2. Journal
Vol. 31, Issue 2
April - June, 2014
Modigliani and Miller (1958). "The cost of capital,
corporation finance and the theory of investment."
American Economic Review 1958; 48: p 261-297.
Moss, J., and Stine, B., (1993). "Cash Conversion
Cycle and Firm Size: A Study of Retail Firms",
Managerial Finance, VoLl9, pp. 25-35.
Muthuva (2009). "The Influence of working capital
management components on corporate profitability,"
Research journal of business management, ISSN
1818-1932.
Ndunguru, (2007). Research methodology for
social science. Mzumbe: Research information and
publications department.
Nobanee Raitham and ModarAbdullatif, (2005). Cash
Conversion Cycle and Firm's Performance ofJapanese
Firms, Padachi, (2006). "Trends in Working Capital
Management and its Impact on Firms' Performance."
International Review of Business Research Papers.
Vol 2(2), pp 45 - 58
Petersen, M. Rajan, R (1997). "Trade Credit: Theories
and Evidence." Review of Financial Studies 1997;
VoLl0 pp 661-691.
The National Board ofAccountants and Auditors
Raheman and Nasr (2007). "Working Capital
Management and Profitability - Case of Pakistani
Firms." International Review of Business Research
Papers Vol.3 No.1, pp. 279 - 300.
Shin, R., and L. Soenen, (1998). "Efficiency of
Working Capital and Corporate Profitability",
Financial Practice and Education, Vol. 8, pp. 37-45.
Shin and Soenen (1998). "Efficiency of Working
Capital Management and Corporate Profitability."
Journal ofFinancial Practice and Education, Vol. 8(2),
pp.37-45.
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193
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Wu, (2001). The Determinant of Working Capital
Management Policy and Its Impact on Performance,
National Science Council Project, 2001.

3. Journal
Vol. 31, Issue 2
April - June, 2014
taxed in that State". The term "immovable property" includes among mineral deposits, sources and other natural
resources. Refer the case of Rupert Kimber v HMRC 2012] UKFTT 107 (TC) (08 February 2012)4;
The scope of the information covers any and all information that relates to the enforcement and administration
of the requesting jurisdictions' tax laws, including, information relating to capital gains5
and includes income
information, bank: information, transfer pricing information, ownership information etc. (Tax and Development
Practical Guide on Exchange of Information for Developing countries 2012).
There are International Norms, rules and rights as provided under the Vienna Convention of the Law of Treaties
where States have original jurisdiction to tax in accordance with the international law. Likewise, by virtue of
section 31 of the Vienna Convention of the Law of Treaties, the treaty must be interpreted in good faith with its
ordinary meaning in light with its object and purpose. In any case where there are no treaties, the Domestic Law is
taken into account for the interpretation of DTA when nothing more can be derived from the treaty itself. Hence,
even courts have been using the "Substance over Form" to disregard the legal form of a transaction in favour of
its time economic substance. (Refer also the case of Afrika Mashariki Gold Mines Ltd V Commissioner General
TTLR 3 (2005) 6(Mafwenga 2012).
4 Rupert Kimber v HMRC 20l 2} UKFIT 107 (TC) (08 February 2012)
Brief Facts: The taxpayer returned to the UK having spent many years abroad, working in Japan. He returned to the UK on 17 July 2005 and
remained here until 30 July 2005, when he went on holiday to Italy for four weeks, returning at the end of August. On 12 August, he
disposed of a block of shares, realizing a gain on which the capital gains tax charge was £96,499.60. When he returned from Italy at
the end ofAugust, he took up employment with a company in the UK. He claimed that he did not become UK resident until the end
of August; his stay in the UK during July was part of his normal holiday arrangement. During that stay, he arranged to take a lease
on a UK property. HMRC 6, the publication dealing with residence, states:
Issue: The Issue was whether Taxpayer was a resident in UK and liable to capital gains tax; the Brief facts were that; the taxpayer returned
to the UK having spent many years abroad, working in Japan.
Held: It was held by the tribunal that the circumstances were that the taxpayer had decided to remain in the UK prior to 30 July, when he left
for his holiday and was UK resident when the shares were disposed of on 12 August
5 OECD Model Convention, Article 14
6 In Afrika Mashariki Gold Mines Ltd V Commissioner General TTLR 3 (2005)
Brief Facts: The appellant is a limited liability company dully registered under the Companies Ordinance Cap. 212. Initially the appellant had
been registered in the name of East African Gold Mines Limited but changed to Afrika Mashariki Gold Mines Limited after discovering
that there was another company incorporated under the same name. The composition ofthis company by the time of the dispute consisted
oftwo shareholders namely East African Gold Mines (Australian Company) holding 1,184,461 ordinary shares and secondly Mr. Godfrey
Hugh Stewart, holding only one ordinary share. In 2003, a Canadian Company known as Placer Dome Inc. went into public takeover bid
of the Australian Company (East African Gold Mines Limited) and bought the majority shares in the Australian company. When this fac
was brought to the attention of the respondent through a local newspaper to the effect that the Australian Company's shares in Australia
had been acquired by Placer Dome Inc., the respondent demanded to be furnished with a contract of the sale of shares for the purposes
of raising from the appellant capital gains tax under section 13 of the Income Tax Act, 1973 and stamp duty as per section of the Stamp
Duty 1976.
