1. Thoroughly Revised and Up Dated Second
Edition
MINERAL TAX CLINIC
The Reflection of Old and New Fiscal Regimes
for Effective Tax Auditing in Tanzania
By Prof Handley Mpoki Mafwenga Ph.D

2. CONTENTS
CHAPTER 1 ........................................................................................................................11
INTRODUCTION ...............................................................................................................11
1.1 Mining Prospecting and Development...............................................................................................11
1.2 Mineral Occurrence in Tanzania........................................................................................................12
1.3 Mine Life Cycle .................................................................................................................................13
1.3.1 Downstream Processing, and Sustainability ..........................................................................13
1.4 Fiscal Regime.....................................................................................................................................14
1.4.1 Incentives under NIPPA Act, 1990..................................................................17
1.4.2 Incentives under the Investment Policy, 1996 and TIC Act, 1997...................18
CHAPTER 2 ........................................................................................................................22
CHALLENGES IN THE MINERAL SECTOR..................................................................22
2.1 Inadequate Contribution of the Sector to the National Economy ............................22
2.2 Lack of Thin Capitalization Restrictions Rule.........................................................23
2.3 Lack of Ring–Fencing Provision .............................................................................25
2.4 Weaknesses, Long Duration of Fiscal Stability and Inconsistency in the MDAs....26
2.1.1 Weaknesses ......................................................................................................28
2.1.2 Long Duration of Fiscal Stability.....................................................................29
2.1.3 Inconsistency in Forms and Substance ............................................................30
2.5 Unlimited Tax Losses Carried Forward...................................................................31
2.6 Environmental Degradation and Out-dated Environmental Management Plan (EMP) 34
2.7 Low Level of Corporate Tax Revenue to Total Revenue ........................................38
2.8 Unsecured Financial Provisions for Mine Closure ..................................................39
2.1.4 Types of Financial Assurance Instruments ......................................................41
2.1.4.1 Cash Deposit....................................................................................................41
2.1.4.2 Insurance..........................................................................................................41
2.1.4.3 Bonds................................................................................................................42
2.1.4.4 Letters of Credit ...............................................................................................42
2.1.4.5 Parent Company Guarantee ............................................................................43
2.1.4.6 Self-Insurance through Charges on the Company’s Assets .............................43
2.1.4.7 Overdrafts ........................................................................................................43
2.1.5 The best Instrument applicable in the Mining Industry ...................................44
2.9 Low Integration with other Sectors of the Economy ...............................................45
2.10 Poor Infrastructure and Inadequate Implementation of CSR...................................46
2.11 Lack of Skilled Personnel and Succession Plan.......................................................50
2.12 Slow Development of Small Scale Mining..............................................................53
2.13 Low Level of Value Addition and Lack of Administrative Capacity......................57
2.14 Steps taken by the Government to Deal with the Challenges ..................................59
2.14.1 Establishment of Study Committees and reform platforms .................................59
2.14.2 Strengthening Monitoring, Auditing, Production and Exports of Minerals.........61
2.14.3 Introduction of the Local Content Policy.............................................................61
2.14.4 Trade and Investment Treaties as Prohibition for Local Content ........................62
2.14.5 Notable Authorities for the Local Content...........................................................63
2.14.6 The Main Challenges for the Implementation of the Local Content....................64
CHAPTER 3 ........................................................................................................................67
KEY TRANSFORMATION OF FISCAL REGIME FOR REVENUE MANAGEMENT 67
Phase 1: Prior and After Independence of 1961 and Mining Act, 1979,.............................67
Phase 2: During the Mineral Policy, 1997, and Mining Act, No 5 of 1998.........................72
Phase 3: During the Formulation and Implementation of Fiscal Reforms of 2003/04 .......78
Phase 4: During the Mineral Policy, 2009 and Mining Act, 2010 ......................................80
CHAPTER 4 ........................................................................................................................83
DETERMINATION OF TAX LIABILITY AND INCENTIVES ......................................83
4.1 Determination of Income Tax Liability and Skills and Development Levy ............83
4.1.1 Corporate Income Tax Liability.............................................................................................83
4.1.1.1 Consumption Expenditures ....................................................................................................86

3. 4.1.1.2 Expenditure by Person...........................................................................................................87
4.1.1.3 Expenditure from the Business or Investment........................................................................88
4.1.1.4 Expenditure of a Capital Nature............................................................................................89
4.1.1.5 Excluded Expenditure ............................................................................................................92
Other Deductions may include;............................................................................................93
4.1.1.6 Interest under Debt Obligation..............................................................................................93
4.1.1.7 Trading Stock Allowances......................................................................................................93
4.1.1.8 Repair and Maintenance of Depreciable Assets ....................................................................94
4.1.1.9 Agricultural Improvement, R&D, and Environment Expenditure .........................................95
4.1.1.10 Gifts to Public, Charitable and Religious Institutions...........................................................95
4.1.1.11 Depreciation Allowance of a Depreciable Assets..................................................................96
4.1.1.12 Losses on realization of business assets and liabilities..........................................................97
4.1.1.13 Unrelieved Loss for the Year of Income.................................................................................98
4.1.1.14 Bad Debts...............................................................................................................................99
Challenges in the ITA Cap 332 regarding deductions .......................................................100
4.1.1.15 Existence of Hedge Losses in Financial Derivatives ...........................................................100
4.1.1.16 Excessive Capital Expenditure.............................................................................................101
4.1.1.17 Revision of PART III of the Second Schedule to the ITA No 33 of 1973..............................102
4.1.1.18 Ring-Fencing Provisions......................................................................................................104
The taxpayer ring-fencing..........................................................................................106
The mining activity ring-fencing................................................................................108
The capital expenditure 'general' ring-fencing..........................................................109
The capital expenditure 'per mine' ring-fencing ........................................................109
Prospecting ring-fencing............................................................................................110
Ring fencing scheduler- based approach...................................................................110
4.1.1.19 Thin Capitalization Restriction Rule....................................................................................112
Forms of Thin Capitalization .............................................................................................113
4.1.2 Withholding Income Tax Liability.......................................................................................114
4.1.2.1 Withholding Tax on Management and Technical Service Fees ...........................................114
4.1.2.2 Determination of Pay As You Earn (PAYE).........................................................................116
4.1.2.3 Withholding Income Tax from Investment Returns..............................................................118
4.1.2.4 Skills and Development Levy Liability.................................................................................119
Incentives ...........................................................................................................................120
4.2 Determination of Value Added Tax Liability ........................................................121
4.3 Determination of Customs Duty and Excise Duty Liability ..................................124
4.4 Determination of Fuel Levy Liability ....................................................................130
4.5 Determination of Stamp Duty, Capital Gains Tax and Service Levy Liability .....131
4.5.1 Stamp Duty Liability ..........................................................................................131
4.5.2 Capital Gains Tax Liability................................................................................133
4.5.3 Service Levy Liability and Mining Tax Regimes in the EAC Region.................137
4.5.4 Mining Tax Regimes in the EAC Region............................................................137
CHAPTER 5 ......................................................................................................................138
TRANSFER PRICING ......................................................................................................138
5.1 Causes of transfer pricing.......................................................................................139
5.2 Methodologies for the Arm’s Length Price ...........................................................139
5.2.1 The traditional methods .....................................................................................139
5.2.1.1 The uncontrolled price method (CUP)...............................................................139
5.2.1.2 The comparable gross margin (Resale price method) .......................................140
5.2.1.3 The “cost plus method” .....................................................................................140
5.2.2 The transactional methods..................................................................................141
5.2.3 Other Transfer Pricing Options..........................................................................142
5.3 Identifiable Transfer Pricing in Tanzania ..............................................................143
5.3.1 Transfer pricing within distinct operations of the company ..............................143
5.3.2 Related Party Loans ...........................................................................................143
5.3.3 Transfer of intra-group services.........................................................................144

4. 5.4 Indicators for Transfer Pricing Risks .....................................................................144
5.5 Administrative Approaches to avoid and resolving Disputes ................................144
5.5.1 Advanced Pricing Arrangements (APA)............................................................145
5.5.2 Mutual Agreement Procedures (MAP) ..............................................................146
5.6 Other Methodologies in Dealing with Transfer Pricing.........................................147
5.6.1 Compensating adjustment..................................................................................147
5.6.2 Controlled transactions ......................................................................................147
5.6.3 Correlative adjustment .......................................................................................147
CHAPTER 6 ......................................................................................................................148
ROYALTY UNDER MINING LAWS..............................................................................148
6.1 Royalty base...........................................................................................................148
6.2 Royalty rates ..........................................................................................................150
6.3 Royalty Point for the Mineral Dealer.....................................................................152
6.4 Royalty Revenue Forecasting Modelling...............................................................153
6.4.1 Support Government Budgeting Process ...........................................................153
6.4.2 Monitoring and evaluation of the budget...........................................................153
6.5 Royalty Revenue forecasting Methodologies ........................................................154
6.5.1 Extrapolation Method/Trend analysis................................................................154
6.5.2 Effective Royalty Rate Method..........................................................................154
6.5.3 Elasticity Approach............................................................................................155
6.5.4 Model-based forecasting....................................................................................155
6.6 State Participation in the Mineral Sector ...............................................................155
CHAPTER 7 ......................................................................................................................159
TAX FILING AND AUDITING .......................................................................................159
7.1 Tax Filing...............................................................................................................159
7.2 Audit Functions......................................................................................................159
7.2.1 Tanzania Revenue Authority..............................................................................159
7.2.2 Tanzania Minerals Audit Agency ......................................................................162
7.3 The Effectiveness of the Tax Audit .......................................................................163
7.4 The Role of the Tax Audit in Mineral Sector.........................................................164
7.4.1 Promote voluntary compliance ..........................................................................164
7.4.2 Detect non-compliance at the individual mining entity level.............................165
7.4.3 Information on the “health” of the tax system and compliance behaviour ........165
7.4.4 Gather intelligence .............................................................................................165
7.4.5 Educate mining entities......................................................................................165
7.4.6 Identify areas of the law that require clarification .............................................165
7.5 Types of Tax audit Regarding Best Practice..........................................................166
7.5.1 Joint Audit..........................................................................................................166
7.5.2 Risk-Based Audit...............................................................................................166
7.5.3 Random Audits ..................................................................................................167
7.5.4 Unannounced Field Visits/Walk-Ins..................................................................167
7.6 Methods for Tax Auditing In Determining Taxable Income .................................167
7.6.1 Net- worth Method.............................................................................................167
7.6.2 Bank Deposits and Expenditure Method............................................................168
7.6.3 Source and application of funds method............................................................168
7.6.4 Perform trend analysis on major accounts .........................................................169
7.6.5 Checking the method of accounting...................................................................169
7.6.6 Examine Some Critical Aspects of Accounts ....................................................170
7.6.7 Consideration of factors outside the Balance Sheet...........................................171
7.6.8 Detection of Inflated Overheads ........................................................................171
7.6.9 Specific Method of Proof...................................................................................172
7.6.10 Bank Deposits Method of Proof.........................................................................173
7.6.11 Forensic Examination ........................................................................................173
7.6.11.1 Proactive forensic auditing............................................................................173
7.7 Anti-Avoidance Doctrine.......................................................................................174

