Tanzania has moved to reverse what it says was the fraudulent takeover of Independent Power Tanzania Ltd (IPTL) by the company at the centre of the disappearance from the central bank of $122 million that was meant to settle an international investment dispute.

The Tanzania Revenue Authority has recalled certificates issued to Pan-African Power Solutions (PAP) showing that it had paid $16 million in value added and capital gains taxes, claiming that the papers for the acquisition of IPTL from its previous owners Mechmar Corporation and Piper Links Investments Ltd were forged.

“The false contract agreements were the basis of assessing capital gains tax, which resulted in the loss of government revenue in the form of capital gains tax,” a source told The EastAfrican.

Without the tax certificates, PAP’s ownership of IPTL would have no legal basis because it would mean that the transaction was not properly closed, at least in the eyes of the government.

However, PAP officials said they had secured a court injunction against the withdrawal of the certificates, adding that the move would be in contempt of court.

“What the deputy minister said in parliament has no legal backing,” said PAP company secretary Joseph Mwakandege. “Anything that the government will do will be in contempt of court and ineffectual.

“Our tax clearance certificates are still legally binding.”

No longer the owner

The EastAfrican has reliably learnt that TRA has informed the Business Registration and Licensing Agency (Brela) that capital gains certificates Nos. 0049656 and 0049657 issued after the sale of shares between Mechmar — which then held a 70 per cent stake in IPTL — and transfer of the same to Piper Links and later to PAP, were forged.

The taxman’s move now means that PAP is no longer the owner of IPTL until Mechmar and Piper Links pay the appropriate taxes.

TRA has also threatened to deregister PAP if the taxes are not paid and to seek the intervention of Interpol in extraditing the firm’s owner, Harbinder Singh Sethi, a Kenyan resident in South Africa.

The decision came as parliament was due to give a verdict on senior public officials implicated by the Controller and Auditor-General in the disappearance of the money from the Bank of Tanzania.

Sources in TRA further said the sellers of the shares in IPTL committed fraud when they presented their sales agreements to TRA for purposes of determining capital gains tax and stamp duty through understatement of the purchase price.

Deputy Minister for Finance Mwigulu Nchemba confirmed in parliament on Friday that TRA was moving swiftly to recover the capital gain taxes, value added tax and stamp duty amounting to Tshs26.9 billion ($15.5 million) after the government had established that the company used forged documents when paying taxes, misleading TRA into underrating its tax obligation.

“There is a tendency that only political leaders are held to account when such scandals are reported, but we are going to hold technocrats who advised the government to account this time,” the junior minister said.

He further confirmed that TRA wrote to Brela in an effort to recover the taxes.

Two commercial banks — Mkombozi Bank and Stanbic Bank — where the money from the escrow account at the central bank was deposited, have been asked to make statements on how the money left their vaults.

A report by parliament’s Public Accounts Committee on the scandal said the cash was carried out of the banks in bags and sacks instead of through wire transfers.

Mr Mwakandege said PAP went to court to stop the decision from being implemented. He added that the company had paid substantial amounts in taxes in accordance with the law and that their tax clearance certificate issued after they had acquired shares in IPTL was still valid.

On Wednesday, the PAC tabled a report based on the CAG’s findings as well as a testimony by the Prevention and Combating of Corruption Bureau (PCCB) recommending that those implicated in the fraud be sacked and prosecuted.

The parliamentary committee further called for Prime Minister Mizengo Pinda to take political responsibility over the fraudulent transfer of funds from BoT.

READ: Tanzania House committee wants heads to roll over IPTL saga

The PAC report further recommended that Attorney-General Judge Frederick Werema be sacked for allegedly failing to conduct due diligence on PAP, which presented forged documents that it claimed were shares of Machmar of Malaysia.

The MPs said the Minister for Energy and Minerals Prof Sospeter Muhongo should also resign for allegedly lying to parliament that the money deposited by the Tanzania Electricity Supply Company (Tanesco) into the escrow account was not public funds.

The report accused Energy Permanent Secretary Eliachim Maswi of misleading state institutions into believing that Tanesco and the government were not entitled to the escrow money.

According to the PAC, Mr Sethi should be prosecuted for economic sabotage, money laundering and theft of public money. He was further accused of presenting forged documents purporting to show that his company had bought 70 per cent shares in IPTL.

James Rugemalira, the owner of VIP Marketing and Engineering, which holds a 30 per cent stake in IPTL, was said to have paid off public officials and religious leaders after he was paid $75 million by PAP for the IPTL shares.

The report was tabled despite the High Court earlier granting the PAP an injunction barring PAC from tabling and parliament from debating the findings in a move unprecedented since the court was established in 1922.

The ruling provoked a debate on the separation of powers but the government sanctioned the proceedings on the strength of powers in the Constitution allowing the House to debate all matters of public interest. 

MPs close ranks

The tabling of the report saw MPs from the ruling CCM and the opposition join hands in calling for the resignation of the premier, ministers and civil servants linked to the scandal.

Some CCM MPs changed positions reached on Wednesday and Thursday at party caucuses with those who had previously supported the call for the PM to resign defending him and vice-versa. 

Opposition MPs said State House officials facilitated the release of the funds. Opposition chief whip Tundu Lissu blamed the security organs for failing to block the transaction after it was revealed that proper procedures had not been followed.

The debate has generally centred on whether the money in the escrow account belonged the government or IPTL shareholders. Prof Muhongo said in his defence in parliament that the $120 million in question was not the government’s.

Independent lawyer and former Brela chief executive Esteriano Mahingila said even if the transaction were legal, only the IPTL, Mechmar and VIP Marketing and Engineering shareholders were entitled to make the transfer.

He said it was illegal for shareholders to withdraw money from the company account and share it before the end of the year when they would review the returns and agree on the dividends.