The counsel for the appellant argued that the Australian Company had no shares to sell and did not receive any payment because it was the
shareholder who sold out shares; therefore it was not liable to pay capital gains tax arising out ofa non-existent transaction. Secondly, the
respondent failed to establish that the seller was an owner offinancial assets owned in the URT and that these assets were sold. Thirdly
since the sale of shares took place outside the URT between two foreign companies then section 5 of the Stamp Duty Act could not stand
as the instrument did not relate to property found in Tanzania nor was it executed in Tanzania. The counsel for the respondent maintained
that there was a transaction of sale of shares and the transaction related to property situated in Tanzania, therefore the respondent wa
entitled to demand the payment ofcapital gains tax on whatever gains realized there-from in accordance with section 13(1) ofIncome Tax
Act 1973 and stamp duty under section 5 of Stamp Duty Act 1976 as well as item 60.
Issues: Stamp Duty; Whether Instruments not relating to property in the United Republic executed outside the United Republic are subject to
stamp duty
Capital Gains Tax; whether the sale can only be chargeable to capital gains tax if the financial asset sold is owned in the United Republic and
whether a non-resident person owning assets outside the United Republic is not chargeable to capital gains tax
Held: It was held inter alia that in tenns of section 13 read together with section 3(1) of the Income Tax Act 1973, any person who sells any
financial asset owned by him in Tanzania then the difference between value ofconsideration for which such financial asset is sold and its adjuste
cost that has not been claimed as deduction in respect of capital expenditure will be deemed to be capital gains income on such person accrue
or derived from the United Republic in the year of income it takes place. A non-resident person owning assets outside the United Republic is no
chargeable to tax both under section 3(1) (b) as read together with sections 3(2) (e) and 13(1) of the Income Tax Act 1973; and that since it ha
The National Board ofAccountants and Auditors
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4. Statement of the Problem
Journal
Vol. 31, Issue 2
April - June, 2014
Tanzania is losing capital gains tax revenue not only due to tax evasion, capital flight and profits laundering by
mining companies but also "due to inefficient and ineffective administration in the mineral tax regime in particular,
thereby preserving room for an increasing trend of offshore sale of shares without paying capital gains tax."
"Foreign mining companies operating in Tanzania have exclusive ownership of their operations, and while
looking at the minerals recovered they have complete power to dispose such minerals as they wish, including to
transfer rights such as shares to other companies, without incurring capital gains tax" (Curtis & Lissu (2008, p. 15).
Likewise, the case of Afrika Mashariki Gold Mines Ltd V Commissioner General TTLR 3 (2005) astoundingly
opened Pandora box on the dilution oftaxing rights with regard to the capital gains on offshore sale of shares.
It is worth noting that, the control of ownership which would provide taxing rights for Tanzania, on sales of
shares have not been possible to be exercised because Stamp Duty Act Cap. 189 attain its application within local
jurisdiction while on contrary; most sales ofshares by multinational companies are executed outside Tanzania. It is
also not possible in the collection of capital gains tax on realization of assets where there are no DTAs that could
otherwise provide taxing rights.
BRIEF LITERATURE REVIEW
Economic Allegiance of Income
The League ofNation Report (1923) identified four elements that would constitute economic allegiance of income
as follows;
Origin or economic location
Stock in companies or other associations was thought to have a closer connection with the residence of the
stockowner than with the origin of income from stock especially when residence was frequently consistent with
the remaining elements. They had to provide taxing rights to country of residence.
The origin is only important when it represents the place where income was physically or economically produced.
Even though it may be possible to split the income source between the origin and residence, residence is considered
the predominant element to economic allegiance in corporate stock, i.e. it is more appropriate to be used for
source attribution. Elements (a) - (c) in combination are generally regarded as the basis of the tax jurisdiction
of source countries, while element (d) concerns residence countries (League of Nations 1923 Report (1920s).
However, the Report could not be able to substantiate to what extent residence countries with double residential
status accommodate fully the taxing rights.
League ofNations 1923 Report (1920s) went further on pointing out that, if the origin of income from corporate
stock were economically derived from multiple countries, the claims by different origin countries would trigger big
disarray. As to the capital gains from stock sales by non-residents, policy and administrative convenience concerns
in exercising the right to tax can create exceptions to this economic allegiance to origin countries. Origin has some
significance when the location where the stock is registered with enforceability of legal protection, coincides with
the place oforigin. However, the Report has not been able to provide the actualization ofthe term origin as to mean
the place where assets is situated or the place where registration took place.
been proved that the seller of the financial assets in question is a non-resident person and the said asset is not owned in the United Republic, the
transaction is not chargeable to capital gains tax as per section l3() ofthe Income Tax Act 1973
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The National Board ofAccountants and Auditors
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5. Journal
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April - June, 2014
Physical situs
Physical location ofthe stock constitutes little economic allegiance in the capital gains of stock sales. Situs oftitle
passage rule was once adopted by the U.S. in determining the source ofstock sales, in accordance with the general
title passage rule for source attribution ofpersonal property sales.
In the Mr. Mitchell B. Carroll (1933) Study, in light of international tax law development after the 1928 Draft,
outlines that, the problem of allocation is not limited to business profit, but should consider the sale of capital
assets as well, whether they were real or personal property. Following the source rule practice of the majority of
countries at that time, it provides definition of the situs that" situs is the source ofincome from the purchase and
sale ofreal estate while the country in which the sale takes place is the source ofincomefrom thepurchase and sale
ofsecurities or other intangible personal property"; However, that study could not be able to quantify the taxing
rights of capital gains on sale of capital assets.