5. 7.7.1 "Substance over Form" Doctrine”.....................................................................175
7.7.2 “Business purpose test doctrine”.......................................................................176
7.7.3 “Step Transactions doctrine” ............................................................................176
7.7.3.1 End Result Test...................................................................................................177
7.7.3.2 Mutual Interdependence Test.............................................................................177
7.7.3.3 Binding Commitment Test..................................................................................177
7.7.4 “Economic Substance Doctrine”.......................................................................179
CONCLUSION..................................................................................................................180
REFERENCES: .................................................................................................................181
LIST OF FIGURES............................................................................................................184
Figure 1 Major gemstones districts in the Mozambique Belt of Tanzania..............................................184
Figure 2: Mineralization in the UB Belt [Palaeoproterozoic etc.] .........................................................184
Figure 3: Mineralization in the UB Belt [Mesoproterozoic etc.] ............................................................185
Figure 5: Pöyry's Quadrant Cross...........................................................................................................186
Figure 6: Revegetation-Hydro-Seeding a Waste Dump...........................................................................186
Figure 7: TMAA Performance Value Chain in the Mineral Sector.........................................................187
Figure 8: FDI Inflows in Tanzania and in Mineral Sector......................................................................187
Figure 9: Employment in Large Scale Mines ..........................................................................................188
Figure 10: Procurement Costs of Goods and Services (Local V.S Foreign)...........................................188
Figure 11: Comparative Gold Production for the Top Four African Countries .....................................189
Figure 12: Comparative Size for ASM Mining In African Region...........................................................189
LIST OF TABLES...............................................................................................................190
Table 1: Shares of the Government in Mineral Sector.......................................................190
Table 2: Net-worth Method for Confirming Income Tax Evasion .....................................190
Table 3: Bank Deposits and Expenditure Method..............................................................191
Table 4: Source and Application of Funds Method ...........................................................191
Table5: Mining Industry Contribution to GDP..................................................................191
Table 6: Royalty payment, Mineral Sector Growth ...........................................................192
Table 7: MDAs Signed by the Government with the Mining Companies...........................192
Table 8: MDAs compliance scope with the Responsible Ministries /Bodies......................192
Table 9: New Royalty rates with effect from July, 2010....................................................193
Table 10: The DTAs Negotiation under ITA, 1973 and ITA, Cap 332...............................193
Table 11: Due Dates for Filing by Type of Tax .................................................................194
Table 12 : Tax Audit Effectiveness Indicators....................................................................194
Table 13: Depreciable Assets and Allowances ..................................................................195

6. II
Acknowledgement
I would like to thank the many people who made it possible for this book to come out. Firstly,
to IMCA Finance and Tax care Consult for accepting to be the main sponsor for the work,
without such philanthropic offer there would be nothing to write about. Secondly, I am
delighted to extend my sincere appreciation and heart-warming gratitude to the staff of Vice
President’s Office-Environmental Department, Ministry of Finance (Policy Analysis
Department), Planning Commission, Ministry of Energy and Minerals, TMAA, TRA, NEMC,
TRAB/TRAT-Hon Respicius Mwijage-The then Secretary in particular, Mining Companies
and COMSEC for their support and encouragement; without their efforts and support, work of
this magnitude would not have seen light of the day.
Thirdly, to those who rejected in the much needed financial, moral and editorial support to
make a reality; this includes Dr Emmanuel Luvanda-Investment Expert from National
Housing Corporation (NHC0, and Anthony Mwenda-Lecturer of Tumaini University, Major
(Rtd) Denis Mwakalindile from the Business Community; Silas Olan’g –the Manager of
Eastern and Southern Africa of the National Resources Governance Institute (NRGI) and Mr.
Charles Samanyi (the Assistant Commissioner for Financial and External Sector of the
Treasury), they have been trusted advisors, role models of the highest regard, and invaluable
allies; their unwavering love and support have been the foundation for this publication for
which they can never be fully repaid.
Fourthly, I would like to thank those who were there as I have been writing this book and
were on many occasions denied my company; in particular, I am grateful to my Sons Alvin,
Cleric, Malcom, and Issack. Again, special appreciation to Bertha-my Wife for the unique
support over the entire period of this work and I hereby reaffirm her contribution and
philosophy which enabled this book to be compatible with the prevailing academic and
professional eco-system. Ultimately and mostly, I hereby extend my Appreciation to the God
Almighty who enabled my Skill-based resources, Soul, Body and Spiritual commitments
towards achieving this objective.
Prof (Dr) Handley Mpoki Mafwenga Simba
[Ph.D finance (COU), Ph.D International Economic Laws (OUT), MSc finance (Strathclyde), MBA
M.Eco (ESAMI/MsM), LLM taxation (UDSM), LLB (Tudarco), PGD tax mgt (IFM), AD tax mgt
(IFM), ICSA(UK), FCTA(UK)]
July, 2016

7. II
Overview of the Publication
This publication “Mineral Tax Clinic-A reflection of Old and New Fiscal Regimes for
Effective Tax Auditing in Tanzania” is a revised version which descriptively provides a
comprehensive list of methods used by the tax auditor to detect concealment of income in the
mineral sector. It provides the basic proper tax audit guidelines in line with the prevailing
fiscal regime governing the mineral sector as reflected from the National Mineral Policy.
The revised edition of the book “Mineral Tax Clinic-A reflection of Old and New Fiscal
Regimes for Effective Tax Auditing in Tanzania” is presented with great pleasure before the
esteemed readers of the book. In this edition of the book, I have tried to incorporate all the up
to date amendments relating to the Mineral taxation and also the leading and recent judgments
of the TRAB/TRAT/ and other courts have been incorporated at the relevant places. In
addition to it some concepts have been reproduced in novel and most legible way. The
peculiarity of the revised book is that it is the complete book in real sense having complete
theoretical and empirical literatures. I have put my entire knowledge, passion, tips out of my
long-standing practice–experience of Advocacy in the Large, Medium, and Small Scale
Mining operations including exploration ventures.
This Publication is produced on condition that the information, comments, and views it
contains are merely for guidance and reference and must not be taken as having authority of,
or being binding in any way on, the author, editors, and publishers. It is the development of a
paper presented at the Commonwealth Natural Resources Forum of the COMSEC on 6th
to 8th
April, 2011 in Marlborough House, Pall-mall Central London by the author as Resource
Fellow. The views expressed in this report are those of the author and do not necessarily
reflect the position of the Government of URT or the COMSEC.
Prof (Dr) Handley Mpoki Mafwenga Simba
[Ph.D finance (COU), Ph.D International Economic Laws (OUT), MSc finance (Strathclyde), MBA
M.Eco (ESAMI/MsM), LLM taxation (UDSM), LLB (Tudarco), PGD tax mgt (IFM), AD tax mgt
(IFM), ICSA(UK), FCTA(UK)]
DAR-ES-SALAAM-TANZANIA

8. IV
List of Abbreviations and Acronyms
ACV Agreement on Customs Valuation
AFGEM
AG
African Gem Resources Limited
Attorney General
APA Advanced Pricing Arrangement
ASM Artisanal and Small Scale Mining
ASX Australia Stock Exchange
ASYCUDA Automated Systems of Customs Data
BDV
BITs
Brussels Definition of Value
Bilateral Investment Treaties
Cap Chapter
CAPEX Capital Expenditure
CASM Communities and Small Scale Mining
CET
CG
Common External Tariff
Commissioner General
CIF
CIT
Cost, Insurance and Freight
Commissioner of Income Tax
COMESA Common Market of Eastern and Southern Africa
COMSEC Commonwealth Secretariat
COU Commonwealth Open University
CPM Cost-Plus Method
CSR Corporate Social Responsibilities
CUP
DCIT
Comparable Uncontrolled Price
Deputy Commissioner of Income Tax
DI Destination Inspection
DSE
DTAs
Dar-Es-Salaam Stock Exchange
Double Taxation Treaties
EAC East African Community
EFD Electronic Fiscal Devices
EIA Environmental Impact Assessment
EIS
EMA
Environmental Impact Statement
Environmental Management Act
EMP Environmental Management Plan
EPZ Export Processing Zone
ERR Effective Royalty Rate
ESAMI Eastern and Southern African Management Institute
FDI Foreign Direct Investment
FOB Free on Board
GAAP General Accepted Accounting Practice
GDP Gross Domestic Product
GN Government Notice
IMF
ITA
ITAT
IRC
International Monetary Fund
Income Tax Act
Income Tax Tribunal
Internal Revenue Commission
JKNIA Julius-K.-Nyerere-International-Airport
KICD Kilimanjaro International Cargo Deport
LC Letter of Credit
LSX London Stock Exchange
MAP Mutual Agreement Procedure
NBAA National Board of Accountants and Auditors

