Mining sector in the doldrums

Price Water House Cooper (PWC) Australia Assurance Partner, Ben Gargette (left) and PWC David Tarimo exchange views after the release of the PwC report in the city yesterday. PHOTO | VENANANCE NESTORY 

By Veneranda Sumila ,The Citizen Reporter

In Summary

Mr Shah said Tanzania’s many incentives have since been eliminated, yet production costs remain very high.

Dar es Salaam. Tanzania’s mining industry faces a dim future if the country fails to take immediate actions to stabilise its fiscal policy; it has been observed.

A PricewaterouseCoopers (PwC) latest Mine 2014 report makes it clear that mineral sector financing is dwindling across the globe, characterised by decline in prices of mineral and high cost of production.

So, with little money, investors are opting to make careful decisions on where to invest so as to obtain reasonable returns.

PwC Partner Rishit Shah said during the report presentation in Dar es Salaam yesterday that Tanzania’s mining industry faces a challenging future for lack of assurance with regard to policy stability, particularly against a background of a number of changes in recent years to increase taxes.

Too many taxes in the country discourage new and medium investors from setting their businesses in the country.

In 1980s and 1990s when there was a boom in both mining production and revenue, it was easy for investors to take risks.

Mr Shah said Tanzania’s many incentives have since been eliminated, yet production costs remain very high.

The capital gain tax is among the biggest challenge for the development of mining companies in the country.

Junior exploration companies are entitled to paying 30 per cent capital gain tax even before any production starts.

“Exploration companies are hardly looking for private companies to inject in funds for production, but as soon as the financier brings in the money, one is entitled to pay tax on that,” he said.

According to Mr Shah, other countries have the capital gain tax, but the rates are much lower. In Kenya for example, the charge is 5 per cent.

Mr Shah said 18 per cent VAT charge was impacting negatively on junior companies. The government has also failed to refund mining firms the VAT refunds now standing at a staggering $100 million

The withholding tax levied at 15 per cent on turnover for the non-residents is another challenge.