Norway’s support enhances taxation of extractive industry

14Jun 2016
The Guardian
Norway’s support enhances taxation of extractive industry

The Government of the Royal Kingdom of Norway through the Ministry of Foreign Affairs and the Government of Tanzania entered into an agreement on October 23, 2012, regarding support to Tanzania Revenue Authority (TRA).

Subsequently, TRA and the Norwegian Tax Administration (NTA) signed an agreement on May 27, 2013, for institutional cooperation as stated in the memorandum of understanding (MoU) signed between the two administrations on June 27, 2011, to support compliance strengthening initiatives on revenue administration in Tanzania especially in the Large Taxpayers’ Department.

The support programme covered the years 2012-2015 and was officially completed in December 2015. The programme included the financing of our institutional cooperation with the NTA.

The main objective of the programme was to increase domestic tax revenue through compliance enhancement of large taxpayers. The expected outcome was; improvement in audit effectiveness, efficiency and quality alongside establishment of the International Taxation Unit (ITU).

Generally, the objective of the support programme between NTA and TRA was to attain a reduction in the tax gap through improving tax compliance.

Specifically, the support was to contribute to further improvements in TRA's enforcement capacity; strengthened taxpayer compliance thereby increasing tax revenue.

The achievement of this goal has been promoted through capacity building in different areas and through different means.

Under the NTA support, TRA, developed transfer pricing guidelines that were approved in 2014 and are currently operational.

In line with this, Practice Notes have been developed on the application of Section 56 of the Tanzania Income Tax Act with respect to taxation of gains attributable to indirect transfer of Tanzanian assets through overseas sale of shares.

We acknowledge the hands on support from NTA whereby successful technical workshops were conducted on intra-group services and interest to TRA auditors from revenue departments.

Discussions were held on transfer pricing cases including telecommunications, gas and specialized sectors whereby the NTA input into these cases has been very useful.

TRA and NTA conducted joint audits in order to clear backlog cases of major mining companies. The results from audits were positive whereby TRA managed to reduce the declared losses as well as converting the declared loss to additional taxes.

The Royal Norwegian Government as part of the agreement financed benchmarking visits and training for staff from the Large Taxpayers Department.

The trainings have tremendously enhanced capacity to tax auditors, especially in the areas of extractive industry and international taxation.

The International Taxation Unit is operational and handles cases in an effective and efficient manner. Auditors now handle complex tax audits with a better understanding and are more efficient than it used to be prior to this assistance.

Tanzania has also benefited from the Norwegian Government technical assistance in implementing a three-year project aimed at developing a Modern Fiscal and Regulatory Framework for Extractive Industry in Tanzania. The three year project that started in financial year 2012/13 was implemented through a number of Government ministries and institutions, from whom a permanent national modelling project team for mining, oil and gas was drawn.

The institutions included TRA (secretariat), Ministry of Finance (MoF), Ministry of Energy and Minerals (MEM), Tanzania Minerals Audit Agency (TMAA), Tanzania Extractive Industries Transparency Initiative (TEITI), President’s Office Planning Commission (POPC), Tanzania Petroleum Development Corporation (TPDC), Bank of Tanzania (BoT), National Development Corporation (NDC) and the National Bureau of Statistics (NBS).

The team has undergone capacity building trainings on revenue forecasting models for mining and for oil and gas and is now able to use the models to simulate revenue forecasts for both hard-rock mines and oil and gas fields with feasible proven reserves.

The Royal Norwegian Government has agreed to support TRA for years beyond 2015 through the Basket Funding arrangement by contributing a total of Norwegian Kroner 48 million (about 12.86bn/-) to finance Tax Modernization Programme of TRA’s Fourth Corporate Plan.

It is expected that our cooperation will boost TRA’s ability to achieve its vision of increasing domestic revenue contribution through enhancement of voluntary tax compliance.

Dr Mpango is the Minister for Finance and Planning. He gave these views in a speech during the launch of Norway’s contribution to the Tax Modernisation Programme cooperation between Norway and TRA on March 10, 2016 in Dar es Salaam.