9. MDAs Mineral Development Agreements
MDV Minimum Dutiable Value
MEM Ministry of Energy and Minerals
MKUKUTA Mkakati wa Kukuza Uchumi na Kuondoa Umaskini Tanzania
MNE Multinational Enterprise
MoU Memorandum of Understanding
MTEF Medium Term Expenditure Framework
NACTE National Council for Technical Education
NDC National Development Corporation
NEMC National Environmental Management Council
OECD Organization for Economic Cooperation and Development
PAYE Pay As You Earn
PER Public Expenditure Review
RPM Resale Price Method
RTL Resolute Tanzania Limited
SADC Southern African Development Cooperation
SADCC Southern African Development Co-ordination Conference
SAP Structural Adjustment Programs
SSA Sub-Saharan Africa
STAMICO
TEKU
State Mining Corporation
Teofilo Kisanji University
TIN Tax Identification Number
TIPER
TLR
Tanzanian-Italian Petroleum Refining Company Ltd
Tanzania Law Report
TMAA Tanzania Minerals Audit Agency
TNF Trade Negotiating Forum
TSX Toronto Stock Exchange
TPDC Tanzania Petroleum Development Corporation
TRA
TRAB
TRAT
Tanzania Revenue Authority
Tax Revenue Appeals Board
Tax Revenue Appeals Tribunal
UDSM University of Dar-Es-Salaam
UK United Kingdom
URT United Republic of Tanzania
USA United States of America
USD United States Dollar
VAT Value Added Tax
VETA Vocational Education Training Authority
WACC Weighted Average Cost of Capital
WTO World Trade Organization

10. TABLE OF CASES
 Afrika Mashariki Gold Mine Ltd Vs CG TLR 3(2005)
 AG Vs Wilts United Dairies (1922)38 TLR 781
 Broron Technologies (Pty) ltd Vs CG (Income Tax Appeal No.DSM. 8 OF 2005);
 Cape Brandy Syndicate Vs Inland Revenue Commissioners (1921)1 KB 64
 Commissioner Vs Gordon 391 U.S. 83 (1968)
 CIT, Amritsar Vs M/S Muhammad Hussein Srinagar (ITR 8/1979)
 DCIT Vs Rediff.com India Limited (ITAT Mumbai) ITA No.905/Mum/2008- A.O.
 De Beer Consolidated Mines Ltd Vs Howe (1905) K.B 612
 DTP Terrassement Vs CG(TRAB-Consolidated Income Tax Appeal: DSM 5 & 6 of
2007)
 Eisner Vs Macomber 252 U.S. 189 (1920 No 318)
 F Vs R Lazarus & Company 308 US 252(1939)
 Geita Gold Mines Ltd Vs CG (2004) 1TTLR 134
 Gunda Subbaya Vs C.I.T (1939) 7 ITR 21
 Gregory Vs Helvering (1934)
 Illinois Merchants Trust Co Executor 4 BTA 103 (1926)
 IRC Vs Duke of Westminster (1935) All E.R. 259 (HL)
 Kahama Mining Corporation Vs CG Case No DSM 9 of 2004
 Jackson Vs Laskers Home Furnishers Ltd Ch D 1956 37 TC 69 [1957] 1 WLR 69
[1956] 3 All ER 891
 Kliman Vs Wirkworth (1933) 17 TC 569 at P 572
 Koitaki Para Rubber Estate Ltd Vs FCT (1941) 6 ATD 42
 Lake Oil Ltd vs. Consolidated Holdings Corp CC No 43 of 2008
 Lee Vs Showmen’s Guild of Great Britain [1952] 2 QB 329
 Mabangu Mining Ltd Vs Commissioner Consolidated Income Tax Appeal No DSM
20,21,22,23,24, &25 of 2010;
 Poseidon Enterprises Ltd & Others Vs CG (TRAT DSM (Customs and Excise Tax
Appeal: DSM 3 of 2005)
 Russell Vs Scott [1948] 2All ER 1 (HL)
 Smith’s potato Estates Ltd V Bolland (1948)30 TC 267
 States Vs Phellis 257 U.S. 156 (1921)
 The Queen Vs Friedberg (1993) 2 CTC 306
 Unit Construction Company Ltd Vs Bullock (1960) A.C. 351).
 West Kootenay Power and Light Company Ltd Vs The Queen (1992) 1CTC, 15
 Williamson Diamond Ltd Vs Commissioner General Case No SHY 7&8 of 2006
 Williamson Diamonds Ltd (Appellant) Vs CG (Respondent) Consolidated Income
Tax Appeal DSM Nos 6 &7 of 2010.

11. CHAPTER 1
INTRODUCTION
1.1 Mining Prospecting and Development
The earliest prospecting and mining in Tanzania took place during the German Colonial Period
of 1884 through 1917, beginning with gold discoveries in the Lake Victoria region in 1894.
During those days gold and mica were the first mineral commodities which were mined on a
commercial basis. More precisely, the gold mining took place at Geita, Kahama and Senkenke
areas. It should be evoked that, the British rule came in 1919 till 1961. Hence, in 1921, the first
mining legislation and the Mining Ordinance were enacted under the British administration.
Thereafter, the Geological Survey was established in 1925; during that period, gold production
increased to a large extent and progressively until the period of World War II. The diamond
mining operation in particular began in 1940 following the discovery of the Mwadui mine. It
should be noted that, the Government took ownership of all mining operations following
Tanganyika Independence in 1961. Unfortunately, the mining industry continued to decline
extensively due to poor management caused by lack of technology; however, the industry was
revived after 1974 when the world gold price significantly increased.
After Arusha Declaration of 1967, the gold industry had declined to insignificant level due to the
closure of the mine1
whereby production was mostly made by the artisanal mining. In order to
rescue such situation, the Government took the first step in 1967 to develop the mineral sector,
in that; State adopted the Economic Development Strategy. The strategy directed among others,
that medium to large scale private owned investments in the mining industry should not be
allowed to invest unless there is State participation of not less than 50%. This led to the
establishment of State Mining Corporation (STAMICO) in 1974. The then and thereafter,
artisanal- and small-scale mining has been key rural mining activity in Tanzania for many years
and it was the major producer of minerals in Tanzania for the period between 1987 and 1996.
The activity was a major source in broadening the employment base in Tanzania to a tune of not
less than 1,000,000 employees.
In the 1980’s, Tanzania took a paradigm shift in economic management policies coupled with
the introduction of economic reforms. Since then, the mineral sector became very effervescent.
1
Closure occurs after mining operations have ceased and includes restoration and rehabilitation of the site

12. The sector took a lead in attracting Foreign Direct Investment (FDI) 2
because several
multinational mining companies from Canada, United Kingdom, Australia and South Africa
came to Tanzania for gold exploration and development. With the changes in macro-economic
policy of the country, adoption of free market economic Policies from 1985 was possible, in
that; many private foreign and local investors showed interest and subsequently invested in the
mineral sector. Mineral exploration and geological work which was undertaken so far reveal that
Tanzania has a diverse mineral resource base; it ranks to be the fourth country in gold producing
countries in Africa (Figure 11).
It is worth noting, that factors that led to the rapid growth of the mineral sector in Tanzania
include: conducive geological environment, major economic reforms which have been
undertaken since mid-1980’s; formulation of mineral policy of 1997, enactment of
internationally competitive fiscal and legal regimes for the mineral sector; and political stability
of the country.
In April 1990, the Bank of Tanzania began buying raw gold directly from the small-scale miners
through commercial banks at the world market price for the purpose of boosting the economy
and helping small-scale miners to access reliable market. This nurtured from the advice of the
then former Deputy Prime Minister and Minister for Home Affairs, Hon Augustine Lyatonga
Mrema (MP) who had, during his short tenure, advised the BoT to buy gold from small scale
miners in order to stop the sale of the precious metals to neighbouring countries. However, this
project was stopped shortly due to conmen being involved in the illegal business of selling
‘fool’s gold’. This caused the bank to suffer an alleged huge loss.
1.2 Mineral Occurrence in Tanzania
Tanzania offers a positive, peaceful, and stable environment for business and investment in the
short, medium, and long term. The conducive investment climate is underpinned by effective
political, economic and social policies that favour investors seeking to take advantage of the vast
and in many instances, untapped investment opportunities.
2
Foreign Direct Investment (FDI) is a measure of foreign ownership of productive assets, such as factories,
mines and land. Increasing foreign investment can be used as one measure of growing economic globalization.
FDIs do not only provide foreign capital and funds, but also provide domestic countries with an exchange of skill
sets, information and expertise, job opportunities and improved productivity levels.
FDI can be categorized into two categories i.e. market oriented and export oriented FDI. In terms of market
oriented FDI, the most important factor to attract FDI is the size, growth and regional integration of the host
country. The export oriented FDI mainly looks for cost competitiveness, in terms of availability of low wage but
skilled labour, supply of key raw materials, reliable infrastructures (physical, financial and technological) and
proximity to markets.

