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| Farm in farm out tax consequence |
| We are thinking of selling portion of our block (farming out) under the production sharing agreement so that we can get an investor to inject funds into the contract block as we are cash strapped. We are told that there is a income tax that might become payable as a result of this. Do we need to seek consent of any authority for this? Why should we? Please guide. |
| LE, Dar |
Generally speaking capital gains tax is assessed when there is income and where appropriate deemed income. In a farm in farm out agreement (“Fifo”), generally there is no gain to you other than a spread of the risk and an injection of capital to assist you in the exploration operations.
Whilst is not easy for us to guide you by merely reading this short question, generally speaking a farm in farm out should not attract capital gains tax as there is nothing to gain on an undiscovered block. Statistics are clear that most block drilling tends to be unsuccessful. However the wording of the Fifo and method of calculating past costs vis a vis future costs to be incurred and the percentage that you will be farming out vis a vis the amount that you will be sharing in case of a discovery in the future are crucial to understand before we can guide you.
As for consent, the PSA is governed under the Petroleum (Exploration and Production) Act, 1980 (“PEPA”). Section 54 of PEPA contains a broad requirement to seek Ministerial consent with respect to any instrument by which a legal or equitable interest in, or affecting, a licence is created, assigned, effected or dealt with. This section states unless the Minister approves a). the transfer of a licence; or b) an instrument by which a legal or equitable interest in, or affecting a licence is created, assigned, effected or dealt with, whether directly or indirectly, the transfer, or the instrument (in so far |
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as it operates as provided in paragraph (b), shall be of no effect.
From the above section, it is likely that consent of the Ministry of Energy and Minerals is required prior to proceeding with the Fifo. It is true that the licence holder is Tanzania Petroleum Development Corporation and you are merely the contractor under the PSA; however the Fifo has implications on the work programme and it is recommended that you inform and get consent from both the Ministry and the TPDC.
On why you should apply for consent, the answer is clear- the law states so. Your attorneys can guide you further. |
| Point deduction on driving licence |
| I have been teaching driving in Europe for many years and have now come back to Tanzania. I find it hard to believe that very rarely, if ever, the traffic police have banned persons from driving. The way people drive here without undergoing training is not only risky but very irresponsible. Is there no point system deduction on driving licences in Tanzania like in most western countries? |
| IP, Dar |
Believe it or not, there is a points deduction system on driving licences that has just been introduced. We found this in a recent amendment of the Road Traffic Act which states that for the purposes of ensuring compliance with the provision of this act and the conditions attached to a driving licence, every licence shall have a number of points which may be deducted proportionally whenever a driving licence holder commits or is convicted of an offence under this act. Further the amendment states that the Minister may make Regulations prescribing the manner in which the driving licence point system shall operate.
We are informed that the points system is not yet operational but you can see that the recent amendment does provide for it. One other thing, since you |
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are a trained professional in the field, it is not unwise for you to go meet the head of traffic police to perhaps provide further insight on how such a system works in the west. All Tanzanians should be responsible for and assist in the development of this country. |
| PCCB act weak |
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I am unsure why the Prevention and Combatting of Corruption Act (PCCB) is so weak. Why is the act not made to cover a wider net? |
| PL, Dar |
We are unsure what you mean it is weak. If you read the PCCB Act it is very strict and covers, albeit generally, all sorts of transactions to the extent that gaining advantage is also illegal and actionable. For example section 23 of the PCCB Act states, and this is extremely wide, that
(1) A person who solicits, accepts or obtains or agrees to accept or attempts to obtain for himself or for any other person, any advantage without lawful consideration or for a lawful consideration
which he knows or has reason to believe to be inadequate- (a) from any person whom he knows or has reason to believe to have been, or to be, or to be likely or about to be, concerned in any matter or transaction with himself or having any connection with his official functions or of any official to whom he is subordinate; or (b) from any person whom he knows or has reason to believe to be interested in or related to or acting for or on behalf of the person so concerned, or having such a connection, commits an offence and shall be liable on conviction to a fine not exceeding ten million shillings or to imprisonment for a term not exceeding seven years or to both. (2) In addition to the penalty imposed under sub-section (1), the court shall order that the amount of money value of any advantage received by the public officer, or any part of it be confiscated to the Government.
We suggest you reread the PCCB Act to ensure that you are reading the same act as us. If you have further questions your attorneys can guide you. |
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| This column is intended to give you a general over view of
the Law. It is not a substitute
to the role of your legal advisor. If you
have legal issues, you are strongly recommended
to contact your Attorney. |
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