CONTRACTUAL AND FISCAL

TERMS APPLIED IN TANZANIA

MINING SECTOR
Presented by : Eng .Gilay Charles Shamika,
Senior Engineer & Gemologist
Tanzania Minerals Audit Agency (TMAA)
(gcshamika@yahoo.com,gilayshammy@gmail.com)
th 2DAYS WORKSHOP AT Mount Meru Lodge, Arusha, Tanzania: 15 th
th JULY, 2014
16th
HOSTED BY GLOBAL ACADEMY FOR MINING,OIL & GAS.
GENERAL THEME: DEVELOPMENT OF THE LEGAL AND REGULATORY
FRAMEWORKS IN MINING, OIL AND GAS

OUTLINE
General overview of the mining sector in Tanzania
Mining industry as a Cross-Cut sector
Timelines events led into current legal, regulatory
and fiscal regime
Fiscal and contractual terms used in Tanzania
Mining Sector
General benefits of the Mining Industry in Tanzania
PRIMA COBWEB concept as an integral for
development of Mining Sector
Challenges
The way-forward

GENERAL OVERVIEW OF THE MINING

INDUSTRY IN TANZANIA
Regarded to be the countrys first priority and engine to drive
the country from developing country to the developed country
come 2025.
Tanzania National vision 2025, predict the sector will
contribute to the tune of 10% of the GDP. The discoveries of
natural gas and oil, have increased the courage of the
Government to accomplish that vision of 2025
Currently the sector contributes 3.3% GDP as of 2013.
FDI is on the average of 482 USD Million per year (average
from 1997 through 2009)
Tanzania ranked 4th among gold producers in Africa and soon
it will be ranked among oil/gas producers as of now the
discoveries have reached the sum of 46.5 trillion cubic ft.
Availability of uranium measured and indicated resources, is
another credit to the sector taking consideration of the
contentious minerals nature..

TIMELINE EVENTS LED INTO CURRENT

CONTRACTUAL AND FISCAL TERMS IN TANZANIA
YEAR

EVENT

Late 1980s
1990s

Sector characterised by state control

The importance
of restructuring
emerges, National investment promotion
policy and National promotion and
protection Act were enacted.
The
government
made
economic
reforms and mining sector was not
exceptional.
Mining sector policy framework
established with the supreme objective
of revising mining laws and restructuring
regulatory frameworks, fiscal regime
and
divesting
state-owned
mining
companies.

Mid 1990s

1994

TIMELINE EVENTS LED INTO CURRENT

CONTRACTUAL AND FISCAL TERMS IN
TANZANIA(contd)
YEAR

EVENT

1997

Financial law amendment Act 1997

Tanzania
investment
Act,1997
was
enacted
The Mining Act,1998 was enacted
Amendments
to
Foreign
exchange
Act,1992
The Gvt conducted mining contract review
to access the inadequate contribution of
mining sector. The mining companies
accepted to pay $200,000 annually to
local councils.
Formation of the Presidential Mining
Review committee

1998

2006

2007

MINERAL DEPOSITS IN TANZANIA

(Countrys Wallet of Minerals)
Tanz
anite
Iron
Ore
103
mil.
tons

12.6
mil.
tons

Diam
onds

Gold

51
mil.
carat
s

2,222
tons

Coal
5 bil.
tons

Nick
el
209
mil.
tons

Uran
ium
35.9
mil.
lbs

MINERAL OCCURRENCE AND MAJOR MINING

PROJECTS IN TANZANIA

MINING SECTOR AS A CROSS-CUT

SECTOR

The mining sector in Tanzania is governed by

:
5 Policies
6 Regulations, and
18 Acts/laws
On top of that, the mining sector is divided
into two types:
MDAs operators/mining companies and
NonMDAs
(license)
operators/mining
companies.
Debate: Any importance of narrowing to reduce
bureaucracy
participation?

or widen

again

for

more

MDAs WITH EXISTING CONTRACTUAL AND

FISCAL REGIME
Bulyanhulu in Kahama owned by Bulyanhulu Gold
th August 1994;
Mine Limited. Contract signed on 5th
Golden Pride in Nzega owned by Resolute Tanzania
th June 1997;
Limited. Contract signed on 25th
Geita Gold Mine in Geita owned by AngloGoldth
Ashanti from South Africa. Contract signed on 24 th
June 1999;
North Mara in Tarime owned by North Mara Mine
th June 1999;
Limited. Contract was signed on 24th
Tulawaka in Biharamulo owned by Northern Mining
th
and Pangea Minerals Ltd. Contract signed on 29 th
December 2003; and
Buzwagi in Kahama owned by Pangea Minerals
Limited. Contract signed on 17 February 2007.