13. Most mineralization falls into a number of geological environments as shown in the following
Matrix:
Gold and base-metal occurrences in the Proterozoic Ubendian Super group in southwest of Tanzania;
(Figure 2)
Gold occurrences hosted by the Archean greenstone belts and banded iron formations around the southern
and eastern parts of Lake Victoria; (Figure 4)
Kimberlite pipes in the central and southern parts of the Archean craton; (Figure 4)
Major gemstone occurrences in the Proterozoic Usagaran (eastern Tanzania) and Ubendian (Figure 1)
Super groups. Main types include: tanzanite, ruby, green garnet, green tourmaline, rhodolite, sapphire,
emerald, acquamarine and chrysoprase; (Figure 1)
Iron ore hosted in anorthositic intrusive in the Proterozoic Ubendian Super group; (Figure 2)
Nickel, cobalt, copper, tin and tungsten bearing rock formations in the Karagwe – Ankolean Super group in
northwest Tanzania; (Figure 1)
Carbonatites associated with the East African Rift Valley system; Evaporates in the Rift Valley and
younger formations along the coastal belt; (Figure 1)
Coal resources in the Karoo Supergroup in South-Western Tanzania; (Figure 1)
Uranium occurrences in the Karoo Supergroup in South-Western and southern Tanzania and in superficial
deposits within the Archaean craton in central Tanzania; and
A variety of industrial minerals such as kaolin, diatomite, gypsum, pozollana, limestone, meerschaum,
bentonite, ball clay and dimension and art stones (granites, marble, anyolite)
occurring in different rock formations. (Figure 1)
1.3 Mine Life Cycle
1.3.1 Downstream Processing, and Sustainability
There are three stages in the Mine lifecycle which are Stage 1 that deals with Exploration and
Assessment; Stage 2 Construction, Stage 3 Operation and Stage 4 Closure.
Stage 1 that deals with Exploration encompasses the Geophysics, Drilling, Geology - Analytical and Mineralogical
Assessment, Economic Feasibility Assessment, Ore body Modelling (1/10) and Mine Planning and
Metallurgical Test work.
Stage 2 which deals with Construction encompasses the Mine Shaft-sinking & tunnel/stope development (U/G),
Adit & tunnel/stope development (mountain-top), Top soil removal, key-cut, haul road development
(Open-Pit), Plant Site Preparation, Foundations, Construction of buildings Procurement and
Installation of Equipment Waste and Tailing Disposal, Site Selection and Preparation and
Construction of Initial Coffer Dam for tailing disposal.
Stage 3 which basically is a Mining operation encompasses the Mine Blast, Load, Haul, Dump Transport (hoist,
convey, truck, rail), Stockpile Safely Store Waste (on site or in-mine) Mill Crush, Grind
(comminution) Physical Separation (maybe chemical) (beneficiation) Thicken and Filter (dewater)
Safely Store Tailing Waste Disposal, Dump Contour, Spread top soil Hydro-seed and plan for final
drainage, Tailing Disposal, Plan for Lifts as Tailing Dam builds, Control Water Levels, Recover water
for recycle and Revegetate dam walls.
Stage 4 is about the Closure encompasses Mine Flood Pit Seal Underground workings, Long-term Acid Rock
Drainage plan for waste dumps, Mill Salvage Equipment, Raze Buildings, Contour and reseed site and
Long-term ARD plan for tailing dam
The Down Stream Processing is about Mine/mill complex which produces Ore or concentrate
or unrefined metal/product, product transported by airplane, rail, truck or ship to smelter or
refinery and if leaching is used at mine/mill, unrefined metal or final product is produced.
There are also Smelting, pyro-metallurgical processing (multi-stage) roasting to partially

14. remove/control Sulphur content, melting to separate oxides from sulphides (flux and slag)
oxidation to remove Sulphur and iron need SO2 control and slag disposal system
1.4 Fiscal Regime
Tanzania offers a well-balanced and competitive package of fiscal incentives in comparison
with other African countries aiming at providing competitive fiscal regime on foreign trade.
Investments in Tanzania are guaranteed against nationalization and expropriation through
various agreements of protection and promotion of investments such as the Multilateral
Investment Guarantee Agency (MIGA), of which Tanzania is a member, and Bilateral
Investment Treaties and Double Taxation Convections which have been negotiated and signed
to attract investors.
Tanzania also offers access to major markets of the world, such as America and Europe,
through special bilateral trade and investment agreements and arrangements, for instance, the
Africa Growth Opportunity Act (AGOA) of which Tanzania is a signatory. Moreover, Tanzania
embraces a strong and cooperative relationship between the government, the private sector and
development partners, and that makes it exceptionally conducive to attracting investments.
It is imperative to reaffirm the Government’s commitment to stay the course of reforms, to
continually improve the enabling environment and to promote investors’ strategies. Tanzania
has been implementing economic reforms to boost local and foreign private investment, as one
of the pre-requisites for attainment of Vision 2025. The target of the reforms has been to
improve business and investment climate, resulting into increased investor enthusiasm for the
numerous investment opportunities available in Tanzania.
There is no doubt that investment engenders economic growth, creates jobs and raises people’s
incomes hence reduce poverty. It is with this realization that the Government of the United
Republic of Tanzania is quite keen on developing sustainable partnership with the private
sector as a whole, in order to create an attractive investment climate in Tanzania that would
likely substantiate viability and feasibility of increased investment and business in variety of
sectors of the economy. Tanzania should therefore look forward to the continued support and
cooperation for the investors so as to enable to succeed in its endeavours. To achieve these
objectives, the Government has since 1998 through 2009 been undertaking major reforms
aimed at strengthening the investment and business environment with particular focus on
reducing cost of doing business. In that regard, from 1997 through 2000 Tanzania opened door

15. to foreign investment in the mineral sector to attract investors to bring technologies and
expertise [Increasing large Scale Mining Exploration and Mining activities].
At the outset, the Mineral Policy of Tanzania, 1997 stated, that the formulation of the fiscal
regime should aim at balancing the country’s interest with those of the investors by ensuring
that the mining taxation regime is equitable, suitable, and predictable, non-distortionary and
internationally competitive3
. The Government being regulator remained to be required to
pursue sound economic and fiscal policies that are conducive to private sector investment in the
mineral sector. It should be noted that, in line with the policy statement Tanzania has
undergone onto fiscal reforms, in that the rationale for the reforms is based on the reason of six
fold; 1) in the late 1980’s, the economy of Tanzania plunged into deep crisis; 2) high and
unsustainable budget deficits; 3) double digit inflation rate (>30%); 4) highly over-valued
exchange rate; 5) run down of foreign exchange reserves; and 6) negative economic growth.
Consequently, in the early 1990s, the Government embarked into IMF supported Structural
Adjustment Programs (SAPs). The overriding objectives of the programs were to restore
macro-economic stability as a pre-requisite for economic growth. The early fiscal reforms
under the SAPs were prescription from the IMF as conditionalities to accessing SAP facilities.
Among the bitter pills were; Expenditure cuts and Currency devaluation.
It is worth noting that, the second stage reforms were more intrinsic and widely acceptable
which was the enhancement in the budget management process, Medium Term Expenditure
Framework (MTEF)4
, Cash budget, Public Expenditure Review (PER)5
and Plan and Budget
Guidelines.
3
Objectives of the mineral taxation regime; encompasses, fair participation by state, stable over time, transparent
and provides even playing field for all, easy to understand and administer and internationally competitive
4
"The MTEF consists of a top-down resource envelope, a bottom-up estimation of the current and medium-term
costs of existing policy and, ultimately, the matching of these costs with available resources... in the context of
the annual budget process." The "top-down resource envelope" is fundamentally a macroeconomic model that
indicates fiscal targets and estimates revenues and expenditures, including government financial obligations and
high cost government-wide programs such as civil service reform. To complement the macroeconomic model,
the sectors engage in "bottom-up" reviews that begin by scrutinizing sector policies and activities (similar to the
zero-based budgeting approach), with an eye toward optimizing intra-sectoral allocations MTEF entails planning
in a three-year perspective. It links the budget process to Poverty Reduction Strategy (PRS), and is aligned to
performance budgeting, whereby the cash management systems make quarterly allocation to identified priority
sectors – as identified by the PRS.
The main objectives of introducing of MTEF in Tanzania were:
1. To provide a broad budgetary strategy within which the annual budget could be prepared;
2. To strengthen links between sector policies and resource allocations; and
3. To provide a mechanism through which analysis of budgetary performance could be fed back into the
budget planning process.

16. On Tax administration reforms, Tanzania Revenue Authority (TRA) was duly established in
1996 by the Tanzania Revenue Authority Act, 1995 as semi-autonomous government authority
for all tax revenue collection. Since its inception, TRA has undergone a series of restructuring
and modernization aimed at improving efficiency.
In order to ensure sustainability of the reform process, on an annual basis there is a policy
dialogue between the private and public sector on tax reforms at the Ministry of finance. The
Forum is known as Task Force on Tax Reforms which receive tax reform proposals from the
public, deliberate and prepare technical recommendations to the Minister responsible for
Finance. Thereafter, there is a Think Tank which is formed by the Minister responsible for
finance which comprises of researchers, academia, economists, tax experts and other
stakeholders to critically analyze and evaluate the recommendations of the Task Force which
forms the basis of budget framework.
It should bear in mind that, the vision of the Mineral Policy of 1997 has been to have a strong,
vibrant, well-organized private sector led, large and small scale mining industry conducted in a
safe and environmentally-sound manner; contributing over 10% of GDP (Table 6); a well-
developed gemstone lapidary industry; and providing employment to Tanzanians (Figure 9).
The vision was translated in clear objectives, hence, changed role of government from active
participant to that of facilitator, regulator and administrator, and service provider. Among the
objectives outlined in the Mineral Policy of 1997 include but not limited to;
1) increasing mineral sector’s contribution to the economy to about 10% of GDP by the year 2025; 2) increasing
government revenues from the mining activities; 3) creating gainful and secure employment in the mineral sector;
4) generating alternative sources of income for the rural population especially in secondary (Figure 9) and
tertiary industry; and 5) Maximizing value addition in minerals before exportation In the same vein, the
Government has been promoting and strengthening private sector by supporting through macroeconomic reforms
including privatization of government owned enterprise.
It thus, made changes to the Foreign Exchange Act (1992) which relaxed foreign exchange
restrictions so as to meet the needs of the Mineral sector. Various moves like introduction of
the floating exchange rate, licensing foreign banks, and creating an Investment Promotion
Center to cut red tape were made available. In that line, as a first step in implementing the
5
PER is concerned with public-based (not always government) revenues and expenditures as expressions of
public policy and public involvement in the economy. Social sectors—education, health and social protection—
are prime instruments of such policy and involvement. Each of the sectors is wide-reaching, comprising both
“private” and “public.” Rarely can all issues be covered with available resources. Indeed, a great many kinds of
analyses can be taken on in a PER, but obviously these need to be aligned with the data availability and budget,
not to mention the focus of the larger task in which sectoral PERs are commonly undertaken.
The PER process began in 1997. Its main objective is two-fold: First, to provide support to the budget process
and budget management. Second, to provide feedback on public expenditure and management issues to
government and other stakeholders through external evaluation

