Tanzania rethinks planned super-profit tax on gas projects

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br kikwete Reuters Tanzania's President Jakaya Kikwete. Photo: Reuters

Nairobi - Tanzania might reconsider the proposed introduction of a so-called super-profit tax on natural gas production after gold mining firms criticised a similar measure considered by the government three years ago, President Jakaya Kikwete said on Friday.

“We have not taken a final decision yet,” Kikwete said in an interview at his office in Dar es Salaam, the country’s commercial capital.

“It’s something we are aware of that may create a lot of concerns and jitters and may probably have negative effects. We’ll look into that carefully,” he said.

Tanzania’s government may levy windfall taxes and royalties in addition to corporate and other income taxes, according to a draft natural gas policy published in November last year.

The state also plans to take an unspecified share in gas production projects, according to the policy.

In 2011 Tanzanian legislators approved a 42.9 trillion- shilling (about R275 billion) economic development plan funded with a super-profit tax on minerals, saying the country needed to derive more benefit from its natural resources.

The government estimates the value of gold exports from the country increased to $1.5bn in 2010, or 7 percent of gross domestic product (GDP), from $500 million five years earlier. Annual government revenue from sales of the metal remained at $100m.

The proposal of a super-profit tax on mines sent shares in African Barrick Gold, the country’s biggest producer of the metal, to a record low in June 2011. The government has not introduced the levy.

“It has got its own effects we have got to be cognisant of,” Kikwete said. “We cannot just play ostrich and bury the head in the sand.”

Tanzania has huge gas reserves, discovered by companies including Statoil and its partner Exxon Mobil, and BG Group working with Ophir Energy.

The government expects gas reserves to increase after it offered eight new blocks for exploration in its fourth bidding round, for which the petroleum agency is receiving applications until May 15.

Statoil and BG will build the country’s first liquefied natural gas plant at a location they will announce by the end of May, according to Kikwete.

“They are now working on the land rights over the property,” Kikwete said.

He said that he expected the gas industry to “definitely” become the leading contributor to the country’s gross domestic product, overtaking gold production.

Tanzania is Africa’s fourth-largest gold producer.

Tanzania needs money to pay for the $1.23bn Mtwara gas-pipeline project, expansion of the port at Dar es Salaam, building of a $10bn port at Bagamoyo, and new roads and railways as it targets becoming a middle-income country by 2025.

The government plans to use some of the proceeds from the gas industry to create a sovereign wealth fund, which will partly finance the national budget.

The Tanzanian cabinet would by October send to Parliament a proposed law that would establish the fund and define its structure and uses, Kikwete said. The central bank would probably manage the fund, he said.

“With our gas discoveries and the prospects of getting windfall money, the challenge is how to use that money judiciously,” Kikwete said.

East Africa’s biggest economy after Kenya was projected to expand 7.4 percent this year from 7.1 percent last year, Finance Ministry permanent secretary Servacius Likwelile said in a February 11 interview.

The country’s vision to become a middle-income country could be achieved earlier than 2025, if it rebased economic growth data, Kikwete said. Tanzania currently uses 2001 as the base year for measuring its GDP and 2007 for the household budget survey, according to Kikwete.

“It’s a discrepancy,” Kikwete said. “Tanzania will rebase to clear the discrepancy, and reflect the change in the structure of the economy over the past 14 years,” he said. – Bloomberg


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