| Fresh storm over tax 'negotiations' by Orton Kiishweko June 15th, 2009 | ||
Some politicians and economic analysts have accused the Government of "bowing to pressure" from multinational mining companies at the expense of the country. In interviews with The Citizen, most critics dismissed the crackdown on tax havens announced on last Thursday by Finance and Economic Affairs minister Mustafa Mkulo in his 2009/10 Budget speech as a insignificant. Mr Mkulo said existing mining companies would not be affected by the new tax policy, to be effective from July 1, this year. He told parliament the Government would first negotiate with the mostly multinational companies, which have reportedly caused the country an estimated Sh181 billion loss in potential revenue in the past four years. But Kigoma North legislator Kabwe Zitto (Chadema), who was part of a mining committee that proposed the removal of tax exemptions on mining firms, said the Government's decision was a sign "it is succumbing to the whims of mining companies". "It doesn't make any sense at all for the Government to say it will negotiate with these mining companies. Does it want to ask them first whether or not they will accept the removal of exemptions?" he queried. Several reports by local and international research institutions have often accused large mining corporations of ripping the country off through evading tax while contributing a little to economic development. Mining, which at 10 per cent annual growth is the fastest growing sector in Tanzania accounting for about 40 per cent of the country's exports, only contributes about 3.5 per cent to the Gross Domestic Product (GDP). The sector has attracted 74 per cent of the country's direct foreign investment, and this has been partly due to the tax exemptions, which have made the business very profitable for the investors, but at the expense of the country. Mr Zitto, who was a member of the Bomani Mining Review Committee that proposed a major review of taxation laws in the sector last year, said there was no need to shield the mining companies from the crackdown since the tax exemptions were not legally binding. "These exemptions were announced after most of the companies had already signed their contracts, as such they are not part of the agreements," he said. He added: "This whole idea is protecting the mining companies while at the same time undermining the country's independence." According to the MP, the exemptions were effective from October 15, 2005, through Government Notice number 22. Since then, the mining companies are exempted from paying tax on petrol products for a period of 25 years. But the Chief Executive Officer of mining conglomerate Barrick Gold Tanzania, Mr Deo Mwanyika, said the investors had legally binding contracts with the Government, which prohibited one part from making any changes without mutual consent. "We all have different agreements, signed at different times, therefore, one has to read the contracts carefully and understand what they say," he told The Citizen yesterday. "Even for those companies that signed their contracts before the announcement of tax exemptions, there are some clauses added to their contracts, which also call for negotiations and mutual consent on any changes," he said. Last year, the Bomani committee advised the Government to overhaul the taxation laws governing the mining sector. But its report urged negotiations with mining companies already operating in the country to persuade them into agreeing with the revised policy. The committee, chaired by Judge Mark Bomani, proposed changes that included enacting a new policy that reserved mining of gemstones to local people only and abolished tax exemptions on imported fuel and other mining equipment. Judge Bomani also advised the Government that the process to cut tax exemptions should be conducted through negotiations with the firms. But Mr Zitto said yesterday the Government had shown "a sign of weakness" by allowing the investors to enjoy the exemptions and trying to persuade them to agree with its decisions. "Why didn't the Government negotiate with religious leaders first before reaching the decision to lift the exemptions they were enjoying?" he queried. Echoing that, Dr Prosper Ngowi, a researcher at Mzumbe University, said the Government was under no obligation to negotiate with mining companies. "There was no reason, in the first place, to exempt profit-making organisations from paying taxes," he said. "Negotiating with the companies will raise questions on who controls the other between the Government and mining companies. It's not for the investors to make the rules and regulations." Dr Ngowi said if the Government wanted to consult on the issue of tax exemptions, it was supposed to so with all affected institutions, including religious organisations and local business people. A University of Dar es Salaam (UDSM) economics lecturer, Dr Lenny Kasonga, said despite Mr Mkulo's remarks in parliament, the Government�s position on mining tax exemptions was still "ambiguous". "It is just a promise whose outcome noone knows. You can never be certain about what comes out of the negotiations," he said. But Dr Kasonga said the Government should not allow the country to lose billions of shillings each year as a result of tax exemptions, which were being abused by foreign mining investors. Last year, the Parliamentary Committee on Energy also accused multinational mining firms operating in Tanzania of not complying with some sections of the Income Tax Act 2004. During discussions on the Bomani report, the chairman of the parliamentary committee, Mr William Shellukindo, said some large mining firms were behaving as though they were above the laws of the country. Meanwhile, Mr Zitto has urged the Government to revoke its decision to scrap the Value Added Tax (VAT) exemptions on religious organisations. He said the move would not make any significant contribution to the Government's revenue collections but adversely affect ordinary people who are the beneficiaries of religious organisations' charity work. The opposition lawmaker said the Government should have withdrawn the exemptions only from religious organisations found abusing them. |