In the case of CIR v Lever Brothers and Unilever Ltd (1946 AD 441F, it was held inter alia that, "the source of
receipts, received as income, is not the quarter where they come, but the originating cause of their being received
as income, and that this originating cause is the work which the taxpayer does to earn them, the quidpro quo which
he gives in return for which he receives them". Further case law made it clear that once this originating cause is
established it should be allocated to the appropriate source location to determine the source of that income.
In the Sweden - U.S. tax treaty 1939 speculative capital gains ofnon-residents were taxable only ifsuch gains were
derived from real property in Sweden, which is consistent from the source rule. However, the Tax treaty has not
been able to preserve taxing rights on the gains derived from real property outside Sweden.
Enforceability of rights to wealth
Stephen E. Shay (2009) argues that, when stock registration is required to protect a stockowner's right, enforceability
is important as to economic allegiance. Sometimes the country of origin coincides with the country of stock
registration; thus each element reinforces the importance ofthe other. However, he didn't come with analysis onto
the enforceability of economic allegiance with respect to the country ofresidence so as to preserve taxing rights of
the either parties.
Residence or domicile
In the early history, the residence ofboth individuals and corporate taxpayers were relatively stable. The economic
analysis was also based on the assumption that all the capital gains from the stock sales would eventually flow to
the ultimate owner, who has the discretion to consume or dispose or reinvest. Ifthis assumption held, the residence
ofthe ultimate stockowner dominated such discretion
7 In CIR v Lever Bros & Unilever Ltd 1946 AD 441, 14 SATC 1
Brief Facts: To protect certain American assets held by Unilever in Holland at the outbreak of the Second World War, a South
African company was formed, which acquired shares in the United States companies as well as the related loan account,
which arose when the Dutch company itself acquired the American shares from Lever Brothers in the United Kingdom
(UK). The South African company therefore received dividends from America and used these dividends to pay the
interest on its loan account to Lever Brothers UK. The Commissioner for Inland Revenue said that the interest, which
Held:
accrued to Lever Brothers UK, was from a South African source.
The source or originating cause ofinterest payable on a loan of money was not the debt but the services that the lender performs to the
borrower, namely, the supply ofcredit, in return for which the borrower pays him interest. An investor in interest-bearing securities is
in all respects the same as a lender ofmoney as he is paid for the services that he performs to the borrower, being the supply ofcredit.
Thus the true source of interest from an interest-bearing security is, in terms of the Lever Bros case, also the provision of the credit.
This would be the place where the money for the investment was actually handed over. Therefore non-residents making investments
in interest-bearing securities in the Republic will cause the resulting interest to be from a Republic source.
The National Board ofAccountants andAuditors

6. -- Journal
Vol. 31, Issue 2
April - June, 2014
There was no obvious reason other than the administrative concerns that residence, rather than the origin should
be the predominant element in connection with economic allegiance in the capital gains from stock sales. This
conclusion differs from the conclusion ofthe 1923 Report which focuses on the income from stock rather than that
from stock sales, which are not necessarily the same.
Following Carroll's 1940 Draft, the source rule for capital gains from the sales or exchange of capital assets
proposed in the 1940 Hague Draft did not change much other than to split the gains from sales or exchange
of personal property other than real property into two paragraphs: Article 12(2) business property and Article
12(3) other capital assets. Notably, Article 12(3) of the 1940 Hague Draft refers to the applicable source rule as
"in conformity with the provision of Article 12", i.e. literally the article itself. Therefore, Article 12(3) does not
explicitly provide an answer to the source rule for capital gains from sale of other capital assets. This provision
created an ambiguous circle when one tries to understand what should be specifically applied.
The 1940 Mexico Draft made some minor amendments to Article 12(3) to address the above ambiguity by
attributing the exclusive right to tax to the "state ofthe fiscal domicile ofthe recipient Due to World War II," In the
1943 (1940) Mexico Draft was mainly negotiated by the countries in the Americas, including many less-developed
Latin American countries, like Argentina, Peru, and Chile (Fiscal Committee, 1945).
Latin American countries still wanted to reserve against the broad catchall capital gains provision ofArticle 12(3)
of the 1940 Mexico Draft which attributed the exclusive right to tax to the "state of the fiscal domicile of the
recipient" (Fiscal Committee, 1946). In fact, Chile and Mexico, as OECD members, still made reservations to the
2010 OECD Model Tax Convention on capital gains from certain sales or exchange of resident companies' stock.
After World War II, European countries reviewed the 1943 Mexico Draft in which source countries were able to
reserve the right to tax capital gains therein. Mexico was the only Latin American country which participated in the •
negotiation. The Fiscal Committee under the League of Nations acknowledged apparently different membership
of the group negotiating the 1943 (1940) Mexico Draft and the 1946 meetings in London, but also believed that
work done before "could be usefully reviewed and developed by a balanced group representing capital importing
and capital-exporting countries and from economically-advanced and less advanced countries" when the League
ofNations transitioned its work to the United Nations (London Report, 1946).
Unsurprisingly, the 1946 London Draft recovered Article 12(3) ofthe 1940 Mexico Draft, attributing the exclusive
right to tax capital gains from capital assets other than real property and business property to the country in which
the recipient had his "Fiscal domicile".