TYPES OF MDAs APPLIED IN MINING

WORLDWIDE
Types of MDAs :
Ad hoc Agreement: singular, specific for a certain
mine
Standard Model Agreement: Uniform, applied for all
mines
Proforma Agreement: reviewed continually until
when seems it is perfect to be applied and used as
a model.

For Tanzania Section (10)(1) Confer a power to the

Minister to enter into agreement. Mining Act,2010
insists Standard Model Agreement.
The mining operators without MDAs, are covered
by conditions of the license and existing
legislations.

CONTRACTUAL TERMS WHICH NEED THOROUGH

ATTENTION IN MDAs
Contractual
Terms
Economic
equilibrium clauses

( pay-back
clause)
Freezing clauses
(not negotiable)

Stabilization
clauses:
( negotiable/free
will clauses)

Meaning
These require the government to compensate the
investor should the government enact any legislation or
take any administrative measures that aggravate the
costs of the project.
These ensure that the existing legal-fiscal regimes at the
time of signing contracts do not change over the
lifespan of the project and that subsequent legislation
does not apply to the relationship between the parties to
the agreement.
Stabilization clauses act as a contractual insulation
against fiscal legal changes during the lifespan of an
agreement. As a guarantee to profitability and stability of
their projects, investors normally insert a stabilization
clause providing that the terms will not be altered
unilaterally or terminated by the State. These are
normally carried over the entire lifetime of the
agreements. Application of stabilization clauses limit

FISCAL TERMS WHICH NEED THOUROUGH

ATTENTION IN MDAs
Fiscal Terms
Unredeemed
Expenditure:

Meaning

If a mining company has incurred capital expenditure that is

Capital greater than the amount needed to cancel all of its taxable
income for the year on a particular mine, then the balance of
capital expenditure not offset for tax in that year is carried
forward for offset against the income of the next year. The
peculiarity is that the balance of unredeemed capital expenditure
is increased at the start of the next year by 15% as if this sum
had been spent on additional capital goods even though this has
not actually occurred. As a result the date on which the first tax is
due from a mining operation can be deferred for a considerable
period of time. This additional unredeemed capital
expenditure has been cancelled in some recent mining
contract renegotiations as the deductions have no
economic substance. It seems likely that it was introduced at a
time of high inflation to make sure that the real value of the
amount expended was offset against income apparently worth
more in a later period.

Capital Expenditure A company is only allowed to deduct the cost of capital

Ring Fencing:
expenditure at a particular mine against the income of
that mine when calculating its tax bills. As a result it
cannot deduct the cost of capital expenditure at another
mine that is not yet making money from the income of

FISCAL TERMS WHICH NEED THOUROUGH ATTENTION IN

MDAs
Fiscal Terms
Royalty

Corporate Tax:

Meaning
Effectively a sales tax charged on the market value.
How this market value is calculated will determine the
actual royalty a company pays. Companies might
claim to sell gold to their buyers at a lower price
(called the reference price) than the price of gold on
international commodity exchanges, which means
they would pay a lower royalty. It is therefore
important for mining agreements to have proper
market pricing arrangements in place.
The tax paid by companies on their taxable profits. Taxable
profits are those declared in their accounts (see net profit
before tax) but some adjustments are usually made for tax
purposes. The most important by far is to add back to that
figure for net profit before tax the depreciation charge and to
then deduct from the resulting sum the capital allowance
claim made for expenditure made on capital goods. Since the
expenditure on capital goods often exceeds the depreciation
charge it is common for taxable profits to be lower than
accounting profits and for the actual tax due to be less

Income Tax ,2004 incentives related to

Mining Sector in Tanzania:
Mining companies to redeem funds dedicated to environmental
protection in implementing written conditions set out by the
Income Tax commissioner, under Section 15(3).
Deduction of withholding tax from the payment made for
management and technical services provided by resident
companies, under Section 83(1)(a).The amount of tax is 5%
stated under paragraph 4(c) of the first table of the Income Tax
Act,2004.Deductions for services provided by non-resident
companies fall under Section 83(1)(b) and is 15%.
Tax depreciation rate for exploration and mining equipments
follows Wear & Tear Deduction Allowances as per Schedule III of
the Income Tax Act,2004
100% capital allowance in the year of development expenditure
in the computation of that years taxable Income as stated in
the Act.
Note: Additional Capital allowance of 15% for MDAs signed before
July 1,2001 applies but after July 1,2001 not apply. In 2006 some
companies accepted to remove such provision in their MDAs.

