A Golden Opportunity: How Tanzania is Failing to Benefit from Gold Mining – by Mark Curtis and Tundu Lissu (October 2008)

Published by the Christian Council of Tanzania (CCT), National Council of Muslims in Tanzania (BAKWATA), and Tanzania Espicopal Conference (TEC) – Financed by Norwegian Church Aid and Christian Aid

A Golden Opportunity: How Tanzania is Failing to Benefit from Gold Mining (October 2008)

Executive Summary

Gold mining is the fastest growing sector of Tanzania’s economy. Minerals now account for nearly half the country’s exports and Tanzania is Africa’s third largest gold producer. Yet ordinary Tanzanians are not benefiting from this boom both because the government has implemented tax laws that are overly favourable to multinational mining companies and because of the practices of these companies. Tanzania is being plundered of its natural resources and wealth.

Between 1997 and 2005, Tanzania exported gold worth more than US$2.54 billion (bn). The government has received around $28m a year in royalties and taxes on these exports, amounting to just 10 per cent over the nine year period. The 3 per cent royalty has brought the government only an average of US$17.4m a year in recent years. Raising the royalty rate to, say, 5 per cent would have increased government revenues by around US$58m over the past five years.

We calculate that Tanzania has lost at least $265.5m in recent years as a result of an excessively low royalty rate, government tax concessions that allow companies’ to avoid paying corporation tax and possibly even tax evasion by some companies if allegations are true. This is a very conservative estimate, in that it does not cover all the gold mining companies or all figures for recent years (which are not publicly available). Neither does it cover the financial costs of other tax incentives such as VAT exemption, which are extremely difficult to estimate. These extra revenues could of course provide a huge boost to tackling poverty in Tanzania. We also estimate that the prioritisation of large-scale gold mining in the country has come at the expense of small-scale artisan miners, around 400,000 of whom have been put out of work.

This report identifies three severe problems with gold mining in Tanzania, namely:

• It provides the government with very low tax revenues
• It is subject to minimal governmental and popular democratic scrutiny and is associated with the problem of corruption
• People in the gold mining areas are barely benefiting and many are being made poorer.

Tanzania is one of the ten poorest countries in the world. Some 12m of the country’s 39m people live in poverty, surviving on average incomes of 399,873 Tanzanian Shillings (Shs) (US$307) a year. At the same time, Tanzania possesses around 45m ounces of gold, which at the current gold price means the country is sitting on a fortune of up to US$39bn, although extraction costs must of course be taken into account.

The tax system and its hidden subsidies Tanzania’s economy has been substantially liberalised over the past 20 years under the auspices of World Bank-supported economic reforms. Investment and tax laws have been radically revised so that Tanzania now offers a raft of tax incentives for mining companies. These include low royalty rates (3 per cent on gold exports), the ability of mining companies to offset 100 per cent of their capital expenditure (on mining equipment and property) against tax in the year in which it is spent, and low taxes on imports of mining equipment. The government takes no stake in the major gold mining operations, allowing foreign companies 100 per cent ownership. These incentives amount to hidden subsidies for the large mining companies.

The gold mining industry in Tanzania is dominated by two multinational mining companies – the Canadian company, Barrick, and the South African firm AngloGold Ashanti (AGA). Company figures show that AGA has paid taxes and royalties totalling US$144m in 2000-07 and over the same period has sold around $1.55bn worth of gold, meaning that it has paid the equivalent of around 9 per cent of its exports in remittances to the government. Barrick, meanwhile, does not state on its website how much in taxes and royalties it pays to the Tanzanian government – our calculations show that it is paying a figure equivalent to around 13 per cent of its export sales in remittances to the government.

Few mining companies have paid corporation tax (levied at 30 per cent of profi ts) because they have consistently declared losses. Our analysis, drawing on AGA and Barrick company reports, shows that both companies are making gross profits in Tanzania. However, the country’s generous tax concessions mean that they and other companies are able to avoid declaring a taxable income.

The Public Accounts Committee (PAC) presented a report to parliament in February 2007 noting that mining companies declared losses of US$1.045bn between 1998 and 2005. It put the losses down to the capital expenditure allowance and weak documentation of records by the Ministry of Energy and Minerals.

Alleged tax evasion

A government-contracted independent audit conducted by Alex Stewart Assayers (ASA) in 2003, and leaked to the media in 2006, alleged that four gold mining companies, including Barrick and AGA, overstated their losses by US$502m between 1999-2003, indicating that the government lost revenues of US$132.5m. The audit also noted that thousands of documents were missing that would have shown whether royalties valued at US$25m were, in fact, paid.

Democracy and transparency

The government has pledged that Tanzanians should benefi t more from gold mining, but so far only modest changes to the country’s tax regime have been made. The government fears that too much reform will upset the companies, donors and international institutions, none of which is championing tax reform. There are also concerns in Tanzania, though no evidence has been produced to support them, that some government officials relating to the mining industry may be prone to corruption.

The government, pressed by the World Bank and donors, has been able to grant huge tax concessions to overseas mining companies partly because there is inadequate democratic scrutiny. Gold mining in Tanzania remains shrouded in secrecy. Parliament has never formally seen any of the contracts signed by the government with the mining companies; the recent contract for Barrick’s new Buzwagi mine has been widely viewed in Tanzania but only since it was leaked to the media. The agreement signed in October 2007 by the government with AGA for its Geita mine remains secret.

The government’s repeated refusal to make these agreements public means that elected representatives cannot infl uence the terms under which foreign mining companies extract the country’s most lucrative resource. The parliamentary PAC is supposed to scrutinise the government’s accounts, yet it has access to too few details on companies’ tax payments and government revenues to do this effectively. Equally, the ASA audit report has never offi cially been made public.

For the entire report, please go to this link: http://www.pambazuka.org/images/articles/407/goldenopp.pdf

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