After the OECD officially superseded the OEEC in 1961, the work expanded to the elimination of double taxation
among more member countries. Nevertheless, at least in the capital gains tax area, the spirit of the 1946 London
Draft has never gone far away from the subsequent versions of the OECD Model Tax Convention on Income and
on Capital. The traditional catchall rule favoring the residence country since 1940 still can be found in Article 13(5)
of the 2010 OECD Model.
Surrey (1980) argues that, there are two types ofcapital gains from stock sales. The first type is sale ofstock directly
or indirectly representing a real property interest in the situs country of the real property, which in substance is a
traditional sale ofreal property (U.N. Model, 1980). Capital gains from this type ofstock sale should be sourced to
the situs country ofthe real property without much dispute. The second type is sale of stock representing a certain
percentage of participation in a company, which is a resident of the source country. Many developing countries
actually advocated the right to tax the gains from the sale of stock ofa resident company regardless ofwhether the
sale took place within their territories. However, Surrey (1980) did not show the generation of capital gains tax
where this research aims at filling such a gap (see table 1 and 2).
The National Board ofAcrountants andAuditors

7. Journal
Vol. 31, Issue 2
April- June, 2014
Sale, Transfer or Conveyance of Immovable or an Incorporeal Property
The common law requirement for the transfer of ownership in immovable property is effected by means of
registration (section 16 of the Deeds Registries Act 47 of 1937; Van der Merwe 1989; Van Jaarsveld et aI1992).
An incorporeal asset, for example a share, is actually the right in and to the asset (Van der Merwe 1989; Meskin,
Galgut, Kunst, King and Vorster 1994). In the case of Inland Property Development Corporation (Pty) Ltd v
Cilliers (1973), the court held inter alia that "in regard to shares, the word 'transfer', in its full and technical sense,
is not a single act but consists of a series of steps, namely an agreement to transfer, the execution of a deed of
transfer and finally the registration of the transfer".
Meskin et al (1994), Van der Merwe et al (1995) in their work argue that various rules apply, depending on whether
or not the shares are listed on the stock exchange. The transfer of ownership in shares is articulated by means of
cession, independent ofthe delivery ofthe relevant documents; the work ofVan der Merwe et al (1995) had similar
thoughts. Moreover, Van der Merwe (1989) argues that the asset should be capable ofbeing subject to ownership,
i.e. it should be res in commercio. Likewise, Kleyn, Boraine and Du Plessis (1987) argue that these are assets that
can be privately owned or that can be objects ofother real rights. However, these researchers were not able to show
the potential of capital gains tax in multinational ventures and taxing rights thereof. This research aims at filing
this gap.
Van der Merwe (1989) argues that the transferor should be capable of transferring ownership in order to preserve
room for the taxability of capital gains and capacity to contract. A transferee that does not have the necessary legal
capacity should be assisted by a person that has proper legal capacity in respect ofthe transferee. Because a person
cannot transfer more rights than he himselfhas (nemo plus juris-rule), the transferor generally has to be the owner
in order for the transferee to acquire ownership, unless the transferor acts with the consent ofthe owner; this is alsq
found in the work of Mostert, Joubert and Viljoen (1972). However, Van der Merwe (1989) have not been able to
show, to what extent such assistance could enhance compliance relating to the taxing rights on capital gains; this
research is expected to fill this gap.
In the case of Weeks & Another vAmalgamatedAgencies Ltd (1920) it was held inter alia that the transferor should
have the intention to transfer ownership in the asset and the transferee should have the intention of acquiring
ownership in the asset and this was also found in the literature by Van Jaarsveld et al (1992); Van der Merwe
(1989). However, their findings could not be able to articulate the fact that capital gains on the transfer of assets
have to be accordingly collected.
RESEARCH METHODOLOGY
This research paper consists of methods such as analysis, and synthesis and qualitative and quantitative research
methods. These methods were used so as to put in place significant results that bear implications in the legal
framework. Time-series data from Tanzania for the period of 1998 to 2012 have been developed.
Research Hypothesis
This research paper has two research hypotheses; the Null Hypothesis and Alternative Hypothesis in testing as to
whether ITA Cap 332 preserves taxing rights, in that; Hypothesis 1= the Income Tax Act Cap 332 has been able to
preserve taxing rights for the mining companies in multinational transactions; and Hypothesis 2= the Income Tax
Act, Cap 332 has not been able to preserve taxing rights for the mining companies in multinational transactions.
The ANOVA determines P-Value from the F-Statistics by testing these hypotheses. The ANOVA tests on the
assumptions that each group is approximately normal and Standard Deviation of each group are approximately
I
equal.
