Q&A – 17 December 2012
Government not honoring agreement
We have entered into two agreements with the government for the construction and operation of a certain project. This is a long term project that runs into trillions of shillings. The agreement clearly spells out that the obligations and other terms and conditions. It went through the normal Government process including being vetted by the Attorney General before being signed by the Minister. The Tanzania Revenue Authority (TRA) have now started taxing us exactly opposite of what has been agreed upon claiming that the law has changed and they were merely executors and it was for us to contact the relevant Ministry to resolve this matter. The Ministry is making promises but not acting. What should we do? We also require urgent intervention. Will the dispute resolution clause which has arbitration as a mechanism assist us in getting immediate relief? It is quite discouraging that the Government is not honoring the very own agreement it has entered into. Why doesn’t TRA, being a tax collection arm of the Government, sort this with the Ministry instead of asking the investor to do so?
HU, Dar
You have raised some very important points. First the law does evolve and such evolvement cannot be stopped by your agreement.
To give you an example of tax stability clauses in the Mining Development Agreements (MDA) and Production Sharing Agreements (PSA) entered between the Government and companies, both these agreements provide that in the event there is a change of tax regime, then the Government will take cognizance of these agreements to ensure that they bring back the investor to the same position as he would have been had the change in law not been passed. For example, if at the time of investing a mining or oil/gas company did its projections at the then prevailing corporate tax rate of 30%, and if the corporate tax rate increased to 40%, then either the amendment should, in the law that introduces it, not apply to the relevant companies or the government will have to look at another way of compensating the company to ensure that it is only liable to pay based on the 30%. In short, based on the MDA or PSA, the company will only have to pay the 30% not the 40%, even though the law has changed.
In your case, it seems you have a similar situation where certain taxes did not apply under the agreement and perhaps under the law at the time you entered into the agreement. Now with some change in legislation, the taxes apply and TRA are proceeding to collect such taxes from you. Your question is should the Government not respect the agreement. Our answer is yes, it must. The Government has no choice irrespective of whether the law changes or not. If the new law does not provide for such respecting of agreements entered into prior to this new law meaning that the new law would automatically not apply to you, then the Government will surely be held liable directly under the Agreement. The Government cannot change the goal post and score board by introducing a new law and not respecting what it has agreed upon.
In the circumstances, we suggest you follow this up with the Ministry and if all such efforts fail, you proceed to give a notice of a dispute under the agreement. Ultimately this will end up in arbitration and we believe from the brief facts that you have a very strong case.
As for whether you can get immediate relief from arbitration, we are not sure what relief you specifically want. Although there is an arbitration clause that denies jurisdiction to local Courts, should the relief you seek really be urgent and temporary, the Courts may look at entertaining your application.
Unfortunately we are unable to answer the internal coordination question you have raised in that why doesn’t TRA sort this with the Ministry. It is however true that TRA has been reluctant to sort such matters out, perhaps because it is not their mandate to do so as TRA does not grant exemptions. This has led to a huge outcry that Tanzania’s tax regime is not stable, is unpredictable and is trying to squeeze taxes from the same companies without considering increasing the tax base. You can take this up with the relevant Ministry.
Lowest bidder, still not winner
I bid for a large tender for the construction of a road. My bid was the lowest yet I was not awarded the tender. Upon following up, I was told that the others had a better bid. Should I have not been awarded the tender?
GH, Dar
As of to date, tenders are overseen by the Public Procurement Act 2004 (PPA 2004) which has regulations under it. The most critical information for you is that it is not only the price that is a determining factor but other composite factors.
The PPA 2004 introduces the concept of “lowest evaluated cost” which means the price offered by a supplier, contractor, or consultant that is found to be the lowest after consideration of all relevant factors and the calculation of any weighing for these factors, provided that such factors have been specified in the tender documents.
Some tenders have both a technical bid and a financial bid where a certain percentage is allocated to each of these bids and the weighted average forms the final lowest evaluated cost.
If you are unhappy with not being selected, you have the right to appeal to the procuring entity and then to the Public Procurement Appeals Authority, which has of recent annulled a number of tenders for being irregularly conducted. Your Attorney may want to consider this route and guide you further.