Uneven playing field: How tax rates drive Tanzania’s gold smuggling

Minister of Mines Anthony Mavunde acknowledged the gravity of the situation in August, stating that small-scale gold miners are leading the way in smuggling minerals out of the country, costing the government revenue by evading taxes.

In response, the Ministry of Mines established a special task force to combat mineral smuggling and address the growing challenge, which has already cost the country billions of shillings.

Read: Tanzania probes Sh8 billion gold seized in India

According to the ministry of Minerals, between July 2023 and March 2024, the Ministry, in collaboration with other government authorities, intercepted various minerals valued at Sh3.9 billion that were being smuggled through mining regions such as Geita, Songwe, Chunya, Kahama, Mbeya, and Kilimanjaro.

The ministry’s budget speech for the fiscal year 2024/2025 stated that those involved in smuggling are corrupt miners and mineral traders.

During the last fiscal year, 157 individuals were arrested and handed to law enforcement agencies. Neighbouring countries, particularly Rwanda and Uganda, are said to charge fewer taxes on gold exports compared to Tanzania.

Rwanda, for instance, has emerged as a tax haven for gold traders, imposing a mere 0.5 percent levy on gold exports and 0.5 percent on royalty, according to the Rwanda Revenue Authority.

The review made in July 2024 attracted smuggled gold from neighbouring countries, including Tanzania.

Similarly, Uganda charges just 2 percent. In comparison, Tanzanian traders face an effective tax rate of 8.7 percent in standard markets or 6.3 percent when selling to the Bank of Tanzania (BoT). This disparity is a major driver of illegal trade.

Prof Abel Kinyondo, a researcher and analyst on illicit financial flows, says smuggling practices are prevalent in Tanzania, adding that people hold accounts in foreign countries to conceal their wealth.

“Gold smugglers are flocking to Rwanda because of its lower tax rates and established refineries, even though Rwanda lacks substantial mineral resources of its own,” explains Prof Kinyondo, who teaches economics at the University of Dar es Salaam (UDSM).

He says that tax evasion results in a loss of domestic revenue, forcing the government to seek alternative funding sources, such as raising taxes or borrowing.

Read: BoT's gold buying spree strengthens reserves 

Tax evasion not only costs Tanzania billions in revenue but also forces the government to seek alternative funding through increased taxes or borrowing.

“If the government borrows to make up for lost revenue, it will be repaid by future generations, including the smugglers themselves,” Prof Kinyondo warns.

The Tanzania Revenue Authority (TRA) maintains that its tax policies are not overly burdensome. According to TRA director of taxpayer education and communication, Mr Richard Kayombo, the tax on gold sales was reduced from five percent to two percent in 2023, making compliance simpler.

“Many traders are now paying their taxes as required,” Mr Kayombo says.

However, he acknowledges that determining the exact volume of smuggled gold and the corresponding revenue loss remains a challenge.

“Smugglers are stealing from themselves and their country, which is very risky for them. They can be exploited by those they do business with because those markets are unsafe,” he says.

Talking of the economic impacts of gold smuggling in Tanzania, testimonies from the traders and other mining stakeholders reveal a clandestine system that not only robs Tanzania of its wealth but also contributes to illicit financial flows (IFFs), syphoning capital away from local development and into the hands of foreign intermediaries.

They argue that the high cumulative tax burden, including royalties, service levies, and TRA-imposed charges, remains a deterrent, while neighbouring countries charge considerably less. Chairman of the Geita Central Gold Market, Mr George Paul, emphasised that smuggling will persist unless the government reduces taxes, as many try to circumvent the high rates.

“Even with the recent reductions, the 8.7 percent tax rate is too high. Traders smuggling 10 kilograms of gold weekly can evade approximately Sh190 million in taxes. For a fraction of that amount, they can pay bribes to cross borders and enjoy Rwanda’s one percent rate,” he says.

Read: Tanzania plans amendments to Mining Act to curb smuggling and fatalities

Mr Paul adds that while the establishment of mineral markets five years ago has reduced smuggling by 60 percent, the problem remains significant, with some gold still leaving the country illegally.

“To address this, the government should consider lowering the overall tax rate to around 6.5 percent. It would make compliance more attractive and reduce incentives to smuggle,” he notes.

The Geita Region Chamber of Commerce, Industry, and Agriculture chairman, Mr Gabriel Luhumbi, believes that creating a business-friendly environment is essential to encouraging compliance.

“Neighbouring countries like Rwanda and Uganda have positioned themselves as attractive destinations for gold trade. Tanzania must harmonise its tax policies to remain competitive,” he says, calling on the TRA to engage traders and stakeholders to develop practical solutions that reduce evasion.

However, experts like Prof Kinyondo argue that the issue concerns tax rates, behaviour, and enforcement.

“Some traders will evade taxes no matter how low the rates are. Addressing this requires a cultural shift, with stronger education on the importance of taxation and its benefits for national development,” he said.

The project received support from the Thomson Reuters Foundation