17. Mineral Policy of 1997, the government enacted the Financial Laws (Miscellaneous
Amendments) Act, No 27 of 1997 which made amendments to Income Tax Act, No 33 of
19736
for the purpose of attracting foreign private sector investment in the Mineral sector.
Consequently, the government enacted a Mining Act, No 5 of 1998 Other laws which
facilitated as the case may be facilitate Administration of the Mineral Tax and which tax auditor
will be entitled to use in the course of audit include;
“The EAC Customs Management Act, No 1 of 2004 made by Legal Notice No 01 of 2005; Excise Tariff
Ordinance Act, No 43 of 1985, Cap 332; Excise and Management Tariff Act Cap, 147; VAT Act, No 24
of 1997, Cap 148 made by GN No 24 of 1999;VAT Act No 5 of 2014, Value Added Tax (General)
Regulations, 2015 made by GN No 225 of 19 June, 2015; Road and Fuel Levy Act, 1995 Cap 220;;
Motor vehicle (Tax Registration and Transfer) Act, 1972 (R.E 2006)Cap 124 made under GN No 665 of
1998; Income Tax Act, No 11 of 2004 (R,E 2008) Cap 332; Income Tax (Transfer Pricing) Regulations
(GN No 27 of 07/02/2014); Income Tax Regulations and Income Tax Compiled Practice Notes; Foreign
Commercial Vehicles Licensing Act, 1970 (Repealed and replaced by The Foreign Vehicles Transit
Charge Act, Cap 84); Tanzania Revenue Authority Act,1995 Cap 339 made by GN No 319 of 1995; Tax
Administration Act No 10 of 2015; Tax Revenue Appeals Act, 2002 Cap, 408 made by GN No 126 of
2001; Land Act, No 4 of 1999, Cap113; Vocational Education Training Act, 1994 (R.E 2006) Cap 82;
and Stamp Duty Act, 1972, (R.E 2006) Cap 189 which honoured its jurisdiction to Income Tax Act, No
11 of 2004 for taxpayers obliged to pay stamp duty on receipts who would otherwise dwell under
Presumptive Income tax”.
Tax auditor will also be required to use the following documents as are necessary in executing
his/her auditing work;
“The Mineral Development Agreements (MDAs), Mining 7
Licenses, Income Tax Returns ITX 203.01.E
and I.T 2C, PAYE returns, Customs returns, National Mineral Policy of Tanzania 2010, Tanzania
Investment and Promotion Policy 1990, Tanzania Investment Centre Act, 1997, International Accounting
Standards (IAS) and International Financial Reporting Standards (IFRS), Agreements on the Avoidance
of Double Taxation and Prevention of Fiscal Evasion with respect to Income Tax, Agreements on the
Reciprocal Protection and Promotion for Investment, Pre-Feasibility and Feasibility Reports, Mine
Closure Plans, Environmental Management Plan (EMP), Environmental Impact Assessment (EIA) as the
case may be Environmental Impact Statements (EIS)”.
1.4.1 Incentives under NIPPA Act, 1990
For over two decades, Tanzania has been improving her investment climate by adopting
national laws and regulations starting with first market-oriented Investment Code National
Investment Promotion and Protection Act, 1990 (NIPPA Act, 1990), which applied to all
private investments - local and foreign – and formed the legislative backbone for the
6
About Income Tax
Income Tax concept came to be known in Tanzania since the era of colonialism. It was introduced in the
territory in 1940s by British colonialist. The first income tax legislation was based on a model of colonial
Income Tax Ordinance which was essentially a simplified version of the UK’s tax legislation as it existed in
about 1920 with modification to meet the needs of colonialist in the territory. Under the British rule income tax
was primarily intended for European portion of population. Africans were taxed through import and exercise
duties mainly because of their low income and literacy levels.
7
The Bank of Tanzania eased foreign exchange controls after the enactment of the Foreign Exchange Act of
1992, by allowing the establishment of foreign exchange bureaux in April 1992, introducing foreign exchange
auctions in July 1993, and creating the Interbank Foreign Exchange Market (IFEM) in June 1994

18. Investment Promotion Centre (IPC) which was set up to nurture and manage private
investment. Initially, neither the 1990 Investment Code nor the IPC were particularly
successful.
With regard to the NIPPA Act, 1990 several problems were experienced including 1) restrictive
investment environment, 2) lack of coordination of sectoral policies and the investment policy,
3) existence of several laws and regulations that conflicted with the NIPPA Act, 1990, 4)
existence of a non-commercialized society and 5) existence of a non-facilitative civil service.
Following such problems a number of studies were carried out which include; Review of the
investment Policy and Law, prepared by Dr. H. Sinare and Dr. F. Ringo under the auspices of
Economic and Social Research Foundation (ESRF) - 1996 and Investors Road Map (1996)
prepared by The Services Group, a team from USA. Both reports addressed policy, legal,
procedural and administrative barriers to investment in Tanzania.
It should bear in mind that, tax incentives are the fiscal measures which are used to attract local
or foreign investment capital to certain economic activities or particular areas in a country.
They are of two categories namely; general and selective incentives. Zee, Stotsky and Ley
(2002) adopt similar definition, they claim that;
“Any tax provision that is applicable to all investment projects does not constitute a tax incentive”.
This definition excludes “general tax incentives’ such as accelerated depreciation that applies
to all investments. Such general tax provisions deserve to be called incentives because they are
designed as incentives. The incentives scheme in the mineral sector was geared towards
attracting FDIs and was introduced during economic liberalization era and instituted by then the
Investment Promotion Agency (IPA) under National Investment Promotion Act of 1990 (NIPA
Act,1990). During that time, FDIs increased from USD 150 million in 1995 to USD 516.7
million in 1999.
1.4.2 Incentives under the Investment Policy, 1996 and TIC Act, 1997
The reports by Dr. H. Sinare and Dr. F. Ringo under the auspices of Economic and Social
Research Foundation (ESRF) - 1996 and Investors Road Map (1996) prepared by The Services
Group, a team from USA, forced GoT departments to re-examine their processes and make
appropriate changes; main changes include Adoption of the New Investment Policy 1996;
Enactment of the new investment code 1997 & establishment of Tanzania Investment Centre
(TIC) One Stop Shop for investors; Harmonized key legislation; Removed restrictions on
investment areas and Enhanced economic and social reforms from 1996 onwards. The

19. Government implemented reforms aimed at transforming its economy from one based on a
large State-owned sector and central planning to a market-and private-sector-based economy.
16 major reform legislations were enacted between 1990 and 2004. These reforms have helped
Tanzania to improve efficiency and weed out ills that impede growth.
In 1997, the Investment Code underwent a modernization that resulted in the TIC Act, 1997
which remains the most important vehicle for promotion of private-sector investments in
Tanzania; it covers both foreign and domestic investment. There were also several reforms in
the Taxation regimes namely ITA No 33 of 1973, Financial Laws (Miscellaneous Amendment
Act of 1997), ITA Cap 332, Value Added Tax Act, (VAT Act, 1997 and VAT Act Cap 148)
and Customs Laws, which open more sectors to foreign investment, that facilitate inward FDIs.
The Tanzania Investment Act, 1997 represented an effort to create a more vigorous business
framework, and introduced several new legislative features, including;
(1) the IPC which was given a wider mandate and renamed Tanzania Investment Centre (TIC); (2)
regulations for company registration which were eased; and (3) a set of investment priorities which were
identified, and incentives packages and investors’ rights which were improved especially for priority
sectors.
FDI in Tanzania has primarily been in the form of project financing for new ventures, although
there have been some instances of acquisitions – particularly related to the privatization
programme. In relative terms, FDI has virtually skyrocketed since the early 1990s (Figure8);
Likewise, TIC Act, 1997 includes provisions for Settlement of commercial disputes, but current
legislation has numerous ambiguities and there is no statutory mechanism by which a company
can reach out-of-court settlements. One can seek agreement through the arbitration laws of
Tanzania, and/or through the International Centre for the Settlement of Investment Disputes,
but this is normally a lengthy procedure. The courts are regarded by most companies as slow
and prone to both political influence and corruption.
In the same vein, investors are allowed to obtain land for investment purposes through the TIC
that issues derivative rights (under the new Land (Amendment) Act (2004) ) and under Section
24 of the TIC Act 1997, TIC certificate holders have the right of an initial automatic quota of
employing up to five persons during the start-up period; Suffice it to say that, there was a
reformation of IPA to Tanzania Investment Centre (TIC) as a one stopping center for investors
which gained many awards for simplifying the bureaucracy of investments which partly
reduced the transaction costs for investors. However, the incentives offered to FDIs were too
generous and wide open.

