Govt rejects IMF plan on minerals royalties Wednesday, 15 February 2012 22:49 By Peter Nyanje The Citizen Reporter Dar es Salaam. The government has rejected a proposal by the International Monetary Fund (IMF) to introduce a new system to calculate mining royalties because doing so would adversely affect tax collections.Had the government agreed to introduce the single royalty payment, the amount of tax the government collects from the mining firms would have dropped significantly. The IMF wanted the government to introduce a one-off royalty payment procedure, according to documents seen by The Citizen, but the government objected on the grounds that its income would be hit hard if they were adopted. The proposal by IMF was discussed late last year by a team of government officials, Tanzania Revenue Authority (TRA) experts and auditors from the Tanzania Minerals Audit Agency (TMAA). According to minutes of the meeting, royalty collections from the mining companies would drop drastically if the government opted to the single royalty payment system.The royalties are the only form of tax the government is assured of collecting from the mining companies. They are calculated on the basis of the mineral or gemstone in question. The government rejected the proposals on the grounds of the fluid nature of gold prices on the international market. TMAA analysis reveals, for instance, that it takes gold bullion 10 days on average to move from the date of export to the date of actual sale on the international market. By then, the price is different from the one used to calculate the royalty. Since royalty is the only reliable source of revenue from the sector, the government argues, altering it would not be favourable. The government is aware that current royalties are low compared to what is pain in countries such as Botswana and Ghana, according to minutes signed by a TMAA official. Based on this, the government could consider increasing the rates and still remain competitive in the region. But the government is ready to consider another proposal by the IMF that involves introducing a resource rent tax, as is the case in some countries. Nevertheless, that taxation could only be implemented in a few mines. Meanwhile, the government has conceded that it lacks the capacity to make a close follow-up of the operations of the giant mining companies. The permanent secretary in the prime ministers office told the meeting that the government needs to build local capacity to be in a position to challenge the ever rising costs of operations declared by the mining companies. Tanzania needs to develop specialised capacity to monitor and audit the ever growing mining and energy resource sector, said the PS, who was not named. At a meeting in Dar es Salaam on Tuesday, the deputy minister for Energy and Minerals, Mr Adam Malima, conceded also that the government does not have the capacity to track the operations of the powerful and tricky multinational corporations (MNCs).He said the companies had amassed huge profits from the mining sector even as many local citizens lived in abject poverty. Mr Malima said African countries had a long way to go in learning how to monitor mining activities run by MNCs that are tactical in amassing huge profits that cannot be tracked by African governments. We have to learn more during this period when the giant mining companies benefit more from Africas mineral wealth than the citizens, he said. With time, the African social fabric is increasing the demand for rights to benefit from Africas resources. Expanding on just how complicated the taxation mechanism in the mining sector can get, Mr Malima said the foreign mining investors have sometimes included in their accounts luxury components such as overseas wedding expenses for their sons in order to evade taxes. It was going to take time for African governments to learn more and build their capacity for monitoring the sophisticated mining investors, he added. Earlier, Ghanaian Minister for Minerals Kojo Busia said experience in running the mining sector during the post-colonial period had demonstrated a re-colonisation of African countries. Under globalisation, he added, powerful foreign investors have dictated terms in managing the vast African mineral resources.Dr Moise Nembot, the Deputy Chief Executive Officer of African Peer Review Mechanism, said the phenomenon of profits disappearing from the mining sector without the knowledge of governments denies African countries the opportunity to gain from their mineral wealth.