=Th=--e--=N,-=-a--:tic-ona---=-'B=-oa-rd7"o--:if=-A-cco-ww-u-nrs-and--=-Au-dito='-rs
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8. Research Modeling in Testing Tax Burden and Optimality Theory
Journal
Vol. 31, Issue 2
April - June, 2014
We explore the optimal revenue generation profile in testing as to whether high tax rate on capital gains has been
causer for capital gains tax avoidance. In that; let wand x stand for true and declared income respectively. The
risk-averse mining company's problem is to maximize its expected utility so as it can maximize the profits through
non-payment of the capital gains tax:
ElU]= (1- pp(w-t(x) +PU(w- t(x)- F(t(w) -t(x))).....................................................(1)
By optimally we have to choose x . In this model P is the likelihood for the mining company involved in evading
or avoiding payment of capital gains getting caught, F is the fine rate when (F > 1), and t(x) is a general well-
behaved tax function with t'(x) > 0 and t"(x) > O. The symbols 'and" stand for the corresponding first and second
derivatives, respectively. The mining company with zero income owes no taxes to the government. It is obvious
that the termF(t(w) Dt(x)) stands for the total penalty that the TRAmay impose when mining company in default
is caught. Thus, the first-order condition is:
aE[U] =-(1- pP'(Y)t' (x) - pU'(Z)(1- F)t' (x) =0...........................................................(2)
ax
Where Y == w - t(x) and Z == w - t(x) - F (t (w) - t(x)) Expression (2) can be re-written as;
- (l-p) U'(Y) - p (I-F) U' (Z) = 0, which is consonant which could observe that:
a
2
E[U] =D= (1 - p)[U'(Y)(t'(X))2 - U'(Y)t' (x)J+ p[U'(Z)(I - F)t'(X)2 +U'(Z)(F -1)t'(x)J
aX.. ....... .... ... .. .... ...... ... ... .... .. ... ..... ..... .. .. .. .... .. ... .... .. ........ ... ........... ... ...... ... (3)
Utilizing the first-order condition reduces (3) to:
D=(1- p)U'(Y)(t'(X))2 +pU'(Z)((1- F)t'(x)f.................................................................(4')
This is always negative. It is straightforward to show that the conditions for an interior solution can be simplified
as:U'(w) p(F-l)
- - -< .......................................................................................................(5)
U(w-F:(w) I-p
pF <1....................................................................................................................................(6)
Equations (5) and (6) are identical to conditions (6')* and (7')*, respectively. From (2) and (3) it can be established
that;
dx ((xH ' , ]
- =P- lU (Z)(t(W)-t(x))(F -l)-U (Z) >0..............................................................(7)
aF D
and ax =_t(x)[U'(Y)+U'(Z)(F -1)]>0.............................................................................(8)
ap D
To find out the relationship between the tax rate increase and declared capital gains, and to consider a non-uniform
variation in the tax schedule, present the tax function for the initial amount ofdeclared income and the true income
level as t(x) +f(x) and trw) + v(w), wheref(x) and v(w) are the respective income-dependent shift functions. Now,
for the sake ofillustration takef(x) and v(x) as T x and ET w, respectively, where T is a shift parameter, augmented in
the latter case by a constant £:::;1. Therefore, consider now differentiating (2) with respect to T (and then evaluating
the result at T = 0), recalling that; - (I -p) U'(Y) -P (I -F) U' (Z) is zero, and performing some algebra, results in the
following; aX I t(x) , {J ] }aF 1=0 =nU(Y)(l- p) .tLRA(Z)-RA(y) +F(w- X)RA(Z) ....................................(9)
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9. Journal
Vol. 31, Issue 2
April - June, 2014
Where RA (0) == _U" (o)/U'(o) Note that RA (Y) < RA (Z). It follows that (9) is positive. Whereby t'(x) = e, which
would also make (9) positive. The sign of (9') is clearly abstruse. Instinctively, when an increase in the tax rate
at the taxpayer's optimum is concomitant with a smaller relative rise in the end-point of the tax rate bracket, then
total penalty payments essentially decrease at the initial amount of declared income, creating more incentives to
tax evasion than before.
EMPIRICAL FINDINGS
Table 4 shows shares of the Government of URT in mineral sector which would have to be affected upon no
collection of capital gains tax if had to be sold offshore under the prevailing legal framework and Table 5 and 6
show other portfolio ventures. Tanzania holds shares in five companies with respect to the mines owned by them,
two of which are through STAMICO, two through NDC and one directly through Treasury Registrar. In Table 4,
Tanzania has lower shareholding interest from Mchuchuma-Liganga Iron Ore under Sichuan Hongda Group Ltd of
China while the higher shareholding interest is from BuckleefGold Resources under Tanzania Exploration Royalty
Ltd.
For the entire list of the companies under study, no regulations in place that prescribe the minimum shareholding
requirement and procedure of which such companies would be selling shares to the Tanzania nationals, in
accordance with the provisions of the Capital Market and Securities Act, Cap 79 offering shares to the public and
as stipulated under Section 109 of the Mining Act, No 14 of 2010. Likewise, Tanzania has no control of either of
the companies because holds less than fifty per centum by virtue ofSection 110(3) (a) (i) despite ofTanzanite One-
URT Unincorporated Joint Venture in the Mining Licence No 290 (50%-50%) at Merelani Block C.
Under ceteris paribus, there were capital gains revenue synergies amounting to USD 305,404,121.00 which was'
not subjected to the collection due to the absence oftaxing rights in the DTAs and ITA Cap 332; and there was also
capital loss ofUSD 50,059,245.02 emanated from the disposal ofDTP asset to GGM, this disposal was made with
no consideration to the subsidiary company (Table 7). Likewise, Afrika Mashariki Gold Mine filed objection to the
court objecting the decision ofthe tax assessment. TRA failed and has not been able to collect the capital gains tax
from offshore sale ofshares. In the same vein, Tanzania sought in court $196 million in capital gains tax following
Moscow-based ARMZ Uranium Holdi.ng Co.'s acquisition ofPerth, Australia-based Mantra Resources Ltd, where
Tanzanian owns the Mkuju River uranium project. TRA imposed tax based on the fact that the mine is operating
within Tanzania.