Income tax ,2004 incentives related to

Mining Sector in Tanzania (contd)
Value Added Tax :Persons and institutions clarified in Section
11,Cap 148 Revised Edition of 2006, are entitled in VAT relief.
Mining companies are subject to VAT especially on imported
goods which do not receive customs duty relief. This implies
companies are required to pay VAT and redeem them as per
procedures.
Fuel Levy : Only earlier MDAs holders received exemption from
fuel levy which exceeds $200,000 per annum, the rest pays
through price under Road & Fuel Act, chapter 220 and Gvt Notice
of February 5, 1999.
Local Government service levy : Local Government Finances
Act,1982 requires payment of 0.3% to Local councils from mining
companies.
0.3% of turnover for Non-MDA operators and $200,000 per annum
for MDAs operators.

Income Tax,2004 incentives

Mining Sector in Tanzania

related to
(contd)

Customs duty: The exemption is offered to

contractors and mining companies but depending
on the mining stage operations
Stamp duty: Duty rates are referred to Stamp
duty Act chapter 189.
Excise duty: Exemption is offered to mining
companies on imported or domestically purchased
oil only for mining operations.
Points to Ponder: Do we still need these
incentives for the incoming investors.? Are
all incentives or some are loopholes need to
be bridged .

SUMMARY OF FISCAL RATES APPLIED IN

TANZANIA MINING SECTOR
Taxation/Fiscal term

Rates/Description

VAT

VAT relief granted to both import & domestic

purchase for MDAs and PL Operators

Corporate tax

30% on taxable profit

Royalty

On gross value ( 5% for rough Gemstones ,

Diamond and Uranium, 4% for Gold, Copper,
Silver and Platinum group Metals, 3% for building
mineral, 1% for Cut &Polished Gems)
3% for MDA and 15% for non- MDA operators
charged on payment made.

Mgt fee(Non resident)

Mgt fee ( resident)

Fuel levy

3% for MDAs and 5% non-MDAs operators

charged on payment charged. However for
MDAs operator, if mgt fee is greater than 2% of
operating cost, the applicable rate shall not
exceed 20%.
Charged at TZS 200 per litre and claim refund
after consumption.

SUMMARY OF FISCAL RATES APPLIED IN TANZANIA

MINING SECTOR
Taxation/Fiscal term
Excise duty:

Import duty on capital goods

Ring fencing
Local Government service
levy
Import duty
Capital allowance

WHT on technical servicesresident companies

WHT on technical servicesnon resident companies

Rates/Description
Exemption is offered to mining companies
on imported or domestically purchased oil
only for mining operations.
0%
Mine to mine
0.3% of turnover for Non-MDA operators
and $200,000 per annum for MDAs
operators.
5% charged on cost, insurance and freight
value after 1yr anniversary.
Mining companies are granted 100%
capital allowance on prospecting and
development capital allowance.
3% for MDAs and 5% for non-MDAs
operators changed on payment made.
3% for MDAs and 15% for non-MDAs
operators changed on payment made.

BENEFITS OF EXTRACTIVE INDUSTRY IN

TANZANIA
2013
Benefits
Gold exports
Tanzanite + Diamond exports
Royalty from all large scale
mine
Mining contribution to GDP
FDI inflows

Mining sector local goods and

services
Job creation and technology
transfer
Local economic development
Foreign exchange earnings
Source: MEM Budget
speech 2014/15

1.79 USD billion

50.53 USD million
72.90 USD million
3.3% ( as of 2013)
482 USD /year
(average from 19972009)
Spent USD 520.67
million (2012)

