Tanzania: Government Loses U.S.$308 Million in Airtel Deal

Mergers, Acquisitions and Financial Results

The government of Tanzania lost $308 million by selling Zain Tanzania to the India-based company Bharti Airtel last year, the Public Corporations Accounts Committee (POAC) said yesterday. The POAC chairman, Zitto Kabwe, said the government did not benefit from the transaction following the application of a weak structure that allowed Bharti Airtel to buy Zain Africa without considering shareholders in Tanzania.

He said Zain Tanzania had a total of four million subscribers and each subscription was supposed to be sold at $252."It is obvious that Tanzania has lost a lot of money... If every subscriber had been sold at $ 252, the government would have got at least 30 per cent of the total cash obtained from the transaction ... This means that we were supposed to earn at least $308 million," said Kabwe. The Committee ordered the ministry of Finance and Economic Affairs to make an evaluation of how the company was sold and identify legal weaknesses in the process.

The Ministry should also establish the amount of income tax that was supposed to be collected from the new company as well as ensure there is transparency in handling of shares owned by the government in different companies.

Zitto said POAC was looking ahead to submitting the recommendations for the amendment of the Income Tax Act of 2004 which seems to have several weaknesses, to enable TRA to collect revenues. On his part, TRA director general Harry Kitilya said his office was operating on the basis of principles and laws. He said what was sold was Zain Africa which owned Zain Tanzania and that the structure for Zain Tanzania remained the same.

"There was no room for TRA to intervene in this business because everything was done at international level ... The Zain Tanzania structure is still the same and therefore we continue to tax them like before," said Kitilya. The government of Tanzania owns 40 per cent shares of Zain Tanzania, now Airtel, while Bharti Airtel owns 60 per cent.