ABG absconded to dispose its shares due to lack of due diligence. Through such judicial decisions apart from
enactment of the Finance Act, 2012, the taxing rights may not be adequately addressed as legal transfer of shares
but it must be stamped in order to justify that ownership has changed. Moreover, Tanzania is still facing problems
regarding the exchange of information in tax matters which could possibly obstruct collection of capital gains.
Research Hypothesis-Results
In Table 8 from our Hypothesis testing results, because P-Value of 0.315029 is greater than 0.15 we can conclude
that they are significantly different. The best forecasting for each company's capital gains tax would be reflected
by the groups' mean ofUSD 197,931,138.90. Hence, the P-Value of 0.315029 indicates that we reject the Null
Hypothesis and conclude that the Income Tax Act, Cap 332 has not been able to collect capital gains tax prior to
enactment of Finance Act, 2012. Hence, Capital Gains have a significant influence on the capital gains tax. This
is supported by the large F Statistic of 1.099 which indicates that there is no capital gains tax collected in offshore
sale of shares. Hence, there is more difference between group in favour ofNull Hypothesis than within group.
The National Board ofAccountants andAuditors : -::'00< .. ~'.
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10. Research Modeling in Testing Tax Burden and Optimality Theory
Journal
Vol. 31, Issue 2
April - June, 2014
While referring our model in Testing Tax Burden and Optimality Theory; it is hereby concluded that the tax rate on
capital gains in Tanzania has been within the industrial average of 0.19 thereby evidencing that 20% has not been
the cause for the investor from non-compliance thereby shifting to the tax haven countries. This is reflected from
our observation where the distribution is highly skewed at 0.665667647; Kurtosis of -0.54276787 is Platykurtic
having Mean of 0.19 (Table 9 and Table 10).
CONCLUSION AND RECOMMENDATIONS
Conclusion
The current laws around capital gains taxation are unfair and reduce the integrity ofthe tax system and Tanzania's
economic efficiency. Capital Gains Tax has dramatically not been collected not only when there are no DTAs or
Monitoring and Evaluation but also due to inability of stamp duty Act, Cap 189 to attain taxing rights outside its
jurisdiction that would otherwise substantiate legal transfer of assets or instruments.
Recommendation
Moreover, ITA Cap 332 has no specific provision guiding for the capital gains tax in offshore market apart from
enacting the Finance Act, 2012; the enforcement mechanism pertaining to the signing the DTAs including more
specifically exchange of information on tax matters have been the causer for non-collection of capital gains tax
thereby reducing tax net and constricting the tax base. The eventual triumph of a capital gains tax depends on its
legal framework and enforcement. As with any government legal structure, we must adopt the taxing rights for
achieving perfection just as much as we embrace the positive role that government can play in making revenue
motives significantly noble.
LIST OF TABLES
Table 1: Conventional Matrix on the Comparative Advantages ofthe Residence and Source Rules
Serial
No
Residence Rule Source Rule
Country seeks to tax all residents on all their income regardless of Capital gain is taxed in the country where the income
the source of income i.e. capital gains (Huxham and Haupt 1998: originates, regardless of the physical or legal residence of
13). the recipient of the income (Katz 1997: 1)
Residence Taxpayers and residence counties would be able to Resident Taxpayers and resident countries would mislay
encourage international investment and trade and be able to calculations of allowable foreign tax credit resulting to
calculate their tax credit adequately. harmful international investment and trade
2 Resident Taxpayers and resident countries may be able to determine Non-resident taxpayers and source countries may not be
correct capital gains tax able to determine correct domestic source income that would
yield the capital gains tax resulting to revenue loss
3 It is an imperative model to deal with single element of income Income items do not have single element to source attribution
attribution (Reuven S. Avi-Yonah, 2007)
4 Tax is levied only on (the return to) the wealth owned by mining Source based taxes are taxes on investment. Tax is levied
companies which are residents in the domestic market disregarding on a source of income or gain only if there is a specific
as to whether such wealth is invested at home country or abroad provision taxing that income or gain. The Source principle
will allocate income over a taxing jurisdiction on the basis of
the source of the income or asset in that country, regardless
ofthe residence ofthe taxpayer.
5 Many developing countries including Tanzania, having growing Many developed countries having recession on the capital
capital imports, advocated for the right to tax capital gains from imports may not be able to advocate for the right to tax capital
stock sales, which was largely reserved by the residence countries. gains from stock sales which could largely be reserved by the
residence countries
SOURCE: Mafwenga H. M (2013)
~
~ .J The National Board ofAccountants andAuditors
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11. I ~
Journal
Vol. 31, Issue 2
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-.." .~
Table 3: The Chronological Evolution ofthe Source Rule
!.
Period Selected Events
1923 Third Report and the Restatement was issued, the principles of source attribution came largely from the
customary international law and practice.
1940 The source rule was legitimately introduced to the international tax world by the League of Nations.
~ A formal approach and a substantive approach in jurisprudence were introduced in order to address complexity
,~r'
in taxability. The formal approach focused on policy certainty and administration convenience by including
mainly passive and investment income over which a taxpayer has little or no control. The substantive approach
-
aimed to ascertain the economic substance of the income by including mainly active income over which a
.~
taxpayer has active control.
1946 The Draft Model Convention gave rights to the residence countries to tax capital gains in as proposed by the
League of Nations in London (hereinafter known as the " 1946 London Draft") in the absence of most source
country representatives. As a result, capital gains became taxable only in the residence country ofthe recipient.
