Tanzania orders multinational companies in the extractive to open local bank accounts immediately

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The government’s decision is in line with the new mining laws that also include the oil and gas subsector, according to the recently published regulations.

Dar es Salaam. The Tanzanian government has ordered multinational companies in the extractive sector to open local bank accounts where authorities can access their finances as one of the initiatives the state has introduced to curb illicit financial transfers.

The government’s decision is in line with the new mining laws that also include the oil and gas subsector, according to the recently published regulations.

Companies are required to comply with the directive immediately.

This is after the government published the regulations February this year.

The move comes as the 2014 report dubbed “Illicit Financial Flows from Africa: Hidden Resources Development,” by Global Financial Integrity reveals that Tanzania lost $8.9 billion in four decades through illegal transfers abroad.

Parliament in July, last year, passed three pieces of legislation that now make significant changes to the legal and institutional frameworks governing oil, gas and mineral extraction including the Written Laws (Miscellaneous Amendments) Act 2017, the Natural Wealth and Resources (Permanent Sovereignty) Act 2017 and the Natural Wealth and Resources (Revenue and Re-Negotiation of Unconscionable Terms) Act 2017.

In that context, Tanzania Revenue Authority (TRA) Commissioner General Charles Kichere said the sweeping changes to Tanzania’s natural wealth and resource landscape is expected to significantly reduce illicit financial flows out of the country.

He said the new laws recommend that multinational companies working in the country open their financial accounts locally and not only outside as was initially done.

This is to enable relevant authorities to track their financial statements and company records.

Further, he noted that with the new law, TRA officials are currently collaborating with the international taxation unit to understand the semantics of Illicit Financial Flows (IFF’s) and how to deal with them.

According to him, following the new legislation, the government has also become part owner of the mineral sector as practiced in the oil and gas sector.

Therefore, it would be difficult to steal from the owner.

“With accounts inside the country, it will be easier to track all their transaction and know their true worth, which was previously not easy to get hold of and that’s why the country suffered transfer pricing, tax avoidance,” he said.

Tanzania’s challenges in combating IFF’s were also highlighted in the 2016 Natural Resources Governance Institute study, which stated that according to civil society estimates the country, “may have foregone $1.07 billion in revenue in recent years due to tax incentives, illicit financial flows, inflated claims for expenditure, mis-reporting of sales, losses and so on.”

As one of the new hotspots for oil and gas exploration in Africa, Tanzania’s economy is likely to grow exponentially over the next decade, said the report.

Meanwhile, an official in the Ministry of Energy who asked for anonymity because the audit is still under wraps said that after the government revised its extractive laws, they are currently reviewing gas and oil contracts to ensure loopholes that were initially there are removed.

The source said a special audit is looking into contracts to track all tax required, as per the agreements, to ensure they are paid.

In another development, a source from among oil and gas companies who also asked for anonymity because the government retained the mandate to inform the public on the matter said the companies were aware of the decision to review the contracts, an exercise being done by the Parliamentary Oil and Gas Advisory Committee.

The source said that the decision is to ensure Tanzania benefits from its natural resources going forward.

The media recently reported that in a move to curb illicit financial flows, the government had also banned mineral sand exports for gold and copper.

All copper concentrates will now be refined locally to stop cheating by multinationals.

The government on May 12, this year, served medium mining companies and those with special mining licenses with terms that include integrity and a pledge in compliance with the new Mining Act.

This is after the government through the mining commission revoked 11 retention licenses, which have reverted to state ownership.

However, the amendments to the new legislation have not been widely welcome by some mining companies.

According to a media statement by South African AngloGold Ashanti, whose subsidiary Geita Gold Mine operates in the country, the company announced it would take action against Tanzania over a new law that allows authorities to renegotiate contracts with mining firms.

The gold producer said that in light of the changes to the mining legislation, it had “no choice” but to take such precautionary steps to safeguard its agreements with Tanzania.

The company said the move was in relation to its indirect subsidiaries including operations at the Geita Gold mine.

A case study by the Natural Resource Governance Institute (NRGi), Transfer Pricing in the Extractive Sector in Tanzania recommends that the government with support from international partners, should ensure that the International Tax Unit (ITU) receives specialised training on transfer pricing as it relates to the extractive sector, as well as further capacity building on taxation of extractive industries generally.

This is necessary to equip the ITU with both the expertise and confidence to conduct transfer pricing audits in the extractive industry.

For her part, an associate fellow at Chatham House and leader of the New Petroleum Producers Discussion Group, Ms Valerie Marcel, said recently in Budapest on the sidelines of a course on “reversing the resource curse: theory and practice” that the biggest obstacle for Tanzania is the government’s concern on being cheated by International Oil Companies thereby paralyzing its own projects.

She said the New Petroleum Producers Discussion Group, devised ways to put up working groups to enable countries that have recently discovered gas and oil to share experience.

She said it was imperative to know at what point the interests of the government and IOC’s were aligned as well as look at where they were not aligned.

“Both parties want terms of the deal to be rewarding and therefore will not be more focused on pinch cost,” she said.

According to her, the country’s gas master plan should be tackled to ensure the interest of the government and IOCs are more aligned, especially as companies want market for the gas they produce while the government wants to develop a gas market for economic development

According to a United Nations, Economic Commission for Africa report on Base Erosion and Profit Shifting in Africa: Reforms to Facilitate Improved Taxation of Multinational Enterprises, Tanzania’s economic strength lies in the diversity of its exploitable natural resources.

In the Eastern African region, Tanzania was ranked second behind Ethiopia in terms of illicit financial outflows through trade re-invoicing.

In 2017, Global Financial Integrity estimated cummulative illicit financial flows from the United Republic of Tanzania during 2005-2014 at $3.5 billion, with an annual average of $349 million (Spanjers and Salomon 2017).

The most recent ECA estimates mentioned above appear to show that, at least up to 2015 (the last year for which the ECA estimates are available), trade mis-invoicing was an important channel through which illicit financial flows left the country.

It was estimated that a net illicit outflow of $2.5 billion left the country through this channel in 2015 alone.

This story was produced by The Citizen. It was written as part of Wealth of Nations, a Pan-African media skills development programme run by the Thomson Reuters Foundation. More information at www.wealth-of-nations.org