1. By
Handley M. Mafwenga (PhD)
MINISTRY OF ENERGY AND MINERALS
PROPOSED NEW FISCAL
REGIME IN MINERAL SECTOR
Workshop held in Arusha from 16th
to 18th
December, 2009
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2.  General Overview
 Existing Fiscal Regime
 Challenges
 Proposed Fiscal Regime
 Conclusion
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3. The fiscal regime applicable to the mining sector in Tanzania
are set out in the following;
Mining Act of 1998 which is administered by the Minister for
Energy and Minerals;
the National Investment Promotion and Protection Act of
1997;
the Income Tax Act of 1973 and Miscellaneous Amendments,
and
Tanzania Mineral Policy, 1997.
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4. Stability and Neutrality
 Section 10 of the Mining Act, Cap. 123 guarantees fiscal
stability through Mineral Development Agreements
(MDAs). In order to be economically neutral the tax rules
must be unchanged for the life of the mining projects.
 Fiscal stability avails investors the opportunity for quality
strategizing, planning and budgetary as well as a
reasonable prediction of returns on investment.
 The greater the level of fiscal instability in a country, the
greater the investment risk.
 Fiscal stability clause provides great degree of confidence
to investors.
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5. Equity and Predictability
 Fiscal system should be fair and non-discriminatory to
investors;
 Taxes should be profit-based;
 The effect of any adjustment should not increase
uncertainties for the investors or the Government;
 Measures should apply equally to participants in the
mining industry; and
 Fiscal Regime should be predictable and sustainable to
support the budgetary operation of the Government and
real economic growth
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6.  By virtue of Section 82 of the ITA Cap. 332, withholding tax
on dividend, interest, natural resource payment, rent or
royalty is paid at a rate of 5% for listed company and 10% for
any other company.
 By virtue of Para 3(3), of the First Schedule to the ITA Cap.
332 repatriated income of domestic permanent establishment
of non-resident is taxed at 10%.
 By virtue of Section 83 of the ITA Cap. 332 for resident person
conducting mining business when paying a service fee to
another resident person in respect of management or technical
fees is charged at a rate of 5%. In the case of the resident
person conducting mining business when paying a service fee
with a source in the URT to a non-resident person is withheld
at a rate of 15%, in respect of an insurance premium 5%.
However, such rates shall apply only if services or contract
payments were provided wholly and exclusively for the
business.
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7.  There is zero import duty on fuel and remission on excise
duty on fuel for companies having MDAs prior to July, 2009;
 No ring fencing around the mining sector: losses in one mine
can be offset against profits in another;
 Corporate Tax is 30% taxable as profit based tax for residents
and non-residents; Likewise, a newly listed company with the
DSE with at least 35% of its equity ownership issued to
public - the rate is reduced to 25% for three consecutive years
from the date of listing. However, no mining company that is
listed at DSE. For companies not having MDAs under
grandfathered regime are subject to Alternative Minimum
Tax of 0.3% of turnover of third year of perpetual unrelieved
loss.
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8.  Royalty is 5% for diamonds and rough gemstone , 0% for gems and
3% for other minerals. The Royalty is calculated on the Net-back-
value basis.
 Capital goods are zero rated; Specified goods (including explosives,
lubricants, spare parts, vehicles) are capped at 5% after 1 year of
commencement of commercial production. Other goods fall under
the Common External Tariff (CET).
 VAT special relief is given to mining companies, under Item 13 of
Third Schedule to the VAT Act Cap. 148, and goods and services
acquired locally or imported from outside Tanzania are zero-rated
under First Schedule of the VAT Act, otherwise are taxable at a
standard rate to enable mining companies reclaim input tax;
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9.  Withholding Taxes have been also stipulated under the Fiscal
Terms Clause to the Mining Development Agreements (MDAs),
where:
1. Any amount greater than 3% from the gross amount of payments
have been exempted. However, when that such gross payment
exceeds 2% of operating costs, the amount to be withheld shall
not exceed 20%.
2. Interest on loans in foreign currency from 3rd
parties – Nil.
3. Interest other than interest on loans from 3rd
parties – Nil.