~~~, 1963 - The 1963 Draft Double Taxation Convention on Income and on Capital proposed by the OECD (hereinafter
known as the "1963 OECD Model") adopted the same source rule. Later on, many developing countries, having
Ir "".../ growing capital imports, advocated for the right to tax capital gains from stock sales, which was largely reserved
by the residence countries.
1980 The Parties opposing a source taxation rule and those accepting it reached a temporary compromise in the 1980
United Nations Model Double Taxation Convention between Developed and Developing Countries (hereinafter
-lOS ~~ known as the "1980 U.N. Model"). Article 13 of the 1980 U.N. Model provided the source country with great
~~~
discretion in stipulating domestic rules for taxing gains from stock sales, and as a result, many countries taxed
capital gains from stock sales by nomesidents, including some indirect stock sales.
1981 Introduction ofNew Source Rule in US. Model, 1981
~.::.
.~~T:
I
Ii
~ Ivfji
2003 Special Source Rule was Introduced by the OECD Model, in the situs countries
2000-2008 The Tanzania-Agreements on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect
to Income Tax with Egypt, Iran, India, Russia, England, Canada, South Africa, Botswana(To mention the few)
i adopted the Source Rule under ITA Cap 332
SOURCE: Mafwenga H. M (2013)
Table 4: Shares ofthe Government ofthe URT in Mineral Sector.
Mining Project M a j 0 r i t Y Shares % U R T - Shares %
Shareholder Through
Buckleef Gold Tanzania Exploration 55% STAMICO 45%
Resources formally Royalty Ltd listed
:~I~Mwadui Diamonds at TSXI Tanzania
Deposits American International
Development 2000
Mchuchuma & Sichuan Hongda Group 80% NDC 20%
Liganga Iron Ore Ltd .-:;..
Ngaka Coal Tancoal Energy Ltd 70% NDC "- 30%
Reserves owned by Intra Energy
listed at ASX
Williamson Petra Diamond Ltd listed 75% STAMICO 25%
Diamonds atLSE
Mbeya Cement Coy subsidiary of the Lafarge 65% Treasury 25% 35%
Ltd Group and NSSF
10%
Tanzanite One URT & TanzaniteOne 50% STAMICO 50%
Mining Ltd Mining Ltd
..-It. /"
Source:
Country of Origin and Types of
Structure
Canada (Acquisition of Shares)
China (Merger into Tanzania China
es Ltd)International Mineral Resourc
Australia (Acquisition of Shares)
Bermuda (Acquisition of Shares from De
Beers Ltd)
France (Acquisition of Shares
Joint-Venture (Shareholding interest on
Mining License)
Mineral Tax Clinic-The Reflection of Old and New Fiscal Regimes for Effective Tax Auditing in Tanzania (Mafwenga H.M2012)
The National Board ofAccountants and Auditors 34

12. l
Table 5: Other Investments under Joint Ventures
Journal
Vol. 31, Issue 2
April - June, 2014
No. Project Mineral Iv Partner
Itetemia I Gold Prospect Gold Tancan Mining Company Ltd Resource of over 500,000 Ounces of
gold delineated in the horse shoe reef
2 Buhemba Gold Prospect Gold
5 Kiwira coal project Coal
Source: State Mining Corporation (STAMICO 2013)
Table 6: Available Mineral Properties for Ventures
No. Prospect Location Area
{Km2}
I Busanda Gold Geita 7.98
Prospect
2 Itetemia II Far East Kahama, 8.573
Gold Prospect Shinyanga
3 Uranium Sengeri Mbeya l.l8
Prospect
4 Mahene Gold Prospect Nzega, Tabora 48.49
5 Uranium Makutopora Dodoma 46
Source: State Mining Corporation (STAMICO 2013)
Manjaro Resource Pty Ltd Processing of tailings and feasibility
study on hard rock within license area
underway
IV partnership being sought Resource of 35.0 Million tones
available
Jf
~~~J i ~.:-~
Mineral ~
~~7' ;;r~ Status ~'"- ~
Gold I ,
Geological mapping, soil geochemical sampling
Gold Geological mapping, soil geochemical sampling
Uranium Regional exploration mapping and sampling
programme undertaken
Gold Preliminary exploration by TANZAM 2000 has
indicated potential for gold mineralization
Uranium Surface geological mapping, rock sampling,
geochemical sampling undertaken and lab tests
have returned encouraging results
Table 7: Capital Gains Revenue Synergies Analysis (In USD and Number ofShares)
Serial Acquired Company Original Owner Acquirer Company Amount of Revenue Synergies
No (A) (B) (C) Acquisition (in USD! (Capital Gains) (in
TZS/uSD) USD)
(D) E=D*20%
1 Mantra (T) Limited URT(100%) ARMZ Uranium Holding 980,000,000.00 196,000,000.00
Coy
2 Afrika Mashariki Gold Placer Dom 100% Barrick Gold Corporation 252,400,000.00 50,480,000.00
Mines 100%
3 WDL (De Beers) De beers (75%): URT
/;' Petra 75% 10,000,000.00 2,000,000.00
(25%)
4 SAMAX(DTP) SAMAX Resources
1 GGM (91,578,475.71) (50,059,254.02)
Ltd
5 Nyanza Salt Mines URT (100%) Solid Namac Taam Sirjan Euro 151,860.00(TZS
,
49,924,112.00
, (pure Vacuum Drier Coy (100%) 262,976,000.00)
4,1( (PVD) I
6 Kahama Gold Mine URT (100%) then Barrick Gold Corporation 5,000,000.00 1,000,000.00
1"
Ltd (15% pari pasu) (Bulyanhulu Mine) 100%
1'1 7 Buckleef Gold URT (STAMICO Tanzania Royalty 30,000,000.00 6,000,000.00
Resources (Mwadui 45%) Exploration Corporation
Diamonds Deposits) I (55%) ~~, ,~.,
TOTAL CAPITAL 305,404,121.00
GAINSILOSSES
Source: Ministry of Energy and Minerals (2013) Currency converted using spot rate as ofthe date oftransfer
The National Board ofAccountants and Auditors

13. Journal
Vol. 31, Issue 2
April- June, 2014
Table 8: ANOVA singlefactor results on hypothesis testing
Anova: ~ 1 ,'I
Single Factor Ij.':.:.~ // ,1:;.0.
