The Oil And Gas Revenues Management Act Review

The Oil and Gas Revenue Management Act, No. 22 of 2015 came into life on the 4^th of August 2015 after it was successful assented by the then President Dr. Jakaya M. Kikwete. The Act, generally aims at the establishment and management of Oil and Gas Fund to provide for the framework for fiscal rules and management of oil and gas Revenues.

The Act is a positive step towards Economic Development for all Tanzanians as it sets a foundation stone towards Oil and Gas Revenue Management for the betterment of all.

The Act established several measures and steps for the successful reaching of its objectives and this includes;

§  The BOT being the key player in the establishment of accounts and the management of revenue funds as per Section 5 of the Act;

§  The TRA and the TPDC (The state owned  National Oil Company) are set as collectors of Oil and Gas revenues due to the Government by virtual of the section 6 of the Act; and

§  Establishment of Oil and Gas Fund which shall consist of the Revenue Holding Account and the Revenue Saving Account as per section 8 of the Act.

THE REVIEW

 The Act being a stepping stone towards the establishment of an optimum system of oil and gas revenue management and an effective legal framework for the same has received positive critics as a result of non involvement of stakeholders including the regulated personnel such as Foreign Consortium who as directly involved for investment purpose in the Oil and Gas sector leave alone the General Public whom in one way or the other are affected by Oil and Gas key players.

Some of the positive criticisms are as following;

 First and far most important is on the Oil and Gas Fund itself. Section 8 (3) (a) of the Act provides that one of the Objectives of the Fund is to ensure that the financing of investment in oil and gas as guaranteed, this can be interpreted as to mean that Investment in oil and gas may be eligible to loans and credit facility so as to ensure the positive growth and development on the oil and gas sector.

In Contrary, Section 11 (a) of the same Act restricts (prohibits) monies deposited in the Fund being used for providing credit to the Government, Public enterprises and private sector entities. This contradicts with the general role and objective of the Fund itself.

The Second area challenged is on the Sources of the Fund itself. Section 9 of the Act did not provide for all sources of the Oil and Gas Fund and left other sources of Fund including Capital Gain Tax and Penalties for delays and non compliances of the Act or its regulations imposed under it[1].

Another area that has faced criticisms though most legal scholars fear to discuss and open their views against it is on the Establishment of a Portfolio Investment Advisory Board under section 12 of the Act.

The Board is comprised of 5 members whom among other requirements are to possess knowledge, Skills and Experiences in the fields of Financial Investment, portfolio management and investment law.

Unfortunately as many would have expected, the entire Board Members are appointed by one Person, “The President”. This  is not only dangerous on question of accountability of the Board but Truth be told this prevents not only the independence of the Board but also threatens the legality and accuracy of its decisions, including but not limited to its role and function as per section 13 of the Act.

In additional to that, According to the Fiscal Rules as stipulated on section 17 of the Act, specifically, section 17 (c)  ( i ) (bb)  provided that any amount in Revenue Holding Account which is in excess of 3% of the GDP is automatically transferred to the Revenue Saving Account. As an ideal the provision is correctly set but in practical sense 3% of the GDP cannot be met now or any future time.

According to the World Bank data base, Tanzania has experienced a 7% GDP per annum on 2016 alone contrary to a 6.5% GDP per annum on previous decade[2]. It should be know that the GDP of any country is constantly changing and is not at a fixed rate.

The legal position taken above defeats the overall objective of fiscal rules objecting the saving for future use as provided on section 16 (2) (d) of the Act.

SUGGESTIONS

In order for the Oil and Gas Fund to be effective and meet the expected objectives, there is a need to expand the sources of the Fund by widening the revenue base. Some of the key areas which were not included as sources of revenue for the fund are fees paid in respected on licences for production and conduct of Oil and Gas Business.

As provided on EWURA’s 9^th Annual Report for the year ended 30^th June, 2015 and published on January 2016, Income from levy and Licences alone has increased from TZS. 30 Billion In 2014 to TZS. 34 Billion In 2015 which is an increase of almost 15% in comparison.[3]

The increment above is a result of increase in investment in Oil and Gas sector and thus should be included as one of the Sources of the Fund.