PRIMA COBWEB CONCEPT AS AN INTEGRAL OF FUNDAMENTAL

DEVELOPMENT OF MINING SECTOR CONTRACTUAL , FISCAL ,LEGAL

AND REGULATORY FRAMEWORKS

PRIMA is the abbreviation of POLICY, REGULATION,

INVESTMENT, MDAs and ACTS
Generally the Mining sector is built on these I called PRIMA or
Five Foundation Blocks of Mining sector. Nothing can be said
in mining sector which is not inclusive in PRIMA
The experience shows that non-linkage of PRIMA is the source
of resource curse or dutch disease.
Currently Tanzanian Mining Policy is believed to be the best in
Sub-Sahara region. But it lack the connection with the best
signed MDAs to the extent that the Government has initiated
the negotiations to review and do recommendable reforms
bilaterally.
That means the Mining sector need comprehensive approach
which links all PRIMA and make it like cobweb where any
loopholes whether deliberately or incidental created will be
captured PRIMA COBWEB!!

PRIMA COBWEB CONCEPT AS AN INTEGRAL OF FUNDAMENTAL

DEVELOPMENT OF MINING SECTOR CONTRACTUAL , FISCAL ,LEGAL

AND REGULATORY FRAMEWORKS

Like a cobweb, where is not

easy to find the starting point
to untie the cobweb,
Prima concept address the
same logic, that mining sector
is nothing rather than PRIMA
comprehensive linkage.
PRIMA Cobweb do not provide
contractual and fiscal regime
loopholes. The linkage provide
balance and checks.
The policy and Act may be
appropriate but if MDAs are
inadequate , then the
importance of good policy and
Acts are irrelevant. Similarly,
if MDAs are good but policy
and Acts are not, non-MDAs
operators, will relax.
Prima is the five foundation
blocks of
mining industry,
and the panacea of resource
curse or dutch disease.

CHALLENGES OF CONTRUCTUAL
IN MINING SECTOR IN

AND FISCAL REGIME

TANZANIA

The challenges or lessons learnt from existing

MDAs among others are;
Unnecessary incentives which led to the latereap of benefits from mining sector
Conditions and terms used, do not provide room
for reforms (lock-in-effect)
Non-linkage of PRIMA and different approaches in
dealing with MDAs operators and Non-MDAs
operators.
Too much expectations by citizens to benefit from
the mining sector caused by lack of knowledge
on how mining companies operates intensive
capital.

THE WAY FORWARD

The way-forward for the lessons learnt in existing
MDAs
Prima cobweb consideration
Application of the standard model MDAs
Ongoing
negotiations to amend existing MDAs
contractual and fiscal loopholes
Requirement for free carried interest and state
participation
MDAs being subject to the periodic review by parties
after every five years
Government to strengthen its capacity to negotiate
financial terms and conditions of MDAs, and to
administer tax system and agreements, to deal with
transfer pricing issues, and to audit the results.

THE WAY FORWARD (contd)

The way-forward for the lessons learnt in existing MDAs
Transparency and accountability in contracts : Tanzania joined
EITI on 16thFebruary,2009 to accept the condition of
transparency and accountability in running the extractive
industry ,and since then TEITI reports on shows that the
transparency ,accountability and revenues accrued reports
between government and that declared by operators are
almost equal with minimal discrepancy.
So far 10% of minerals deposit ,is the only one which has been
tapped, 90% of known minerals
resources are still
untouched. This means the country still has potentials to
benefit from minerals taking considerations of the above
Government efforts to run the sector responsibly.
Mining sector is not sustainable by itself, therefore can not
bring sustainable development by itself. The mining sector is
for feeding traditional economic contributors (engine as
advocated by Prof.Muhongo) to make them robust and
become sustainable when mining sector reaches it closure
time. Therefore the multiplier economic effect from mining
sector need to be properly channeled.

THE WAY FORWARD ( contd)

The way-forward for the lessons learnt in
existing MDAs ;
Government as a whole has done exemplary
review and negotiations are underway to
bridge the gaps.
It is the duty of public and we academicians,
professionals and NGOs to admit the efforts
made by the Government and help in one
way or another to excel those efforts rather
than misleading the public.
Lets keep discussing in good faith for our
country.

CLIMB MOUNT KILIMANJARO THE

CLIMAX OF AFRICA
AND

THANK
YOU FOR
BUY TANZANITE
LISTENING
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