Wavering on fiscal policy hits foreign investors hard

ABG does a lot more for the Tanzanian community than just pay its taxes, says non-executive director Juma Mwapachu. PHOTO | FILE

By Alawi Masare
The Citizen Reporter

Summary
The controversy covered the pension funds on withdrawal benefit and led to the departure of about 200 employees.

Dar es Salaam. Uncertainty in Tanzania’s fiscal policy is costing companies dearly, with African Barrick Gold (ABG) being the latest casualty.

hanges in Value Added Tax (VAT) exemptions have cost the mining company a huge amount in payments to the government. Part of that money has yet to be refunded, according to a senior ABG official.

The firm’s vice president in charge of corporate affairs, Mr Deo Mwanyika, said yesterday that the on-and-off VAT special relief for mining companies and other investors has left the company about $37 million poorer so far due to government’s failure to refund the VAT.

The government abolished the VAT exemptions to the mining companies in 2009 after an agreement that they would pay the tax and get a refund later.

The government then failed to refund about $120 million and re-introduced the exemptions in 2010 after lobbying, having realised that clearing the back payments would be an uphill task.

The government extended the exemptions during the 2012/13 budget speech last June but the move was overturned in the finance bill, abolishing the VAT special relief to mining companies.

ABG says it has never received a refund of the tax it pays since last year. Up to February this year, the company had paid about $37 million that the government should pay back.

Mr Mwanyika added: “The debt rises by $7 million to $8 million a month depending on the things imported. It’s a big issue which is not only affecting us but also destabilises the investment environment in the country.”

Tanzania may be considered a stable nation in terms of policies, he said, but the recent changes are disturbing and create an atmosphere of uncertainty.

Mr Juma Mwapachu, the former East African Community secretary-general and now a non-executive director of ABG, said the impact of the mining sector should not only be measured by looking at the withholding tax they pay but also consider other contributions.

“We need to see the multiplier effects like the corporate social responsibility expenditures, payments to Tanzania and dividends given to shareholders,” said Ambassador Mwapachu.

Through its Maendeleo Fund, for instance, ABG invested about Sh12 billion ($7.5 million) in over 50 projects since its launch in September 2011.

ABG’s net income grew from $218 million in 2010 to $275 million in 2011 and dropped sharply to $59 million in 2012. The decline in net income is partly associated with the wiping out of the VAT exemption last year.

The controversy covered the pension funds on withdrawal benefit and led to the departure of about 200 employees. ABG’s operational expenditure rose from $892 million in 2011 to $1.022 billion in 2012. Since 2010, the firm has contributed a total of $150 million to Tanzania in net tax.

ABG has also invested over $750 million in sustaining its asset base in the past three years and it expects to invest a further $445 million in 2013 to sustain and expand its assets this year.The company faces challenges that include unreliable power supply and developing and retaining a skilled workforce.