20. It should bear in mind that, though investors in mineral sector add value to the investments,
they have not been accommodated in the TIC investment incentives scheme because they had
their own separate incentive package through Mining Act, 2010 and other Tax Legislations as
far as fiscal stability is concerned. Attracting FDIs through the use of generous incentives as a
vector for economic development should be a short term strategy. The government should
strive to meet local investors internal financial needs, build permanent infrastructure that would
connect the country with its neighbouring countries, put in place systems that will reduce local
manufacturing costs and in so doing, create an even ground for both local and FDIs to operate
competitively in the long-run.
The Government provided special fiscal incentives in the mineral sector due to the following
reasons;
1. fiscal regime was not conducive for development of the sector taking into account that anticipation of
returns from investment was not possible;
2. Complex tax administration prevailed with high tax rates and a multitude of taxes in what was
commonly known as nuisance taxes;
3. There was a Lack of capital whereby human, financial resources and services within the economy came
from outside the country; for instance, globalisation of finances, skilled labour, specialised
management and technical services; and
4. There was a poor infrastructure which led to high costs of doing business in the country Arguments in
favour of incentives are widely known; Tax incentives (i) clearly enhance returns on investments; (ii)
may be justified by positive externalities stemming from investments; (iii) are relatively easy to target
and fine tune; (iv) signal openness to private investment; (v) are useful in a world of capital mobility;
(vi) are necessary for responding to tax competition from other jurisdiction; and (vii) they compensate
for other deficiencies in the investment climate. Another argument is that incentives can actually
enhance revenue by stimulating investments that generate other taxable income employment and
linkage effects. Tax incentives also offer political advantage over direct expenditure programs to
stimulate investment.
On contrary, tax incentives;
(i) can cause actual revenue cost to be high, (ii) foster abusive tax avoidance schemes, (iii) erode the
tax base, (iv) divert administrative resources from revenue collection, (v) cash value of tax incentives
stimulates political manipulation and corrupt practices, (vi) may also score poorly in terms of
transparency and accountability, (vii) create inequalities by favouring some taxpayers over others
which undermine general compliance, (viii) create tax differential which can introduce serious
economic distortions that reduces efficiency and productivity and (ix) causes revenue loss which may
require painful fiscal adjustments in the form of higher taxes on other entities, cuts in expenditure, or
greater dependency on other costly forms of financing.
Unfortunately, the Ministry of Finance does not produce tax expenditure estimates of tax
revenues foregone by main corporate tax incentives for8
investment in the mineral sector,
8
Tax Expenditure:
Tax Expenditure means costs related to tax relief that reduce government revenue and that are used in the pursuit
of government policy objectives that could also be achieved through public expenditure programs. In contrast to
expenditure programs, however, such tax relief is less rigorously accounted for and not subject to the same
degree of scrutiny by the parliament and the general public. This results in a loss of transparency and
accountability, which can be addressed by presenting a tax expenditure budget to the parliament and the general
public

21. which could be used to inform tax incentive policy-making and to provide transparency in the
provision of tax incentives. Hence, no current plans for preparing such estimates in mineral
sector. Most appalling, tax incentives cause revenue loss on part of the government; the actual
revenue loss from a tax incentive measure can be expressed as follows;
Revenue Loss=   4321 IREIREIREIREREDTB ii  ......)………….................... (1)
The equation ideally says that the revenue loss depends on;
TB: Size of the tax benefits where the larger the tax breaks, the larger the direct revenue loss;
i: Size of the set of beneficiaries whereby a narrowly targeted benefit is less costly than a broad one;
RED: Redundancy ratio where if RED =1.0 then the incentive is superfluous and the investments would be
undertaken anyway. The full tax benefit is a loss to the Treasury. If RED =0.0, then there is no genuine
revenue loss;
Four indirect revenue effects are also incorporated such as;
1 IRE: Tax favoured investments may generate revenue by creating taxable jobs and stimulating other
taxable enterprises through linkage effects and positive externalities. The indirect effect on revenue is
positive;
2 IRE: Expansion of the tax-favoured activities may reduce taxable income for other entities by undercutting
their market position, bidding away resources. The indirect effect is negative;
3 IRE: The tax incentives may create loopholes that provide new opportunities for tax planning, tax
avoidance, and corrupt practices in tax administration.
The third indirect effects is also negative and often very larger; and
4 IRE: The tax incentives may complicate the tax system and require Administrative procedures that divert
tax officers from their basic task of collecting revenue; this effect is also negative
Auspiciously, it has been good news on part of the Government that FDIs have increased
though have failed to contribute to poverty reduction efforts (Figure 8). This is because there is
a mismatch between the macro and microeconomic performance; despite the generous
incentives provided to large foreign investors in the form of tax exemptions.
Since 1998 including among other challenges, Tanzania through tax concessions scheme has
not been able to maximize revenue or promote and widen the tax net in mineral sector-
especially corporate tax revenue. Following Challenges that mining industry has been facing,
the government found the need to have a new National Mineral Policy, 2009 and Mining Act,
2010. The main focus of Mineral Policy of 2009 is to increase mineral sector integration with
other sectors of the economy in order to maximize contribution of the sector to GDP and
poverty alleviation.
Tax buoyancy: Tax (or revenue) buoyancy is defined as BasevenueTB  %Re% using numbers for
the revenue and base actually observed. Typically the base is taken to be GDP, although other bases are possible
(e.g. consumption as the base for sales taxes, imports as the base for tariffs, etc.). The revenue could refer to total
tax revenue, or to revenue from any given tax.

22. CHAPTER 2
CHALLENGES IN THE MINERAL SECTOR
The major goal of National Strategy for Growth and Reduction of Poverty (NSGRP-
MKUKUTA9
) in relation to mineral sector was to reform mineral policy and legislation so as to
develop and promote an enabling environment for investment. However, up to July, 2010 when
the first phase of MKUKUTA was ending, the mining industry was undergoing the following
challenges;
2.1 Inadequate Contribution of the Sector to the National Economy
It is a widely held view that, a sector which is growing faster than the average is making a very
positive contribution to growth. A sector which is growing less rapidly than the average is
clawing it down. The more the Gross Domestic Product (GDP) reflects that the sector is
buoyant to yield the tax revenue and vice versa. However, the buoyancy is not a reflection of
the amount of tax paid by the mineral sector, in that tax auditor is responsible to ensure that
mining companies remit their tax due which would actually be the amount forming the
buoyancy profile and tax clientele.
Unfortunately, contribution of the mineral sector to the national economy in relation to its
growth is not in line with the projection of ten per cent (10%) in 2025 as stated in the
Development Vision 2025 (Table 6). In our analysis, the GDP figures are reported in current
and constant prices. Output data are generally collected in both current and constant prices
whereby constant price figures for the mineral sector were obtained by valuing current output in
the prices applicable in a 2001 base year.
It is of the considered view that, Tax auditor is obliged to collect information from the third
party sources, such as Ministry of finance, economic planning, property registers, civil courts,
and stock exchanges which should be compared between publicly declared income and returns
to the TRA as a first step to ascertain sectoral contribution.
9
MKUKUTA
This is a Kiswahili acronym for the National Strategy for Growth and Reduction of Poverty (NSGRP). This
strategy is the development framework for the five year phase (2005-2010). It forms part of Tanzania’s efforts to
deliver on its national Vision 2025. The focus is outcome orientated and organized around three clusters: Cluster
1: Growth and reduction of income poverty, Cluster 2: Improved quality of life and social well-being, and
Cluster 3: Governance and accountability.
Monitoring MKUKUTA progress across these clusters is a large and important task. To do this the monitoring
system has a structure which includes coordination by the MKUKUTA Secretariat and three multi-stakeholder
Technical Working Groups. The three groups are: Research and Analysis, Surveys and Routine Data, and
Communications.

23. Thereafter, data collected should be analyzed and simulated to provide estimates of the total tax
base and tax liability. The analysis should also break down these estimates into estimated
contribution by companies in the sector. A comparison of these estimates with the actual
performance of the respective companies in the sector will reflect the gap, for example,
voluntary compliance gap, registration gap, filing gap, payment gap, etc. Likewise, a database
of macro-economic data, obtained from the National Bureau of Statistics or the Ministry
responsible for economic planning, should also be compiled and maintained. Using statistical
modelling techniques, the relationship between the performance of the economy and the tax
base/tax collection can be simulated to enable the tax administration as the case may be tax
auditor observe patterns, trends, and developments. Any significant outlier observation should
be tagged for further analysis such as correcting for exemptions trends, timing or accounting
differences, etc. The ultimate objective of the review is to ascertain the cause of any
discrepancies, and implementation of appropriate remedial action.
Ultimately, proxy measures should also be derived by the tax auditor to track compliance
trends. These include:
(1) Macro-economic indicators such as GDP, inflation, imports, exports, exchange rates, etc. which
can be used to benchmark revenue collection; (2) Non-compliance indicators (derived from financial
data)can be used to flag taxpayers suspected of not conforming to expectations; (3) Public opinion
indicators (derived from public surveys on the professionalism and fairness of the tax
administration) can provide information on possible sources of non-compliance; and (4)Program
impact indicators (such as the effects of compliance interventions undertaken by the TRA) can
provide an insight into their consequences on compliance.
2.2 Lack of Thin Capitalization Restrictions Rule
Thin capitalization restriction rule is an anti-tax avoidance measure which is adopted to counter
the abusive use of loan finance. Hence, the purpose of Thin Capitalization Clause is to disallow
the deduction of interest expenses pertaining to debts from related parties when the ratio of debt

24. to equity exceeds a certain prescribed debt/equity ratio10
. The ITA No 33 of 1973 and ITA Cap
332 had no safe harbour limit relating to debt to equity ratio, the extent to which taxable income
was endangered through deductibility of interest and consumers and creditors were exposed to
the solvency risk of the mining companies, which had to repay the bulk of their capital with
interest.
Thin capitalization had been a problem from a tax perspective because the returns on equity
capital and debt capital were treated differently for tax purposes. Returns to shareholders on
equity investments were not deductible for the paying company, being distributions of profit
rather than operating expenses. On the other hand, returns to lenders on debt – most commonly
in the form of interest – were deductible for the payer in arriving at profits assessable to
corporate tax. This resulted in attempts by multinational enterprises to present what in
substance is equity investment in the form of debt, and thereby receive more favourable tax
treatment. Section 12 (1) through (4) of the ITA Cap 332 provided only a limit which
preserved room for exempt controlled resident entity to carry forward interest for which
deduction was denied. Allowable interest was limited to 70% of tax base before interest
deduction plus interest received: excess interest was carried forward indefinitely11
.
10
Definitions of Debt to Equity Ratios for the selected Countries
Source: David Tarimo-NBAA and TRA Seminar (2012/13) Budget Highlights
11
Section 12(2) through(3) of ITA Cap 332 states that “The total amount of interest that an exempt-controlled
resident entity may deduct under section 11(2) for a year of income shall not exceed the sum of -
a) all interest derived by the entity during the year of income that is to be included in calculating the
entity's total income for the year of income; plus
b) 70 per cent of the entity's total income for the year of income calculated without including any interest
derived or deducting any interest incurred by the entity.

