As costs are recovered, companies pay more tax to the government
Revenue generated from Tanzania’s extractives sector increased by 42% in US$ terms from the previous year. This was announced on Monday when Tanzania published their latest EITI Report covering the fiscal year 2011/12 (July/June). The government’s income from its extractives stems from gold mining, some diamond and tanzanite mining and a small but growing gas sector.
More companies pay more taxes
Corporation tax is the main driver of this increase, as it more than doubled compared to the fiscal year 2010/11. The increase comes as ten more companies have recovered their early investment costs and now begin to pay corporate income tax. Fifteen out of the 43 reporting companies, compared to five out of 29 in the previous reporting period, paid this tax, which is levied on the company’s income at a rate of 30%.
Distribution of taxes in the revenue mix according to EITI reports 2010/11 and 2011/12
Caption: Corporation tax – largely on par with other taxes in 2010/11 – gained in importance as it increased from US $ 45 m to US $ 106 m. This increase accounts for almost half of the overall revenue increase from US $ 330 m to US $ 468 m. Other factors, such as higher gold production and sales, further contributed to higher extractives revenues.
Geita Gold Mining Ltd was the largest taxpayer in 2011/12. Its payments represented 27 % of total government revenue from extractive industries. 2011/12 was the first time the company paid corporation tax; before,Geita had deducted accumulated losses from previous years. Of the ten largest contributors in extractive industry revenue, seven are currently paying corporation tax while the other three had no taxable profits.
From gold to gas?
Gold remains Tanzania’s most important mineral product. In 2012, gold exports represented 94% of total mineral exports. In the wake of the all-time high in gold prices in September 2011 production increased by 13%.
Even though 80% of revenues in 2011/12 came from mining companies, gas revenues may surpass mining revenues in the future. In recent years, major gas discoveries have been made off the East African coast.
Tanzanian gas production is still modest as most projects are in exploration or development phase. Currently, gas is used for domestic electricity production, but the country has potential to become a significant exporter of liquified natural gas (LNG).
Facts to inform debate
The discovery of hydrocarbons, as well as the terms of the contracts with gold mining companies, has evoked lively debate in Tanzania. The EITI Reports feed into the discussion by providing facts.
Hon. Judge Mark Bomani, Chair of the Tanzania EITI multi-stakeholder group, said that “through Tanzania EITI Reports, the public is informed on how much the Government receives from extractive industries. I urge the public to read the findings of the 4th TEITI Report as it will help in stirring up constructive discussions on the revenues accrued from extractive industries”.
Besides the recommendation for wider dissemination and discussion, the Report proposes setting up a comprehensive EITI database for managing the company information, and to improve the mining cadastre.