On 11 June 2020, Tanzania’s Minister for Finance and Economic Planning tabled the 2020/2021 budget before Parliament. Of relevance to clients with transactions that may be subject to Tanzania’s merger control laws, which are issued and overseen by the Fair Competition Commission (the Commission), is the Minister’s proposal to modify the parameters for calculating penalties that apply for failure to comply with the competition laws.
In its current form, Section 60 of the Fair Competition Act, 2003 (the FCA) provides that upon conviction for involvement in certain offences, the Commission may impose a fine of not less than 5 percent and not more than 10 percent of the party’s annual turnover. Failure to notify a ‘merger’ is among the offences captured by section 60.
Currently, when determining ‘annual turnover,’ in addition to taking into consideration a person’s gross revenue in Tanzania, the Commission factors in gross revenue derived by that person outside Tanzania (i.e., global turnover). This interpretation has resulted, over the years, in companies receiving hefty penalties when an offence has been committed under section 60 of the FCA, despite having small operations in Tanzania. For example, a few years ago, a USD 2.2 million fine was imposed on a listed cement company for failure to notify a merger.
The Minister has proposed to amend Section 60 of the FCA so that gross revenue derived in Tanzania, rather than globally, is considered when assessing a penalty under that Section. The objective cited by the Minister was to reduce the severity of the penalties payable by multinationals.
While the amendment is in ‘proposed’ form, if accepted by Parliament and assented to by the President, it will be one step towards a much-needed reform of Tanzania’s competition laws, particularly from a merger control perspective.
The issue of large fines coupled with a low financial threshold, limited grounds for exemption, a lengthy-timeline for review and most notably, a broad interpretation of ‘change of control’, have collectively resulted in a far-reaching merger control regime reducing the ease of doing business in Tanzania. It remains critical that parties carefully assess their obligations prior to engaging in transactions involving the acquisition of shares, a business or other assets, whether inside or outside Tanzania, resulting in the ‘change of control’ of a business, part of a business or an asset of a business in Tanzania.
Partner, A&K Tanzania
Partner, ALN Kenya | Anjarwalla & Khanna
The content of this alert is intended to be of general use only and should not be relied upon without seeking specific legal advice on any matter.