Monday May 12 2014

Govt urged to harmonise tax regime for oil sector


A new report by the UK audit and financial advisory, Deloitte, has urged the government to move fast on the harmonisation of the current tax regime for oil and gas players to reduce the high-rate exposure to risks.

The report titled: “The Guide to Oil and Gas in East Africa” provides an overview on the “potentially risky” business which is expected to yield up “to $50 billion in revenues for the economy,” according to government.

The report author, Bill Page, also the Energy and Resource leader for East Africa, said last week that whereas the industry has been moving slowly but steadily, government had left the issues of taxation unaddressed.

“In my understanding, the companies which operate here pay a lot of taxes yet operate in a hugely risky business which requires big financial inputs,” Mr Page said. “So if you do not insulate them, there is risk many investors might run away.”

Current industry players, namely France’s Total, China’s Cnooc and UK’s Tullow, are taxed in accordance with the provisions of the general tax legislations, namely, Income tax for employees and Value Added Tax (VAT), among others.

“Take the standard 18 per cent VAT for example, any investor willing to inject say $100 million in Uganda is supposed to pay additional 18 per cent for tax,” he said.

“That is good for Uganda in terms of collections but for the investor it doesn’t sound good news, not mentioning that there are other smaller levies. The solution is not to scrap the taxes, but rather strike a balance in order not to leave the investors exposed,” he added.