Monday, May 16, 2016

Tanzania: Mining Firm Acacia Accused of Tax Evasion
Tanzania Daily

TANZANIA opened its doors to foreign investors more than 20 years ago after embracing socialist economic policies seven years after independence. It was not an easy task to change the mindset of the populace, especially since opening up doors literally meant accepting failure of socialism and triumph of capitalism.

In a country where capitalist economic relations were looked down as inhuman, it is not easy to convince the masses that private ownership of the major means of production could lead to prosperity not only to a few with big money, but also to the majority through employment and taxation. In order to understand the impact of private foreign direct investment in Tanzania we can easily cite Acacia Mining PLC as a vivid example.

Acacia being the leader in gold mining in Tanzania has demonstrated beyond any doubt the superiority of private ownership and has contributed significantly to the country's economy.

Take for example Acacia's economic contribution to Tanzania in general; the three mines, Bulyanhulu, Buzwagi and North Mara contributed a significant chunk of income not only to its employees but also to the coffers of the revenue collectors for the government.

In 2014, for instance, the company paid 4,443 full and part-time wage employees in Tanzania and among them 4,161 (94 per cent) were Tanzania nationals, on average. According to a report titled "Acacia Mining plc total economic and tax contributions to Tanzania, 2014", the company paid more than USD 65 million in taxes and royalties in Tanzania in 2014.

Approximately 63 per cent of Acacia's direct Tanzanian tax payments was related to corporate income taxes and excise duties while the remaining 37 per cent was related to unrecovered VAT, customs and excise taxes and other levies, according to the report.

Though the above mentioned taxes declined by approximately USD 6 million which is eight per cent from 2013 to 2014, it is still significant and especially if one considers Acacia's employees' additional tax revenues.

In 2014, according to the report, Acacia's employees paid an estimated USD 53 million in taxes while the majority (73 per cent) of the employee tax impact results from individual income taxes and social security contributions paid by employees.

There is no doubt that employees also paid significant amounts of VAT, excise and other taxes on consumption spending. Given the above scenario, therefore, Acacia Mining PLC says it is very disappointed with allegations that it has been running a 'sophisticated tax evasion' scheme in the country following a ruling by the Tax Appeals Tribunal in March this year in favour of the Tanzania Revenue Authority (TRA) in a matter over a dispute in taxation.

The concern was raised by the Chief Financial Officer for Acacia, Andrew Wray, during an interview with the media in Dar es Salaam recently. Wray was asked to comment on media reports which alleged that his company is literally short changing the government of Tanzania and is not complying with its tax obligations.

"It is something that we take very seriously. Unfortunately tax is a complex subject and always requires a lot of time for someone to understand exactly what taxes are. The story about Acacia evading tax is very disappointing because there isn't any truth about it.

In fact it is completely the opposite," he said. "We as a company have agreed with the Tanzania Revenue Authority (TRA) that we will be paying tax ahead of time in 2016, so we are disappointed with the story; but I think it is up to us to ensure people understand what it is all about, and in the end they can see for themselves that we don't evade tax but meet all of our obligations."

Elaborating further on the matter of taxation and the media stories Wray said: "There are two elements to understand the situation ... one relates to the mines we operate in Tanzania which are Tanzanian businesses and declare their taxes in Tanzania and all entities paying taxes in the country."

"And the other side," explained the Chief Financial Officer "... is the parent company which is registered and incorporated in the UK and obviously is governed by the laws of the UK and is a taxable entity in the UK."

According to Wray, the two elements have been mixed up, The UK entity is being told to pay taxes in Tanzania when it is the mines in the country that should do so. "They do pay declared taxes; we've made that clear and likewise the company in London will report to the UK authority.

So I think some of those facts have got little bit mixed up and it is important to know that the businesses in Tanzania paid significant taxes; in fact in 2015 we have already paid 200bn/- in taxes," he clarified.

"Therefore, the company in London doesn't pay taxes in Tanzania because the businesses in Tanzania do that and TRA knows this. As I said, due to our commitment to Tanzania ... we have been here for the past 15 years; we have voluntarily signed to a tax prepayment memorandum.

Acacia and its subsidiaries have agreed to pay in advance US$20 million in corporate tax to demonstrate its commitment to Tanzania. The amount is an addition to the company's direct contribution of US $372 million in taxes and mining royalty payments over the past three years.

The move demonstrates Acacia's full compliance with all international and domestic tax legislation. Wray explained that what was reported as tax evasion scheme by his company, was actually a tax dispute which was yet to be resolved, and that TRA was aware of it.

But due to misinterpretation of tax matters, the company was seen as scheming to avoid paying tax. He says his firm has not and will never engage in any form of tax avoidance schemes, since the company understands that the government needs money to fund various services in the country.

"Acacia is ethically and legally bound to pay its fair share of tax as money collected from taxes, help government provide a variety of services to its citizens, so we are not defaulters of any form of tax."

Acacia which was known as Africa Barrick Gold until November 2014, owns and operates three gold mines which include Bulyanhulu, Buzwagi and North Mara. The company has produced over over 8 million ounces of gold from its combination of open pit and underground mines, making it the leading gold producer in Tanzania.

Acacia Mining Plc which is the parent company of Acacia Tanzania is a UK public company with its headquarters in London. It is listed on the London Stock Exchange under the symbol ACA and has a secondary listing on the Dar es Salaam Stock Exchange (DSE).

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