Tanzania earned only $17.4 over five-year price boom
Prof Oim Ajakaiye of Africa Economic Research Consortium displays the report by experts on exploitation of minerals by African governments as mobilisation for internal resources for development. Photo/ANTHONY KAMAU
Tanzania has collected only $1 million in income tax from foreign mining companies even though they exported nearly $3 billion worth of gold over a four-year period, a new report has revealed.
As at the end of last year, AngloGold Ashanti was the sole mining company operating in Tanzania to have paid any corporate income tax, says the report by Action Aid and other advocacy groups.
The company made a $1 million payment in 2007 on its Geita gold mine operation, which provided Johannesburg-based AngloGold Ashanti with gross profits of $93 million between 2002 and mid 2007.
According to the report, Canada-based Barick Gold, another large mining company doing business in Tanzania, reported a net income of $97 million between 2004 and the first half of 2007 but paid no corporate income tax to the Tanzanian government.
Between 2002 and 2006, mining companies exported around $2.9 billion worth of gold. During that time, the government earned around $17.4 million in royalties, charged at 3 per cent of the market value minus transport and transaction costs.
“If royalties were charged at 5 per cent as it has now been recommended by a presidential commission, the government revenue would have increased to $145 million over the next five years,” says the report titled: “Breaking the Curse: How Transparent Taxation and Fair Taxes can Turn Africa’s Mineral Wealth into Development.”
“Mining companies operating in Africa are granted too many tax subsidies and concessions,” says the report, which also covers Congo, Ghana, Malawi, Sierra Leone, South Africa and Zambia. “There is high incidence of tax avoidance by mining companies conditioned by such measures as secret mining contracts, corporate mergers and acquisitions, and various ‘creative’ accounting mechanisms.”
Tanzania negotiates from a position of weakness in its dealings with multinational mining corporations, says Peter Kafumu, the country’s Commissioner for Minerals.
He says: “The companies are holding a panga by the handle and we are getting the sharp end.”
Foreign governments also lobby in Tanzania on behalf of the mining companies, the report says.
It says that in June last year, the staff of the Canadian High Commission in Tanzania tried to influence parliamentarians to reject the recommendations of the Bomani Commission which had been appointed by President Jakaya Kikwete to review the country’s mining contracts and legal framework.
The companies further try to take advantage of weaknesses in Tanzania’s legal structure, the report adds.
It quotes Mr Kafumu as saying: “We have no capacity to look at their books. The companies can write the books so that third world countries cannot regulate. Even the contracts are difficult. I think the mining companies exploit our weaknesses in law and capacity.”
The companies have used their negotiating leverage to gain exemptions from local government taxes and fuel levies, the report adds.
It notes that under negotiated agreements, the mining companies do not pay local government taxes in excess of $200,000 a year. And even that sum, which is much lower than standard tax rates, is not fully collected.
Royalties account for the largest source of revenues that the Tanzanian government is able to collect from the companies.
It earned about $17 million in royalties per year during a five-year period. The figure is the product of a 3 per cent charge on the market value of gold exports, minus the cost of transportation and transactions.
Meanwhile, mining companies in Tanzania are expected to make their formal response to the accusations contained in the report.
Industrial sources told The EastAfrican that think the companies and the chamber for energy and minerals would be making a formal response to what is contained in the report.
“It is not good for the industry or the country,” said the sources.