Further to that, there is a need to increase The Natural Gas Infrastructures so as to attract more investments and increase the Natural Gas markets this is evidenced on the EWURA’s 9^th Annual Report which provided that, as of June, 30^th 2015 on which the Ministry of Energy and Minerals confirmed the quantity of the discovered gas (gas in place) amounting to 55.08 Trillion Standard Cubic Feet[4]  

However, with more than enough gas in place there is still an infrastructure challenge learning the fact that, all Natural Gas infrastructures ends at Dar es salaam and therefore more investments are required to extend the Pipelines to Tanga, Morogoro and other regions within a reasonable timeframe.

This measure has been adopted by our neighbours Mozambique and has been very successful under the “Virtual Pipeline Project” whereby compressed Natural Gas (CNG) could be transported consistently to different Municipalities to pave way for new markets, thus automatically increasing the revenue base.

Prepared by;

Oscar Oswald M, LL.B (Hons)

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[1] www.allafrica.com accessed on the 21^st November 2016 at 10:50 am

[2] www.worldbank.org accessed on 21^st November 2016 at 10:30 am

[3] www.ewura.go.tz accessed on 21^st November 2016 at 10:00 am

[4] Page 36 of EWURA’s 9^th Annual Report for the Year Ended 30^th June 2015 (Published on January 2016)

A Practical Guide to Corporate Compliance

To a Lay person the obtaining of Company’s Certificate of Incorporation seems to be the last step before the final take off of the Company’s Business. Corporate Lawyers know this being untrue and in most cases their deeper involvement on Company’s affairs seems like an act to squeeze more cash from their Clients.

This Article aims at a practical approach after the incorporation of the Company on which most cases is the duty of the Company Secretary to ensure the Company complies with all requirements before commencing the day to day business of the Company.

The Following are mandatory requirements that every Company Secretary appointed at the very first beginning prior the incorporation of the Company needs to be familiar with when taking the position;

1^st Step: Company’s Taxpayer’s Identification Number (TIN)

The Income Tax Act provides two categories of TIN, one is TIN for Individuals which is subdivided into two groups, one being Individual TIN for Licences Purpose (Driving Licence) and the Other is Individual TIN for Business Purpose (Sole Proprietorship Business Undertakings), on the other hand, the second category is TIN for Corporate entities.

Our focus here is mainly on “Corporate TIN” as the title suggests. Though there are no direct fees involved in obtaining the same (No Fees), indirect costs are inevitable at this point. The normal procedure at the TRA is that one fills in Form ITX100.01.B available at the TRA official website www.tra.go.tz or at their many branch offices National wide.

The Form is to detail all information of the newly incorporated Company including its physical address that is, its actual business premises. Information regarding its Directors and the actual date/expected date for the commencement of the Company’s business must be provided as well.

It should be noted that all Directors of the Company regardless the number must fill as well specific forms detailing their particulars and other relevant information for the issuance of the Company’s TIN.

After the undertaking above, the Company needs to fill in Form ITX202.01.E which is a Statement of Estimate for the Company on its expected yearly/annual income. The mainly purpose of the annual estimate is one thing only, deriving the Corporate tax expected to be met by the Company on its Fiscal year.

At the moment, Corporate Tax is at 30% of the total Company’s Income and 25% for a company that is already incorporated and has been listed at the Dar es Salaam Stock exchange.

After the filling in and submission of the same, an estimated corporate tax is derived thereinafter and the amount derived after assessment by a Tax officer must be paid in quarterly instalments, that are, 31^st of March, 30^th June, 30^th September and 31^st December of the Company’s Business year (It should be noted that, In cases whereby the Company fails to meet the estimated target or exceeds the estimated sum, the Company shall fill amended Estimate relevant forms and account for the amount not met/exceeded the estimated amount on the following accounting/Business year).

After the successful payment of a quarterly estimated corporate tax, it is the responsibility of the Company Secretary to submit all relevant documents prior the issuance of the Company’s TIN which documents includes but not limited to;

§  Company’s Memorandum and Articles of Association;

§  Lease Agreement regarding the Company’s place of business or any other proof of ownership of Business Premises;

§  A Letter from the Local Government recognizing the place of Business of the Company;

§  Directors photographs and Passport or other form of Identification; and

§  Company’s Certificate of Incorporation.

