TANZANIA: GOVERNMENT, AFRICAN BARRICK GOLD OPEN ESCROW ACCOUNT TO SOLVE VAT REFUND DEBACLE

AN escrow account seems to be the answer at least for the time being to recover millions of dollars of Value Added Tax refunds to the African Barrick Gold, the largest gold mining company operating in Tanzania.

The government and the ABG, have opened an escrow account to provide for the refunding of VAT paid on imports by the gold mining company since special VAT relief was waived in late 2012. The mining company which operates three mines in Tanzania - Bulyanhulu, North Mara and Buzwagi, enjoyed special VAT relief as part of various tax incentives and exemptions extended to investors in the mining sector until in 2012 when it was abolished.

Since then, the mining company has been paying VAT on all purchases subject to refund from the government. Under the Value Added law, exports of locally produced goods from Tanzania are zero rated.

So far the account looks to be the best formula to solve the VAT refund stalemate that had accumulated to US$ 65 million by the end of last year due to overly bureaucratic procedures for refunding.

The mining company listed on the main market of the London Stock Exchange under the symbol ABG and on the Dar es Salaam Stock Exchange, said in its unaudited results for the first half of 2014 that it had received net refunds of US$18 million in the second half of 2013.

The amount brings to total net refunds for the first half to approximately US$ 28 million. Currently, the government and the mining company are in discussion to open a second escrow account for VAT paid on domestic goods to deal with proceeds of Value Added Tax refunds entitled to the gold mining company.

The mining company has sent proposal for establishment of an escrow account VAT paid on domestic goods. It is awaiting a feedback from the government on the proposal.

"We have also continued discussions with the Tanzanian Government on the establishment of an appropriate mechanism to safeguard the recoverability of VAT payments over the long term.

"In this regard, we have submitted proposals for the establishment of an escrow account for VAT paid on domestic goods, similar to that currently used to provide for the refunding of VAT paid on im-ports and are awaiting further feedback on this proposal," reads the report.

ABG spent a total of US$ 769 million last year to procure goods and services where US$ 448 of goods and services were purchased from suppliers in Tanzania, according to a study by Ernest &Young, a global accounting firm.

The study show ABG contributed 1.4tr/- (US$ 855 million) to the economy last year representing about three per cent of the total economy. However the 2013 contribution was down from about 1.62tr/- (U$$980 million) contributed in 2012 due to a decline in global price for gold. Tanzania is currently the fourth largest gold producer after South Africa, Ghana and Mali.