In a historic, PanAfrican pays 27.5bn/- super profit tax to Treasury

03Apr 2020
The Guardian
In a historic, PanAfrican pays 27.5bn/- super profit tax to Treasury

NATURAL gas producer, PanAfrican Energy Tanzania Limited has made a record 27.5bn/- in additional profits tax to Treasury hence entering history books as first ever oil and gas company in the country to do so.

Natural gas flaring at PAET’s Songo Songo gas fields in Kilwa district.

The gas producer which extracts the commodity from Songo Songo Islands in Kilwa district of Lindi region and supplies more than 40 industries in Dar es Salaam, paid the super profit tax after a caluse in the production sharing agreement triggered.

PAET’s Managing Director, Andy Hanna said after producing gas for more than 15-years, this important clause has finally been triggered as the 2001 signed PSA. “It might be an unusual thing to say, but we are delighted to be able to make this major payment.  Up to the end of 2019, the company has already paid to the government 555bn/- in taxes, duties and levies, plus a further 160bn/- under the normal profit sharing mechanisms,” Hanna said.

He said according to the 2001 agreement, several obligations are placed upon PAET and have all been met with the additional profit tax being the last. Hanna said achieving the latest obligation while increasing and sustaining gas production required considerable financial investment and acceptance of risk on its part.

“The additional profits tax we have now paid further demonstrates the value of this project to the people of Tanzania.  That value is not just about revenues though.  It is also about the power, industrialization, employment, services, safety and savings it has delivered,” Hanna added saying PAET is made up almost entirely of Tanzanians.

The PAE chief further noted that alongside the achievement, the employees have increased the production capacity of the Songas gas plant to ensure more gas could be supplied to Tanesco for power generation, and have developed more than 50 kilometres of downstream supply infrastructure to power more than 40 industries.

“The company’s investments have enabled local manufacturers to reduce their production costs of products, created many employment opportunities and helped build an oil and gas service industry in the country that will form the basis for future development.  Until recently, such investments have constrained the company’s profits since production started in 2004,” the PAET MD explained.   

Under the PSA, once the company has recovered its operating costs and paid all taxes, duties and levies in accordance with the laws of the land, the remaining profits are shared with Treasury in proportions agreed within the contract.

“However, unlike many other gas contracts, the Songo Songo PSA restricts the level of profit the company can make.  When the costs of the company’s operations have been recovered and returns increase above a certain threshold, a special clause within the agreement is triggered, and a windfall tax, becomes payable to the government,” he elaborated.

 The tax is paid entirely from what would otherwise be the company’s profit.  It is paid above and beyond the regular revenue share, taxes, duties and levies that are payable for the year.