The Tanzania Breweries Limited (TBL) company paid more government revenues last year than the country’s six major gold mines combined in the latest sign of a hard-to-explain tax rate disparity amid allegations of large-scale tax dodging by the mining firms.
Big companies are the government’s main source of tax revenue despite the presence of a huge informal economy that nonetheless does not generate a proportionate amount of income for the state.
But according to a new report by the state-run Tanzania Minerals Audit Agency (TMAA), the total taxes paid by the top companies dealing in gold mining in 2015 was 355.33 billion/-; a measly sum compared to the 476bn/- paid by TBL as tax during the same year.
In other words, last year the country’s top beer producer alone paid 34 per cent more tax than the entire large-scale gold mining industry, despite the lattyer beuing one of the country’s key economic sectors.
Similarly, while the total value of minerals sold by major gold mines in Tanzania last year was worth $1.63 billion (3.56 trillion/-), the total tax paid by the mining firms represents less than 10 percent of their revenues.
On the other hand, TBL said in its 2015 annual report that it posted total sales of 1.07 trillion/- last year, with the total taxes paid to the government in 2015 representing 44.5 percent of its revenues.
The entire taxation system has been subjected to fresh scrutiny since President John Magufuli’s directive last year for the Tanzania Revenue Authority (TRA) to crack down on tax evasion by big business.
The taxation of the mining sector has recently come under the microscope after the Tax Revenue Appeals Tribunal issued a ruling accusing Tanzania's biggest gold miner, Acacia Mining plc (formerly known as African Barrick Gold) of being engaged in a “sophisticated scheme of tax evasion” to dodge $41.25-million (over 90 billion-) in taxes to the Tanzanian government.
Acacia, which owns three gold-producing mines in Tanzania -- Bulyanhulu, North Mara and Buzwagi -- has vigorously denied the tribunal's tax dodging allegations and said it would appeal against the ruling by Fauz Twaib, a Tanzanian High Court judge.
Other major gold mines in Tanzania are Geita Gold Mine, which is owned by AngloGold Ashanti, New Luika Gold Mine and the Stamigold Biraharamulo Mine.
Mining companies have long been accused by politicians and activists of being tax cheats in Tanzania, causing the government to get less than its fair share of revenues from the sector.
TBL, which is the country's biggest beer manufacturer, has also recently faced tax dodging allegations from reports published by a local tabloid.
The beer firm, which is majority owned by SABMiller plc, said in a statement last month it has trebled its tax payments to the Tanzanian government over the last 5 years. "Our total tax payments amounted to 476 billion/- in 2015. TBL has also consistently been recognised as the country's most compliant and largest tax payer for five consecutive years," the company said in a statement.
TBL owns four breweries in the country - Dar es Salaam, Arusha, Mwanza and Mbeya. 'COMPARING APPLES WITH ORANGES' According to the TMAA 2015 report released last week, gold production -- which includes gold bars and copper concentrate products -- by major gold mines in 2015 increased by 7.1 percent from 1.27 million troy ounces in 2014 to 1.36 million troy ounces.
Total mineral exports by the six major gold mines last year comprised of 1.37 million troy ounces of gold, 13.8 million pounds of copper and 497,152 troy ounces of silver. The total value of these mineral exports was $1.63 billion.
Ambassador Ami Mpungwe, the chairman of the Tanzania Chamber of Energy and Minerals (TCME), told The Guardian that the fact that one beer maker pays more taxes than the country's entire mining industry was nothing surprising.
"Indeed, TBL is the largest tax payer in the country, more than any other combined industry, not only the mining industry and there are clear reasons for that," he said.
"You need to compare apple for apple but in this case, you are comparing two different industries. Without taking away anything from the beer industry, in this case however, you seem to be comparing the impact of a rapper artist in a crowded stadium and an orchestra performance at a concert hall.
" Mpungwe said TBL as a company in the beverage industry, has a different cost base, just as its products are also different compared to the mining sector.
"In this regard, the initial investment for a beer factory is much smaller compared to mining and it is also one off, save for the normal maintenance, upgrade and expansion costs," he explained.
"Mining risk profile begins at the exploratory phase and requires heavy initial and progressive investments through mining development. Commodity prices are also erratic and the industry does not have any control or room for manoeuvre.
" Mpungwe said it was wrong to just focus on government taxes paid by mining companies, without taking into account the multiplier effect from the mining industry and its broader economic benefits to the nation.
"As a matter of fact, if you take the life of a mine average evaluation distribution model, you will find that taxes and royalties in the mining industry only constitute 15 percent; loans and interests 10 percent; capital reinvestment 5 percent and shareholders get 13 percent, but production cost constitutes 57 percent," he said.
"You need to have a long term view, in order to properly appreciate the contribution of the mining industry, not only to tax revenue but to the greater economy as a whole.
" TRA scrapped plans in 2014 to review mining and gas contracts, after its previous announcement of the move rattled investors in the country's rich gold and natural gas resources.
The tax authority had announced that it was seeking technical assistance to renegotiate mining development agreements (MDAs) and natural gas production sharing agreements (PSAs).
This threatened to duplicate work by the Energy and Minerals Ministry, which also said it was in talks with miners and energy firms to alter deals to give the state more revenue. Investors in Tanzania, Africa's fourth biggest gold miner which has plans to develop huge new gas finds, have complained of shifting goal posts in contracts with the state.
In the tender advertisement posted on its website in 2014, the TRA said the main objective of the contract review was "to secure for the country an enhanced and fair share from the extraction of non-renewable natural resource.
" Mining and energy companies in Tanzania said they have come under increased regulatory pressure in the past few years as the government seeks to increase its share of revenues.
Experts say the government is under popular pressure to spread wealth swiftly from mining and recent gas finds made in the poor country, even though it remains years away from big gas exports. (Don't miss the full Q&A interview with Ambassador Mpungwe in The Guardian tomorrow in the Smart Money business pullo
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