Fayaz Bhojani of FB Attorneys in Dar es Salaam looks at the latest legislation changes in Tanzania
With over 50 trillion cubic feet of gas finds, Tanzania continues to attract a lot of attention especially from international oil and gas investors. Tanzania’s political stability continues to lure companies into various sectors although many investors have complained of tough interpretation of tax laws, slow decision making and bureaucracy within Ministries. Economists complain that the inward investment is mainly in the oil and gas sectors with not as much investment in manufacturing and financial services.
With elections in October 2015, new leadership is expected considering that the current President has been in office for two terms, a stronger opposition party, it is expected that in the next 12 months there will be more accountability in government, increased tax collections and a close watch on non performing Ministries and Ministers.
The budget 2015/2016
After seeing an abuse of tax exemptions over the last ten years, the Budget continued to tighten the tax exemption regime although, and to invite large scale investors, the government introduced a special strategic investor status category for investors willing to inject over $300 million who would be entitled to various special incentives. This is a welcome decision for large scale projects that the country desperately needs.
New tax legislation
The government has enacted a new VAT Act that introduces some fundamental changes to widen the scope of VAT, adopting VAT best practice from around the world and to reduce exemptions.
The Tax Administration Act 2015, which is aimed at modernising tax administration provisions and consolidates these within one piece of legislation, also came into force. Matters covered include tax laws and their interpretation, communication and documentation, tax returns, access to information and assets, assessments and objections, payment, recovery, remission and refund of tax, tax proceedings, interest, penalties and offences, transition and saving provisions and consequential amendments to other legislation. The interplay between this legislation and other tax laws has yet to be tested and if not managed well is likely going to lead to increased tax litigation.
Standard trading terms to be registered
Tanzania's anti-trust agency, the Fair Competition Commission which is established under the Fair Competition Act, published a notice informing all companies that henceforth all standard trading terms and conditions were to be registered with the FCC. The FCC has also in the last year taken serious action on various companies who have either failed to notify it about mergers and acquisitions (direct or indirect), have not complied with terms of the mergers and acquisitions or have indulged in unfair trade practice.
The Petroleum Act 2015
A Petroleum Act to cater for upstream, midstream and downstream oil and gas issues all in one law was enacted by parliament. It repeals the Petroleum (Exploration and Production) Act 1980 (which dealt with upstream) and the Petroleum Act 2008 (which dealt with downstream).
This Act creates new institutions, which include the Oil and Gas bureau to advise the government on pertinent issues, designates Tanzania Petroleum Development Corporation as the official National Oil Company and establishes the Petroleum Upstream Regulatory Authority. The law came in for criticism as there was very little time for legislators to study and debate this key piece of legislation.
Tax Courts rule in favour of taxpayer
In what is perhaps the most controversial tax subject in Tanzania, that of withholding tax, the Tax Revenue Appeals Tribunal overturned a decision of the Tax Revenue Appeals Board, and ruled that services which are not rendered in Tanzania should not be liable to withholding tax. The Tribunal’s decision, which was heard by a different panel, is exactly opposite from what the Tribunal ruled in the case of Tullow Oil. There are now two conflicting decisions at the Tribunal and the matter will ultimately have to be decided by the Court of Appeal.
The Tribunal ruled that the Income Tax Act clearly limits the application of withholding tax to services performed in Tanzania. The Judge also remarked that there was no room for reading anything more into the law. This is a welcome decision for the taxpayer but companies will need to wait for the final determination at the Court of Appeal.
In another welcome decision, the tax Court of first instance-Tax Revenue Appeals Board- allowed deduction of all foreign service expenses incurred by a tax payer that were wholly and exclusively incurred by the taxpayer in its business. The tax authority had sought to disallow the expenses apparently because withholding tax on such services had not been paid on the amounts. The Tax Board also gave recognition to the fact that technical services procured by oil and gas companies externally, for the benefit of the company in Tanzania, are indeed not available or cannot be sourced in Tanzania due to the nature of the industry.
The Government will have to continue assuring investors that it is committed to a stable tax and fiscal regime and that promises made, are kept. The tax rulings by the tax Courts on key withholding tax issues have sent a good signal to would be investors in the oil and gas sectors although the matter will be further tested at the Court of Appeal. Inter Government communication will also need to improve if the country is to attract the much needed investment in other priority areas like agriculture and infrastructure. Tanzania has yet to unleash the potential it has, however it has started making its footprint in the international playing arena.
Dar es Salaam
About the author
Fayaz is a graduate of world renowned Berkeley Law School at the University of California, Berkeley and has 14 years of experience in corporate affairs and heads the firm’s Corporate Law department. Having consulted for some of the leading banks, mining, oil and gas and insurance companies, Fayaz brings great commercial sense into any legal transaction. Key specialisations are Corporate and Commercial Law with a focus on Mining Law, Oil and Gas, Tax Law, Banking and mergers and acquisitions. In his undergraduate days, Fayaz also studied Actuarial Science under the Society of Actuaries (SOA) bringing with him some sharp mathematical skills.