June 12, 2008

Tax on mining industry introduced / Budgets to ease food crisis

The government has introduced a 0.3 per cent Alternative Minimum Tax (AMT) of the turnover on corporate entities making losses for three consecutive years, a move aimed at the lucrative mining industry. According to the law, companies that post losses annually can’t pay a 30 corporate tax, a move that has been benefiting the mining sector, which for the past decade has been declaring losses.

Currently, total turnover in mining sector annually is estimated to be US$1billion.
Presenting his Sh7.2trillion (US$6billion) Budget Thursday, Finance minister said the government has decided to amend the Income Tax Act CAP 332, to deter the growing tendency where some companies have been declaring losses annually to avoid paying corporate tax. “Such corporate entities make commercial profits, however when incorporating tax adjustments they record losses on account of generous investment incentives that are provided in the legislation including accelerated capital deductions and investment allowances,” the minister said explaining why the government has introduced such amendments.

During the past decade, there has been strong debate on taxation system granted to the mining sector, with legislators and the majority of public members calling for major tax reforms in the industry. Gold mining companies pay royalties of three per cent on profit, while a five per cent tax is levied on diamonds and other gemstones. Companies, including Barrick Gold Corporation, the world's largest producer of the precious metal, and Tanzanite One Ltd, the only miner of the rare blue gem, operate in Tanzania. Early last month, the Presidential Committee on Mining Review proposed a 40 to 70 percent increase royalties paid by the mining companies in the country.

The committee formed by President Kikwete early in November last year to investigate and come up with recommendations on how Tanzania can benefit from the $5billion lucrative mining industry has also advised the government to suspend immediately section 145 of the Income Tax Act of 2004, in order to stop massive loss of revenues.

In the meantime, Kenya, Uganda and Tanzania, have announced measures to cushion their populations against soaring food prices in their budget proposals for the 2008-2009 financial year. In Tanzania, finance minister Mkulo said the government was encouraging investment in large-scale commercial farming. "Tanzania has vast arable land and the weather is reliable." he said. "Rising food prices should be used as an opportunity for the people to earn more income, rather than a curse," he said. In the short-term, Mkulo said, measures aimed at addressing the global food crisis locally were being contemplated, including either the banning of exports or increasing export charges. (rts)

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