25. This incentive had the objective of preserving room for the dependency of loan finance in inter-
company dealings. This stems from the fact that banks are risk averse which hesitate to provide
loans to mining companies whose recouping of their investment costs takes a long period.
Mining companies on the other hand are risk lovers that invest entirely in risky portfolios.
Hence, there is a negative correlation between investment decisions by the mining companies
and that of financial institutions. Bearing in mind, that Tanzania has been pursuing the
liberalized economy, it was pertinent to relax the safe harbour limit. Though imperatively,
absence of safe harbour limit aimed at not affecting multinationals capital structure choice and
investment.
2.3 Lack of Ring–Fencing Provision
Ring-fencing is the isolation for tax purposes of certain type of activities, income and losses
(Van Blerck, 1992:15-2). It refers to Artificial restrictions created by the law with the intention
of ensuring that capital expenditure incurred by a particular mine is only deducted against the
income generated by that particular mine and the balance is carried forward for deductions in
the following year.
At the outset, it was clear that taxation of mining companies should be on the ring fencing basis
especially where deduction of expenditure could have been restricted to the mine which is
productive in line with the Matching Principle of accounting, Time-based Test and Wholly &
Exclusivity rule of deduction. However, expenditures in the mineral sector were later bundled
making it difficult to identify or segregate the costs relating to the income producing mine from
non-income generating activities. This happened due to the fact that, in the Income Tax Act, No
33 of 1973, the narration of general deduction formula as provided under Para 1712
of the
amendment of the Second Schedule by interpretation negated ring fencing; in that the person’s
chargeable income was regarded to be the total income from any business or investment and
expenditures to be deducted were considered to be the all expenditures employed in the
production of such income (total income from any business or investment). “The ring fencing
rule is hereby killed by the terms total income from any business or investment and the words
“all expenditures” The aim of ITA No 33 of 1973 was to provide automatic exemption for the
c) Any interest for which a deduction is denied as a result of subsection
d) (2) may be carried forward and treated as incurred during the next year of income.
12
Financial Laws (Miscellaneous Amendments) Act, No 27 of 1997
Para 17 of Financial Laws (Miscellaneous Amendments) Act, No 27 of 1997 states that “Subject to this
Schedule, where a person carrying on mining operations incurred expenditure in any year of income there shall
be made, in computing his gains or profits for such year of income, a deduction equal to the amount of such
expenditure”.

26. non-productive mines and to allow efficient allocation of resources in the long run. Hence, the
law intrinsically allowed unutilized tax losses of one mine to be transferred to and set off
against the taxable income of another mine within the same corporate group. Though there
were no clear defined transfer rules but the practice was relatively straight forward and easier to
administer.
The typical loss transfer regime required only amendments to the ITA No 33 of 1973 rather
than new body of tax legislation and entailed less administration and compliance costs. Apart
from ITA No 33 of 1973, among the mining companies which signed MDAs with the
government, two of them their MDAs have clauses which guarantee the non-application of ring
fencing; these are the MDA entered between the Government of the URT on one part and RTL,
Samax Resources Ltd and Mabangu Mining Ltd on the other part and MDA entered by the
Government of the URT on one part and Afrika Mashariki Gold Mine Ltd (North Mara) on the
other part (Table 8 & 9). The Clauses read as follows;
“Expenditure by licensee on prospecting and mining operations undertaken by licensee in respect of
another license area over which the licensee has mineral rights granted under the Mining Act, 1979 as
may be amended or replaced time to time may for the purpose of ascertaining the taxable income of the
licensee be treated as through it were expenditure incurred in respect of mining license”
It should be noted, that absence of ring-fencing preserved room for the group consolidation
system; For example, Buzwagi Gold Mine and Tulawaka Gold Mine under Pangea Minerals
were able to determine overall tax position under Pangea Minerals, also Samax Resources and
Geita Gold Mines were also able to dwell under group consolidation except that splitting of
accounts in relation to their shareholding was undertaken at the time of filing corporate income
tax returns on the 85% to 15% basis. Of course, this system is more complex than a loss
transfer regime.
It is the role of the tax auditor regarding ring-fencing to monitor and evaluate tax balances such
as unredeemed capital expenditure and initiate critical verification on the disclosure if
data/information from one mine has not been transferred to another mine. This may include
efficient tracking of depreciation and costs as the case may be shifting of costs and income or
cash resources generated from one mine to another mine.
2.4 Weaknesses, Long Duration of Fiscal Stability and Inconsistency in the MDAs
The most important point to be noted at this juncture is that, the existing MDAs and Mineral
rights with exception of Pangea Minerals Limited were made under Section 1514 of the Mining
Act, No17 of 1979 which was repealed and replaced by Mining Act, No 5 of 1998 which was
considered friendly to private investors because provided security of tenure and other

27. incentives. It allowed the Minister responsible for Minerals to enter into development
agreements (MDAs) with the owner of the mining projects according to section 10(1) (2)13
.
The main purpose of MDAs is to provide long term fiscal stability to mining projects.
However, MDAs are not the usual way to regulate a mining operation and their use is restricted
to large scale operation involving foreign investment. Agreements may be entered into where
an established legal framework permits an agreement in relation to mining operation at the
quest of investor. They are mechanisms on how much of the regime should be fixed in
legislation and how much should be left open for negotiations. Key concerns of investors about;
The Security of tenure include the
1) need to have a transparent licensing system to enable investors to logically progress through each
phase of extractive activity; 2) need for the right to enter into the next stage of operations based on
objective criteria and not through Ministerial discretion; 3) being accessible for the expeditious and
timely grant of all requisite licenses and ancillary consents and approval; and 4) Need for the right to
produce in the event of a commercial discovery
The Contract and fiscal stability encompass the
1) Need for the change in law and prevalence of the political force majeure; 2) unilateral change in
contract and their consequences on the project; 3) investors would seek agreement on stability of fiscal
terms during the life of the project; 4) dispute resolution mechanisms; and 5) non-discriminatory
treatment etc.
The Transparency and Government Discretion encompass the
1)Events and procedures for cancellation of a license or termination of an agreement must be clearly
specified to ensure bankability and continuity of their operations and to protect their investment; 2)
limitation of Governmental discretion and objective criteria for their exercise; and 3) Lenders step in and
other rights to facilitate project financing.
The Operational management and control over operations are;
1) right to employ qualified personnel in key positions; 2) right to import appropriate equipment; 3)
control over and right to use geological and technical data which they generate; 4) the right to freely
dispose of or export production and derived products; 5) control over the marketing arrangements to
maximize worldwide business opportunities; 6) right to retain overseas the proceeds of sale of their
exports; 7) rights to assign license to facilitate farm in and farm outs; 8) approval for assignments not be
unreasonably delayed or withheld; and 9) Lenders step in and other rights to facilitate project financing
The Environmental and Decommissioning obligations are of twofold;
13
Section 10(1) (2) of the Mining Act, of 2010
(1) The Minister may, on behalf of the United Republic and subject to subsection (3), enter into a
development agreement, not inconsistent with this Act, with the holder of, or an applicant for, a mineral
rights for which he is the licensing authority relating to the grant of such a mineral right or mineral
rights, the conduct of mining operations under a special mining licence the grant of the Government free
carried interest and State participation in mining, and the financing of any mining operations under a
special mining licence.
(2) The level of free carried interest and State participation in any mining operations under a special mining
licence shall be negotiated upon between the Government and a mineral rights holder depending on the
type of minerals and the level of investment.

28. 1) Investors’ concerns about environmental regulations and liability; and 2) investors seek mechanisms
to limit exposure to environmental liability
2.1.1 Weaknesses
It is worth noting, that one of the notable challenges to the government was lack of capacity to
manage the tremendous growth of the sector, and inadequate participation of technical staff
during negotiations of MDAs. Negotiations were conducted by the legal officers at the Ministry
of Energy and Minerals and there were no checks and balance in the process. The negotiated
draft MDAs were submitted to the Minister’s Mining Advisory Board which then submitted to
the Attorney General Chamber for vetting. It may be argued and in my view very correctly so,
that yet there is no sufficient information sharing between various government institutions that
are involved in making MDAs compliant because MDAs at the outset were deemed to be
confidential and in that regard, there is no absolute stakeholder’s involvement.
Mining companies and Government often were insisting on the need to keep contracts
confidential, claiming that publishing deals would harm the investors’ business interests by
sharing information with competitors or compromising their bargaining position in future deals.
For this reason, many contracts between companies and Government were protected by
Government circulars which put in place “confidential nervous atmosphere”. It should however
be noted, that some of the provisions in the MDAs require not only the Ministry of Energy and
Minerals to enforce but also government institutions as shown in Table 8.
It was imperative to have confidential deal in contracts in order to be in line with the ITA No
33 of 1973 and section 140 of ITA Cap 223 and section 21 of the Mining Act, No 5 of 1998 and
section 25(1) of the Mining Act, 2010 which preserve rooms for confidentiality. Section 21 of
the Mining Act, No 5 of 1998 as the case may be 25 (1) of the Mining Act, 2010) read;
“Subject to subsection (2), no information furnished, or information in a report submitted, pursuant to
section 98 by the holder of a Mineral Right shall, for so long as that Mineral Right or another mineral
right granted to the holder has effect over the land to which the information relates, be disclosed, except
with the consent of the holder of the Mineral Right”.
Fortunately, as of recent, audit findings circulated by the Tanzania Minerals Audit Agency
(TMAA), National Environment Management Council (NEMC) 14
, Tanzania Revenue
14
The National Environment Management Council (NEMC) is the leading technical advisory, co-
coordinating and regulatory agency responsible for the protection of the environmental and sustainable use of the
natural resources in Tanzania. It is responsible in consultation, collaboration and partnership with other entities
concerned with environmental matters and the public at large,
for facilitating and promoting such measures as necessary to help achieve an important quality of lives for
Tanzanians. Regarding the legal and institutional framework review in the context of REDD+, NEMC has a key
role to play toward environmental audits for REDD+ projects to determine how beneficial they have been to the

