Joseph Magufuli is a new entry this year
John Pombe Joseph Magufuli, sometimes described as
Tanzania's bulldozer president, has taken aim at international
natural resource companies.
Just ask Barrick Gold. The Canadian miner's subsidiary,
Acacia Mining, was served a bill in back taxes of some $190
billion in July. In a show of good faith, the parties agreed on
a $300 million payment in October, and a restructuring of the
distribution of future mining income.
Magufuli's recent overhaul of the country's natural resource
royalties and taxation regimes remain controversial. Regardless
of the outcome, master reformist or foe to mining companies,
Magufuli's radical action scares investors, which may end up
harming the country's chances of being perceived as a good
place for foreign investment.
Magufuli took over the presidency in 2015 with a campaign
promise to clean up corruption, but has on occasion been rapped
over muzzling the free press.
However, Magufuli's rhetoric is soft. While Philippines
President Rodrigo Duterte threatened miners on environmental
grounds saying "I'll tax you to death", Magufuli recommends
alleged tax evaders seek "the forgiveness of angels".
Speaking at an FT summit in London in October, Aliko
Dangote, a Nigerian businessman with investments in Tanzania,
reportedly criticised Magufuli as nationalist in his
"They've scared quite a lot of investors, and scaring
investors is not a good thing to do," said Dangote. "Once an
investor complains the rest will run away, they don't even want
to hear the details."
Undoubtedly, the news of the legislative overhaul had London
investors gripping their desks and looking for Swahili
The action almost certainly set a precedent for other
African countries as tax authorities from Namibia and Zambia to
Ghana are all taking a closer look at trade outflows.
Empowered by international initiatives that highlight tax
and transfer pricing loopholes allowing for corporate profits
to move at low or zero-tax rates, many African countries are
now tightening the net.
Some African countries have replaced donor funding with
sovereign bonds and debt that is hard to keep up with,
especially during a commodity downturn. Domestic revenue
mobilisation from tax has become a key target for many
governments, including Tanzania's.
Tanzania's tax-to-GDP ratio has risen from 8% in 2000 to
11.9% in 2016, which is still well below the average, even for
low-income countries. However, what this signifies is serious
room for growth. The IMF has proposed broadening the tax base
with VAT and corporate income tax, property tax and by
adjusting specific excise rates.
The scope for tax reform in Tanzania is big but the country
will most probably benefit the most from tax simplification and
clear guidelines for business.
But Magufuli does not appear to be one for slow policy
change. Instead, he has gripped the mining industry by the
collar. The outcome of this radical move has yet to prove
successful and might determine the remainder of his term.