4. Dividends are withheld at a maximum cap - when paid by the
licensees to their non-resident shareholders or on profits remitted
to branch of company holding Mining License to a place outside
Tanzania;
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10.  100% capital allowance for exploration and development and
additional 15% allowance in each tax year on unredeemed
qualifying capital expenditure in or in connection with the
Mining Area which are unrecovered at the end of the year of
income as per Part III of the Second Schedule to the ITA 1973
as grandfathered by ITA Cap. 332 in Section 145;
 Unlimited loss carried forward coupled with deduction of
unrelieved loss of the year of income from any other business
or investment or unrelieved loss of a previous year of income
under Set-off approach.
 Stamp duty is paid at a rate of 0.3% as compared to 4% for
other investors;
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11.  Excise duty on Fuel is charged to mining companies at the
rates provided under the Fourth Schedule to the Excise
(Management &Tariff) Act, Cap.147 .
 Local Government Levy is capped at US$ 200,000 per annum
in MDAs. The Local Government Finances Act, 1982
prescribes 0.3% Service Levy on turnover.
 “Thin Capitalisation rule” is under Section 12 of the ITA Cap.
332 which allows interest as deductible expense irrespective of
whether it is based on 100% debt finance or not; there is no
limit on debt equity ratio for tax purposes. No provision to tax
disallowed interest as dividends.
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12.  Low level of Corporate tax revenue to Total Revenue
 Capacity building (lack of skilled personnel required in mining
operations).
 Poor infrastructure in mining areas.
 Environmental degradation.
 Inadequate contribution of the sector to the national economy
in relation to its growth so as to be in line with the projection
of 10 per cent in 2025 as stated in the Development Vision
2025
 Low capacity of the Government to administer the sector.
 Low integration with other sectors of the economy.
 Slow development of small scale mining.
 Low level of value addition of minerals.
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13.  Exploration expenditures be capitalized and written off
immediately. (i.e. 100% write-off);
 Capital expenditure including development expenditure are to be
depreciated at a rate of 80% in the first year of expenditure
(initial allowance) and thereafter the rates applicable under
Third Schedule of the ITA will take effect.
 Introduce ring fencing within the mining sector. Each mine
should be taxed separately.
 Withholding Taxes which have been caped under the MDAs will
have to continue using the prevailing rates stipulated under the
Income Tax Act, Cap. 332.
 Import Duty to be engaged under Common External Tariff for all
goods starting from commencement of commercial production,
since they fall under normal operating costs of mines.
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14.  Local Government Levies is proposed to be levied by virtue of the
Local Government Finances Act prevailing rates.
 Income tax rate for mining profits is proposed to be taxed at a
variable corporate tax rate depending on the profitability based on
the formula (to be established after study) provided that the tax
rate shall not fall below 30%.
 “Thin Capitalisation rule” to be introduced whereby company that
has a debt-to-equity ratio in excess of 70 to 30 at any time during
the year of income, the amount of interest paid by the company
during that year on that part of the debt that exceeds the ratio
shall be disallowed as a deduction. The purpose of Thin
Capitalization Clause is to disallow the deduction of interest
expenses pertaining to debts from related parties when the ratio
of debt to equity exceeds a certain prescribed debt/equity ratio.
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15. Computation of mineral royalties should be
based on gross value instead of net back value.
 Proposed rates of mineral royalties are as
follows:-
 Uranium - 5%;
 Raw Gemstones including Diamonds - 5%;
 Value added gemstones - 1%;
 Precious metals – gold, silver, and Platinum
Group of Metals (PGM) - 4%; and
 Other minerals and salt - 3%.
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16.  The Government’s role is to provide conducive economic
environment in order to attract and sustain local and
international private investment in the mineral sector. In that
regard, the Government will provide a competitive and
predictable fiscal regime for the mineral sector.
 It is worthwhile to point out from the outset that, the support of
all Stakeholders including Government Institutions, the
Parliament, Politicians, MEM- employees, Mining Companies,
Developing Partners, Non-Governmental Organizations,
Religious Institutions and the Public at large in implementing
these Strategies will be highly appreciated.
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