29. Authority(TRA) and Tanzania Extractive Industry Transparency Initiatives (TEITI)
requirements may fundamentally be suitable as working tools to avoid any that would be
weaknesses during negotiation and anytime thereafter.
It is noteworthy that, Tax auditor is required to verify the terms and conditions stipulated in the
MDAs if are complied with and if those terms and conditions are not in conflict with the
provisions stipulated by the Mining Act, Income Tax Act, Environmental Management Act,
and other related Laws.
2.1.2 Long Duration of Fiscal Stability
In the interest of minimizing risk and increasing the predictability of costs and tax obligations,
mining companies often prefer “stabilization” clauses into contracts which aim at avoiding
“unfavourable” changes in the “fiscal regime.” These clauses may aim to freeze the tax system
or profit split prevailing at the time of contract negotiation by stipulating that any law or
regulation passed after the signature of the contract which would result in increased costs for
the company will not be binding on the company or that the government would be obliged to
compensate the company for any costs incurred.
If narrowly defined, such stabilization clauses might reasonably protect companies from a
government changing its tax regime overnight, doubling the corporate tax rate, for example, or
from enacting “discriminatory” legislation – laws that apply only or in a disproportionate way
to an individual company or project. In this way, such clauses may be considered necessary in
“high-risk environments.” In the Mining Act, No 5 of 1998 the duration of the MDAs was very
long as stipulated under section 10 because was made subject to the duration of SML which is
25 years.16 Moreover, the duration of the MDAs under section 11 and section 43 of the Mining
Act, 2010 is similarly very long double even to the Medium Term. It also exists in accordance
with the duration of the Special Mining License which is 25 years or estimated life of the
respective ore body whichever is shorter and subject to renewal15
.
environment and its people. The National Environment Management Council (NEMC) is under the Vice
President’s Office. The main role of NEMC is to provide advice to the Vice President’s Office on all matters
pertaining to environmental conservation and management.
15
Section 11 reads with section 43 of the Mining Act, 2010
(11)The development agreement to be entered into under this Act shall be valid for the period of duration of
the special mining licence as stipulated in section 43
(43)A Special Mining Licence granted to an entitled applicant shall be for the estimated life of the ore body
indicated in the feasibility study report, or such period as the applicant may request whichever period is
shorter.

30. The term whichever is shorter as stipulated in the MDAs has not been realistic because period
of 25years is not shorter when the life of the mine has been extended beyond 25 years. Hence,
renewal of the estimated life of the ore body overrides sustainability and feasibility of tax
revenue generation due to non-tax revenue generation resulting from the long duration of the
SML. Contracts with such long time duration may not be very desirable especially where the
fiscal stability clause is mentioned. For example, if the corporation tax rate increases from 30%
to 35% the company will continue to be taxed at a rate of 30%, for the rest of the duration of
the mine as the case maybe, but if the rate changes from 30% to 20%, the mining company will
take immediate advantage of the decrease in the tax rate.
It may be of interest to note that, assessing fiscal stability is essential for the tax auditor if the
clause was worded vaguely, and/ or overrides existing tax laws. Tax auditor should have to
check if fiscal stability provisions could effectively “impair parliament’s normal authority to
pass fiscal legislation” or limit a government’s ability to modify or strengthen tax and
regulatory frameworks, wherever possible.
The above argument may be supported by the case of Attorney General V Wilts United Dairies
(1922)38 TLR 781 where the court held that “tax should not be levied without clear authority of
Parliament”. In the similar vein, the case of Russell V Scott [1948] 2All ER 1 (HL) Lord
Simon’s was quoted as saying on P 5
“It may thus be taken as a maxim of tax law, not to be overstressed and not to be forgotten either that the
subject is not to be taxed unless the word of the taxing statutes unambiguously impose the tax on him”.
2.1.3 Inconsistency in Forms and Substance
It should bear in mind that, between 1992 and 2007 six mining contracts for major gold mines
have been signed. Mines with those contracts are listed in Table 7: Key issues to be considered
in the MDAs according to section 10(2) of the Act include the following:
(1) Fiscal stability during the whole period of the project according to the ITA Cap 332 and agreed rates
of royalties; (2) How the Minister or Commissioner for Minerals can use his discretion to implement the
agreement according to the Law and its guidelines; (3) To specify the limits of the investor’s
responsibility in protecting the environment; and (4) How to solve conflicts arising from the respective
MDAs.
On top of the issues specified in the Mining Act, No 5 of 1998, other issues included in the
MDAs are:-
(1) The company to be allowed to open a bank account i.e. offshore account and to repatriate funds; and
(2) To put a ceiling on the amount of revenue payable to Local Government Councils
Basically, MDAs in Tanzania are similar with only slight differences in some areas, for
example, in the Buzwagi Mining Contract, Pangea Minerals Limited was given a deduction of

31. 80% of capital expenditure in the year incurred, thereafter a 50% per annum on declining
balance method on condition that the Government shall make legislative changes to ensure that
Clause 4.716
of the MDA is applicable under the laws of Tanzania. On contrary, other MDAs
have 100% relief.
Moreover, in the Addendum between the Government of the United Republic of Tanzania and
Bulyanhulu Gold Mine Limited and North Mara Gold Mine Limited of 17th February, 2007, an
additional 15% relief on the unrelieved qualifying capital expenditure was removed while other
companies have no Addendum addressing similar decision. These circumstances are contrary to
equity and fairness principle of taxation.
It is therefore, the role of the Tax auditor to do comparative analysis on MDAs and verifies as
to whether such MDAs form part of the risks of revenue and further the fact that, feasibility
studies and other relevant documents do not vary significantly from what have been reflected in
the terms and conditions of MDAs and Mining License.
2.5 Unlimited Tax Losses Carried Forward
Unlimited tax losses carried forward when were negatively correlated with the disequilibrium
between the tax losses and taxable income tended to be a big challenge to the government. A
carry forward loss provision allows a business to use a net operating tax loss in one year to
offset against income in one or more future years. Therefore, unlimited loss carried forward
coupled with deduction of unrelieved loss of the year of income from any other business or
investment or unrelieved loss of a previous year of income under Set-off approach is another
challenge in the determination of taxable income.
As a matter of fact, the amount of income base should be higher than deductions in order to be
able to arrive at the taxable income. The more the income as compared to deductions the better.
On contrary, the income bases were trivial even to use set-off provision whenever profits are
generated. The companies hence persistently reported accumulated tax losses whereas with
unfortunate, limited carry-forward losses are subject to the maintenance of maximum debt to
equity ratio. In Figure 5, while using quadrant analysis; each quadrant should represent a
combination of product prices (low/high) and production costs (high/low). A stable tax system
in that regard needs to be able to deal efficiently with all four combinations in order to avoid
tax losses.
16
BZGM MDA-Article 4.7 states that “The Company shall be allowed to deduct 80% of capital expenditure in
the year incurred, thereafter at 50% per annum on declining balance method, provided that the Government
shall have made legislative changes to ensure that this provision is applicable under the laws of Tanzania”.

32. A royalty for instance, will secure revenue when prices are low and costs are high, but a
relatively low rate should be applied. In a low cost/high price situation a resource tax that
captures economic rent is important. A windfall tax on its part should only apply when prices
are extremely high and should not be the main revenue generator. One of the purposes of a
windfall tax is to avoid popular pressure to change the tax system in periods with soaring
product prices. Main reason as to why mining companies have generated little revenue and
consequently report tax losses so far is the choice of tax design. Tax system is back-end loaded
with a high depreciation rate, huge concessions in tax legislations and there were no ring
fencing, which means that less revenue had to be generated in the early stages. Such system
could not be able to deal with all four combinations of the quadrant.
As a policy measures, it is therefore imperative to 1) ring-fence mines and limit the
depreciation rate (if the royalty rate and the corporate income tax rate are low), or 2) allow fast
depreciation and not ring-fence mines (if it is possible to apply higher tax rates, such as a
resource tax and a windfall tax in addition to a royalty and a corporate income tax). (Refer to
the work of Frian Aarsnes 2012). Based on the “principles of natural justice”, a set-off should
be available for loss incurred. The ITA Cap 332 in Tanzania recognizes this and provide for
adjustment and utilization of the losses. However, there are conditions which have been
introduced to prevent misuse of such provisions as shown in section 18 and section 19(2) of
ITA Cap 33217
.
It is the role of the Tax auditor to verify the loss trafficking and trend of tax credits as reflected
in the respective accounts and returns. Any tax loss which lacks reliability as to its nature and
basis of set-off must be dishonoured for deduction.
17
By virtue of section 18 of ITA Cap 332, for the purposes of calculating a person's income for a year of income
from any business, there shall be deducted any loss of the person, as calculated under Division III of Part III
relating to the determination of the income tax base, from the realization during the “year of income” of
(a) a business asset of the business that is or was “employed wholly and exclusively” in the
production of income from the business;
(b) a debt obligation incurred in borrowing money, where the money is or was “employed or an
asset purchased with the money is or was employed wholly and exclusively” in the production
of income from the business; or c) A liability of the business other than a debt obligation
incurred in
(c) borrowing money, where the “liability was incurred wholly and exclusively” in the production
of income from the business.
By virtue of section 19(2) of ITA Cap 332 a person may deduct an unrelieved loss -
(a) in the case of a foreign source loss from an investment, “only in calculating the person's
foreign source income from an investment”;
(b) in the case of other losses from an investment, “only in calculating the person's income from an
investment”;
(c) in the case of other foreign source losses, “only in calculating the person's foreign source
income”;