Miners set to drag Dar to ICC over $ 410 million taxes

Major foreign-owned gold mining firms operating in Tanzania, including South African-based Anglogold Ashanti, are seeking arbitration at the International Chamber of Commerce (ICC) to recover over $410 million (676bn/-) tax refund, The Citizen has learnt.

Another company that has also threatened to sue is Resolute Mining Tanzania Ltd, which closed its business last year in Nzega after its mine lifespan ended.

An officer with Resolute who spoke to The Citizen yesterday under conditions of anonymity because he isn’t an authorised spokesperson said: “We’ve made it clear that we’re taking this matter to the ICC because all other options have failed and we aren’t alone...”

The officer noted that the contract signed between miners and the government has a clause that allows an aggrieved party to seek redress at the ICC.

The government was a few years ago taken to the ICC by Dowans Ltd in which the latter finally got a reward of $115 million, sparking a strong public outcry.

“The MDA signed between the firms and the government has a provision for arbitration in case of disputes. 

"Negotiations seem to be stalled due to the government’s unwillingness to accept the miner’s proposals, fearing that it could set a precedent for other firms in other sectors... Besides, the government is in financial difficulties, thus it’s unlikely to pay,” the government source said.

The revelation comes amid a major fall of global gold prices, which may lead to the companies cutting down on investments, thus impacting heavily on service providers. Investments in mining exploration have also dropped by 20 per cent since 2012.

But African Barrik Gold (ABG) a company with over $1bn in revenue and a market capitalisation of over $900m, said it has opted for a direct negotiations with the government.

For instance ABG’s monthly pending tax refund is $10million(Sh16.5billion), while it gets a refund of $2 million after every three months from the government, which the company says isn’t enough considering the financial crisis currently facing the industry following the plunge in gold price at the world market.

The refund, which has been accumulated for about five years now, is VAT and excise duty, paid by the mining firms in their export and import transactions.

Details gathered by The Citizen show that a big chunk of this money is VAT paid on gold exports which, according to the Mineral Development Agreement (MDA) signed between miners and the government, is refundable.

Tanzania tax laws state clearly that firms producing goods for export don’t pay VAT, but according to reliable sources within the mining sector, major gold producers have been paying 18 per cent tax in every single ounce of gold they export. Tanzanite and diamond exporters too have been paying 18 per cent VAT.

Former commissioner for minerals, who is currently an independent mining consultant and analyst, Dr Peter Kafumu, told The Citizen: “Refunding will be tough because the government has no money…it received billions as VAT and excise duty, but it has failed to refund these companies for some years now.”

Asked whether he has been hired by these mining firms to help them recover the billions, Dr Kafumu responded: “I am not hired by anyone…I’m an independent consultant who helps those who seek my expertise.”

The suspension of the tax relief has caused $410 million outstanding to the companies, with the government owing $120 million and $50 million to GGM and Resolute Mining respectively.

Tax refund to ABG may have reached $240 million for the past two years, according to details gathered by The Citizen.

According to Dr Kafumu, the country’s uncertain tax policy, coupled with higher production costs, will make Tanzania, which is Africa’s fourth biggest gold producer, a less attractive destination for foreign extractive sector entrepreneurs.

In Tanzania, actual production costs are between $1,000 and $1,103 per ounce, which is higher than the average cost in Africa ($957 per ounce).

Insiders with knowledge on the negotiations between the government and the firms said the gold miners have threatened to take the matter to ICC if there is a total deadlock.

ABG Senior Vice President Deo Mwanyika told The Citizen yesterday: “The amount might be higher than the $200 million you’ve just mentioned though I don’t have the exact figure for the entire sector.”

According to Mr Mwanyika, the government was misled in 2010 when the then Finance Minister, Mustapha Mkullo, suspended tax relief that used to be enjoyed by mining companies.

Mr Mkullo claimed what the mining companies were given was tax exemptions while in reality it was tax relief, Mr Mwanyika told The Citizen yesterday.

Following the minister’s move, the mining firms fought back and managed to convince the government to reinstate the tax relief, but in 2011, the government, following heavy criticism by Kigoma North MP Zitto Kabwe, suspended the relief.

“We aren’t asking for a favour…we’re just asking for what’s due to us according to the country’s laws.” Mr Mwanyika told The Citizen.
Source: The Citizen, reported from Dar es Salaam, Tanzania
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