TRA loses in Sh3.8bn appeal

Dar es Salaam. 

Tanzania Revenue Authority’s attempt to collect $2.4million (about Sh3.8bn) tax from Wentworth Gas Limited flopped recently after a tax appeals board declared the move unlawful. TRA has, for the past three years, been embroiled in a tax dispute with Wentworth, formerly Artumas Group and Partners (Gas) Ltd, after the gas firm assigned 54.6 per cent of its interest in the Mnazi Bay Gas Project to three other firms.

The taxman believed Wentworth avoided charging VAT on the amount it received from the transaction with the three firms. In September 2009, Wentworth granted its working interest in the Mnazi Bay Project to Cove Energy Tanzania Mnazi Bay Limited (Cove Energy) and Les Etablissments Maurel and Prom SA (Maurel & Prom) in what is know in the gas and oil industry as Farm-In-Agreement (FIA).

Wentworth argued that it could not charge VAT on the transaction because the FIA was exempted from VAT under Production Sharing Agreement (PSA) between the government of Tanzania and Wentworth.

When TRA became aware of the FIA in September 2011, it carried out a VAT assessment and hit the company with a $2.4million tax demand. TRA argued that the transaction was not exempt from VAT because it has not been listed under the second schedule to the VAT Act.

In its recent decision, Tax Revenue Appeals Board concurred with Wentworth that a clause in the Production Sharing Agreement (PSA) relieved the company from paying some taxes including the VAT. The board also agreed that article 24 (a) of the PSA allowed the PSA holder to assign or transfer its rights, privileges, duties or obligations to another entity after the government consented it. “Article 24 (d) exempts any such assignment from any transfer or related taxes, charges or fees which may arise from the assignment,” observed the board.

During the hearing of the dispute, TRA argued that Maurel and Prom and Cove Energy was not exempted from VAT because they were not part of the PSA. They were not established under the PSA, TRA said.

“Our interpretation of this article is that once a company assigns its rights, privileges, duties or obligations, the assignee assumes the rights, privileges, duties and obligations of the company under the agreement. This means the two entities become parties to the PSA,” said the board.

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