1 TANZANIAN MINERAL SECTOR PERFORMANCE, FISCAL BENEFITS AND CHALLENGES Hon. Dr. Ibrahim S. Msabaha (MP) Minister for Energy and Minerals The United Republic of Tanzania WORLD BANK FISCAL ISSUES WORKSHOP 5 th OCTOBER 2006 WASHINGTON DC, USA

2 PRESENTATION OUTLINE I. Brief Background of the Tanzania Mineral Sector II. Current Mining Fiscal Regime III. Benefits Derived from Mining IV. Need for Mining Fiscal Regime Review V. Ongoing Review of Mining Fiscal Regime

3 I.Background: Geological Map of Tanzania

4 Economic Policy Reforms Trade liberalization of the early to mid 1980s Financial sector review 1990s Measures Aimed at Unlock the Mineral Wealth New Mineral Policy, 1997 New mining and investment laws of 1997 Financial Laws (miscellaneous amendments) Act of 1997 Mining Act, 1998

5 II. Current Fiscal Regime Corporate Tax 30% Royalty 3% for Gold, 5% for Diamond, 0% for Cut Gemstone No Import duties on capital goods for exploration and mine development. Cap limit of 5% after 1 st anniversary of commercial operation VAT special relief Withholding taxes on dividends, paid out profits, and on technical services

6 Current Fiscal Regime continued…. No ring fencing around the mining sector: losses in one mine can be offset against profits in another 100% depreciation with additional 15% allowance Unlimited loss carried forward

7 III. Benefits Derived from the Mineral Sector Increased foreign direct investments, over USD 2.5billion since 1997; Opening of 6 large scale gold mines since 1998 with current annual capacity production of 50 tonnes gold; 3.5% contribution to GDP in 2005; Foreign export 42.4% of total exports in 2005;

8 Increased Production & Exports,

9 Benefits continued ….. Employment in large scale mining (from less than 1,000 in 1997 to over 8,000 in 2005); Increased royalties revenue (from $707,000 in 1997 to $21million in 2004); Improved development (social and economic) around mining areas; and Improved geological database. Administration of the Revenue Collections Centralised tax collection; and Centralised redistribution system.

10 IV. Need to Review Fiscal Regime Equitable Benefits for Tanzania and Tanzanians Expected fiscal benefits not yet realized; and Needed to address comprehensively poverty alleviation issues Change of Conditions Positive macroeconomic conditions (high prices of certain minerals and booming international mining industry); Stability of political climate; and Improved datasets on geology and quality of geotechnical information.

11 V. Mining Fiscal Regime Review Process incorporated: Establishment of Fiscal Regime Review Committee; Government Consultative Meetings; Stakeholders Consultative Meetings (Consultations between Government and Mining Investors); and Bilateral Negotiations between the Government and Individual Mining Companies (concluded for one of the main mining producers)

12 Mining Fiscal Regime Review Aims at Establishment of a competitive and comprehensive fiscal regime that shall allow usage of minerals to foster sustainable development; Reflecting Consultations between Government and stakeholders and players; Reflecting best international practices customized to the conditions of Tanzania; Continue attracting investment for large scale gold mines and other minerals; Improve the performance and impacts of the existing artisanal and small-scale mining activities

13 Presentation has included Background of Mineral Sector Discussion of Mining Fiscal Regime Summary of Benefits Derived from Mining Rationale for Mining Fiscal Regime Review Work to improve Mining Fiscal Regime

14 Concluding Remarks Mineral Sector Fiscal Regime Review is intended to achieve: A revised, transparent and competitive fiscal regime that can be translated into mining operations with equitable sharing of mining benefits; and Retaining existing mining operations and attracting more investments

15 THANK YOU