Finance Act 2012 Update

Strategic Investors Change in Introduction Control amendment This newsletter is an update on our The Finance Bill 2012 introduced an remains as June Budget newsletter and the exemption from withholding tax of proposed in subsequent Finance Bill newsletter. It interest payable to a non resident bank Finance Bill summarises some additional points by a “strategic investor”. The arising out of our review of the definition of the term “strategic recently assented Finance Act 2012. investor” was not provided in the Bill. Action should not be taken on the The Finance Act now defines this term strength of this newsletter, which has as “an investor who has been been prepared to give a quick determined as such under the Mining - reference and is not a substitute for Tanzania Investment Act”. The professional advice. removal of VAT Tanzania Investment Act does not set special relief for out who qualifies as a “strategic MDA holders Income Tax investor” but does provides that for the purpose of promoting identified Change in Control strategic or major investments, certain additional benefits may be granted to It had been hoped that the provisions an investor registered with the proposed in the Finance Bill would be Tanzania Investment Centre. Reinstatement of amended so as to introduce more 100% special certainty as to the circumstances in The Act also qualifies the exemption relief for which the amended “change in from withholding tax on interest religious and control” provision would apply so as to proposed in the Finance Bill so as to charitable produce an outcome that is workable exclude “interest payable on any loan organisations and practical from both an taken by a strategic investor from an administrative and economic associated or related company”. perspective. However, the amendment to the “change in control” Presumptive income tax provision as set out in the Finance Bill in essence remains unchanged. The tax free threshold for presumptive income has been increased from a For more detail on the nature of this turnover of TZS 3 million to TZS 4 very significant change, do refer to the million. “International Tax Update” section of our Finance Bill newsletter.

Finance Act 2012 Update 1

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The Finance Act amends the Income Zero rating of locally produced Tax Act 2004 changes proposed in the textile, milk and milk products Finance Bill in relation to EFDs as follows: The following supplies are now taxable  A TZS 5,000 threshold for the at zero rate: requirement to issue a fiscal  Locally produced textile by local receipt or fiscal invoice using manufacturer using locally an EFD. produced cotton;  Amendment of the financial  Locally produced milk and milk component of the penalty for related products produced by local failure to “acquire or use manufacturers using locally electronic devices or issue produced milk. fiscal receipt or fiscal invoices” from a sum of a Exemption of certain supplies penalty TZS 3 million to a range of TZS 1 million to TZS The exemption of the provision or 3 million. conducting of games of chance is now amended so as to also cover the following: National lottery, Internet Excise Duty casinos, and SMS lottery.

Basis for adjustment of specific The exemption proposed for natural excise duty rates gas and related equipment has been extended so as to include the The Finance Bill had proposed that in following: future the annual adjustment of fixed  Air and nitrogen systems; excise duty rates should be “as may be  Condensate stabilizers; required depending on prevailing  System piping on pipe rack; circumstances” instead of an  Instrumentation; and automatic link to inflation. The  Gas cookers designed for natural Finance Act now amends this wording gas. to provide that rates “may be annually adjusted in accordance with the Removal of Special Relief for project inflation rate and other key Mining macroeconomic indicators”.

Juice and mineral water The Finance Act 2012 unexpectedly removes the special relief entitlement Excise duty rates on juice and bottled of mining companies holding Mining and mineral water have been revised Development Agreements (MDAs) as follows: executed before 1 July 2009.

Original Revised By way of background the Finance Act TZS / TZS / 2009 removed VAT special relief for litre litre mining, but this relief was reinstated Juice - local 7 8 in the Finance Act 2010 but restricted Juice - to mining companies holding MDAs imported 77 100 executed before 1 July 2009. The Water – experience during the one year period mineral, from 1 July 2009 was that VAT aerated, boiled refunds owed to mining companies & packed but escalated to very significant levels. not containing The reinstatement of the relief in 2010 sugar or helped deal with this burden, as well sweetening as ensure compliance with contractual matter 83 69

Tanzania Budget Review: Finance Act 2012 Update 2 commitments given by the relation to tractor trailers and related Government in a number of MDAs. spare parts as well as tractor tyres.

The removal of this relief is therefore a surprise for the following reasons: Tanzania Investment Act  It conflicts with legal entitlements of a number of mining companies under their The Budget speech included reference MDAs to a reduction of the tax exemption on  It will result in a very “deemed capital goods” for investors significant increase in VAT registered with the Tanzania refund claims. Investment Centre - from 100% to 90%, so that an investor would be For mining companies this is an obliged to pay 10% of the due tax. unwelcome change as it will have This proposal is now reflected by a significant adverse consequences in Finance Act amendment to the terms of cash flow costs as well as Tanzania Investment Act 1997. foreign currency risk arising from the significantly increased amount of cash The Budget speech also included tied up as outstanding TZS reference to the abolition of import denominated VAT refunds. duty exemptions on all non-utility motor vehicles of 3000cc and above Whilst the impact of this change is on (other than for certain donor funded existing mining projects with MDAs projects). An amendment to the pre-dating 1 July 2009, it will quickly Tanzania Investment Act makes clear highlight once again the importance of that such vehicles will not qualify as special relief for the mining sector. deemed capital goods. This point is pertinent for a number of new large scale mining projects in the pipeline – in particular, it remains Gaming Tax open to question whether investors will commit to these projects in the Gaming tax is now extended to SMS absence of VAT special relief. lotteries and National lotteries at rates of 30% and 10% of gross sales Other changes to special relief respectively. The term “SMS lottery” is defined as “a lottery whose For certain supplies, the Finance Bill participation is by sending an SMS restricted special relief to a partial from a player’s mobile phone for a relief of 45% rather than 100%. The purchase of lottery virtual ticket” Act now reinstates this relief for certain supplies including in relation The licensing requirement under the to the following: religious and Gaming Act is now also extended to charitable organisations; water and the following: sewerage infrastructure development;  Internet casino licence for export processing zones; special conducting casino games through economic zones; capital goods; railway remote devices with internet plant and equipment; certain fire connection; and fighting vehicles; certain supplies to  SMS lottery licence for conducting the agricultural sector. SMS lotteries for commercial purposes. New special relief categories (eligible for 100% relief) are also added in

Tanzania Budget Review: Finance Act 2012 Update 3 This publication is provided by PricewaterhouseCoopers Limited for information only and does not constitute the provision of professional advice of any kind. The information provided herein should not be used as a substitute for consultation with professional advisers. Before making any decisions or taking any action, you should consult a professional adviser who has been provided with all the pertinent facts relevant to your particular situation. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the author, copyright owner or publisher.

Tanzania Budget Review: Finance Act 2012 Update 4