Lastly but not least, is a Tax Clearance Certificate which is issued only to entities that have paid for and complied with all requirements, including payment of Withholding Tax and Stamp Duty in respect of the Company’s Lease Agreement. Withholding Tax is currently at 10% while Stamp Duty is at 1%.

Therefore, for instance, Lease Agreement purporting a rent payment of TZS 100, 000/- per month equals to TZS 1,200,000/- annually, in that regard, 10% of the annual rent being Tax Withheld equals TZS 120,000/- and when we derive an additional 1% from the 10% we find the stamp duty to be paid at TZS 12,000/-

The Bottom line is, in order to obtain corporate TIN and Tax Clearance Certificate one has to ensure payments are made in respect of;

§  Quarterly estimated Corporate Income Tax; and

§  Withholding Tax and Stamp Duty in respect of Lease Agreement in relation to Company’s Business Premises.

2^nd Step: Obtaining Business Licence

All Steps flow down on a hierarchy on which a present step (Process) acts as a stepping stone of the next. In that order, obtaining a Business Licence one must first obtain Company’s TIN and Tax Clearance Certificate.

In light of the above, the following are mandatory documents when applying for a Business Licence;

§  Company’s Memorandum and Articles of Association;

§  Company’s TIN Certificate;

§  Company’s Tax Clearance Certificate;

§  Lease Agreement regarding the Company’s place of business or any other proof of ownership of Business Premises;

§  A Letter from the Local Government recognizing the place of Business of the Company on that particular area;

§  Directors photographs and Passport or other form of Identification; and

§  Company’s Certificate of Incorporation.

Upon Submission of the Business Licence Application Forms together with all accompanying documents and upon payment of relevant fees for the same depending on the Business Licence Class applied for and depending on the issuing authority (i.e. Some Licences are issued at the District’s Municipal Councils while others are issued by the Ministry of Industries and Trade) one obtains a Business Licence.

A point of Note, TIN applications as well as Business applications are done at Regional Level on a Particular district on which the Company conducts its Business. For Instance, A Company with Business Premises in Kinondoni District must apply for TIN at a TRA Branch within Kinondoni Municipality, same as Business Licence at the Kinondoni Municipal Council unless the Business Licence applied for is issued only by the Ministry.

3^rd Step: Opening of Company’s Bank Account.

In today’s World, having a bank account is not only inevitable but it is a reality that a Company cannot survive without it. The Company Bank Account will enable all transactions connected to the Company’s Business to go smoothly and it will enable the Company to discharge its obligations towards its employees and staffs (For Instance, Salary Payments).

In that sense, having a Bank account is not only crucial in the Corporate World but is an essential requisite for running the Company’s day to day Business affairs.

In order to open the Company’s Bank Account the following are its requirements though they may vary depending on a Bank (Financial Institution) involved, nevertheless these are the basics;

§  Company’s Certificate of Incorporation;

§  Company’s TIN;

§  Tax Clearance Certificate;

§  Business Licence(s) (If the Company does more than one Business/General Commercial Company);

§  An Introduction Letter with details of the Signatories  of the Bank Account; and

§  Directors’ ID and Photographs.

4^th Step: Employment and Labour Relation Documents (Employment Contracts)

Every Employer must formulate employment Contracts, this will guide its relation with its employees as well as other Labour Statutorily Compliances. As one of the Final steps, Employment Contracts are to be prepared in compliance with the Employment and Labour Relation Laws of Tanzania.

In additional to that, The Company as an Employer must formulate its Employment Policies and HIV/AIDs policy which must be registered at the Labour Commission leave alone other Employment requirements which are mandatory as per the Law (i.e. Social Security Funds, for example the NSSF and the like)

5^th Step: Doing the Company’s Business

After the successful completion of all steps above, the company can now conduct its business as permitted by its Memorandum and Articles of Association.

This marks the end of Company’s Secretary to do List after the successful incorporation of the Company. However other responsibilities stipulated on the Company’s Memorandum and Articles of Association should not be forgotten.

Amongst other duties of the Company Secretary is the filing of Company’s Annual Returns (Form No 128), Renewing the Company’s Business Licences, Attending Company’s Meetings and taking minutes of the same, Filling in and Signing Forms of appointments and termination of individuals for the Company and ensuring payments of all taxes and meeting all legal compliances and any other are other duties/responsibilities of a Company Secretary.

 

Prepared by:

Oscar Oswald M.