanzania.

The report further says that the 17 companies paid a total of Sh25. 04bn in 2013 as contribution to Social Corporate Responsibilities.  Though these amounts are not reconciled, the MSG decided to disclose these in the report as revealed by the extractive companies.

The overall objectives of the reconciliation exercise are to aid the government of Tanzania in identifying the positive contribution that minerals resources are making to economic and social development of the country and to realise their potential through improved resource governance that encompasses and fully implements the principles and criteria of the Extractive Industries Transparency Initiative.

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