How govt will earn from oil, gas sector

The oil and gas sector has been beaming with a lot of activities from which government hopes to earn some money. PHOTO | FILE

What you need to know:

  • Income. Government has provided a number of taxes under the Income Tax Amendment Bill through which Uganda will earn from the oil and Gas sector as a country.  

Now that the oil development stage has started, it is easier to connect the dots on how the private sector will directly benefit from the resource. 

A number of contracts have been drawn while hundreds or even thousands of others, are still in the pipeline. 

However, beyond individual or company level benefits, the question is; how does Uganda, as a country, earn from the oil and gas sector?

Pamela Natamba is the head of oil and gas division at PricewaterhouseCoopers (PwC). 

In her assessment, as a country, during the development stage, Uganda will mainly earn through taxes, given that there will be no commercial production until 2025. 

Therefore, she notes, such earnings have been provided for in the Income Tax Amendment Bill, which particularly focuses on the oil and gas sector. 

“That Bill has made specific provisions, but one of them which is very interesting is it introduces a Windfall Tax,” she says and notes that this tax will apply to licensees that have signed Petroleum Sharing Agreements, many of which have been involved in exploration up to the point of production. 

These, she says, include large companies such as TotalEnergies, CNOOC and Uganda National Oil Company (UNOC), among others. 

What the Bill puts in place, Natamba says, is that as long as you earn revenue in excess of a certain amount, you will be subjected to a Windfall Tax. 

For instance, she explains, if international oil prices are expected to go for a certain amount you a company sells beyond what has been projected, the expectation is, the company will pay an extra tax over and above 30 percent. 

The Bill further talks of Petroleum Revenues, which will be generated from other taxes such as Value Added Tax and Corporation Tax, among others. 

The other sources of revenue will come through as Uganda joins other countries in the production of oil. 

Now that Uganda is still at development stage, Natamba says, there is no income from crude. 

However, Denis Kakembo, the managing partner at Crystal Advocates, say government will as well earn from loyalties as soon as production starts.  For every barrel that is produced, he says, there is a certain percentage that will go to government as loyalty.

Loyalties are defined as a share on whatever is produced. It could be something like 5 per cent or 10 per cent out of what is produced per day or during a stipulated period. 

Beyond this, he says, government will also earn from Pay As You Earn, which is instituted on salaries of workers.

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