SUMMARY I //~
Groups Count
J
Sum Average
Capital Gains 7 1,385,517,972.29 197,931,138.90
(Group 1)
Capital Gains Tax 7 355,463,366.02 50780480.86
(Group 2)
ANOVA '~ "0"" ,)'-'
Source of Variation SS df
- ,0
MS
Between Groups 7.57866E+16 1 7.57866E+16
Within Groups 8.27112E+17 '~', J/ 12 6.8926E+16
Total 9.02898E+17 ..'J
,-
13
•.:
-
Variance
1.33193E+17
4.65883E+15
,I
F
1.099535997
I
Table 9: Comparative Capital Gains Tax Rate in Selected Countries
:.-- - --:r --,-. "'-- -- 1
~ "'--- - - ~ • ..
,
r~""
-.
"
....:/
~ .;- ~ ,- ,~.
"
,
f
J/
~
~
>. /
P-value Fcrit
0.315029 /
4.747225336
.....~ ~
.' ;~' --.. -
/" I
Table 6: COMPARATIVE CAPITAL GAINS TAX RATE IN SELECTED COUNTRIES
0.55
0.50
0.45
0.40
W
I- 0.35
«It: 0.30
>< 0.25
«I-
0.20C/)
Z 0.15
<C(!) 0.10
...J
« 0.05
~
f
/
f'.. /
"- /
"'-.... /
~ / I
/ ~ / I
/ ~ /1
/. ~ -" 1/
----- /
Y
= COVA RIAN C ES
- VAR IAN C ES
Q.
« (O.Q~
U
~)~- (0.15)
(0.20)
/
;..~ iF .",' ~I" ~'O'v ; " .:..,.v ,AI"''' ~9~- _~oQV' .J.e~"i _~v ~..,
~ ~ "'-~- ,,~ fS t::/'" ~ r.:I"v +'t;. ~ V" tji'-
/
-+-'*'
(0.25)
COUNTRIES
Table 10: Descriptive Statistics from the Data Analyzed in Table 6
Descriptive Statistics from the Data Analyzed in Table 6
Mean 0.19
Standard Error 0.044507891
Median 0.15
Mode 0
Standard Deviation 0.172378321
The National Board ofAccountants andAuditors
,,~~:f" -~ •... " ,
~-::..
~~..

14. Sample Variance 0.029714286
Kurtosis -0.542767837
Skewness 0.665667647
Range
Minimum
Maximum
Sum 2.85
Count 15
Confidence Level (95.0%) 0.095459932
REFERENCES
Clerk of the National Assembly (ITA CAP 332 R.E 200B) "Income Tax Act, Cap 332"
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April - June, 2014
Curtis et al (200B, p. 15), 'F Golden Opportunity; How Tanzania is falling to Benefit from Gold Mining"
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http://www.investopedia.com/terms/c/capital_gains_tax.asp (Accessed on 3rd June, 2013)
Huxham, K. & Haupt, P. 199B. Notes on South African Income Tax; Constantia: Hedron Tax Consulting and
Publishing CC.
Katz, M.M. 1997. The fifth Interim Report of the Commission of enquiry into the tax structure of South Africa.
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London Report, (1946) "Model Convention on the Avoidance of Double Taxation and Prevention of Fiscal
•
-r_:&1)
~~
NtJtionalBoard ofACI!Ountants andAuditors
-;:r-.~
I , ")

15. Sample Variance 0.029714286
Kurtosis -0.542767837
Skewness 0.665667647
Range 0.5
Minimum
Maximum
Sum
REFERENCES
Clerk of the National Assembly (ITA CAP 332 R.E 200B) "Income Tax Act, Cap 332"
Journal
Vol. 31, Issue 2
April - June, 2014
Curtis et al (200B, p. 15), "A Golden Opportunity; How Tanzania is falling to Benefit from Gold Mining"
Fiscal Committee, (1945), "Model Bilateral Conventions for the Prevention of International Double Taxation
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Publications II. Economic and Financial Official No C.2.M.2 1945.II.A
Fiscal Committee, (1946), "London and Mexico Model Tax Conventions Commentary and Text 69 Series of
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London Report, (1946) "Model Convention on the Avoidance of Double Taxation and Prevention of Fiscal
I . ..... '.
I • "":,j,,' .'
I ~:;,.¥.
I _:_
The Natiofllli Board ofAccountants andAuditors
!.~
I ..;""j• .,
- .,..~...,-'

16. Journal
Vol. 31, Issue 2
April - June, 2014
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The National Board ojAccountants andAuditors