Uganda roots for laws to avert oil curse
Feb 03, 2011
UGANDA wants to have strong financial laws before it starts oil production to avert instability and the resource curse.
By Ibrahim Kasita
UGANDA wants to have strong financial laws before it starts oil production to avert instability and the resource curse.
“Our focus is to put in place strong laws and institutions to manage the oil resources and revenues,†Fred Kabagambe-Kaliisa, the energy ministry permanent secretary, said.
The resource curse, meaning less economic growth and more impoverished local communities despite plenty of minerals and oil, is common in most mineral-rich African states despite the influx of oil drillers and investments.
Kaliisa argued that one cannot talk about future benefits of the oil industry without good laws.
“They are long-term benefits. Therefore, we need to build a strong foundation for the industry, with good financial laws first, before thinking of the future benefits, which are obvious,†he explained.
The permanent secretary was responding to Dr. Duncan Clarke, an expert in Africa’s oil and gas sector, at the ongoing 5th East African Petroleum Conference and Exhibition at the Serena Kampala Hotel.
Clarke was concerned about Uganda’s approach that focuses on fiscal policy rather than waiting for future benefits accruing from oil exploitation like jobs, revenues and infrastructure development.
Kaliisa, however, disagreed. “Without strong laws to manage the industry, we can cause instability.
“That is why we passed the income tax laws, which contain taxing provisions relating to the oil and petroleum sector,†he said.
He said royalties, cost recovery and profits should be included in the laws before production starts.
Kaliisa’s remarks come at a time when Ugandans are ‘dreaming’ of ‘petro-dollars’, following the discovery of oil and gas in commercial quantities in the Bunyoro region.
The country has confirmed oil reserves estimated at about 2.5 billion barrels, which are expected to reach five billion barrels. This will generate about $2b every year.
Last year, Parlimament passed the Amended Income Tax Act, which provides tough punitive actions for any oil operator failing to pay tax and presenting false financial information to evade taxes on the income earned.
The laws are realigned with the production sharing agreements.
According to the new laws, a contractor, who fails to file returns in time or gives false information, is liable to a fine of between $50,000 and $500,000 (about sh1.1b).
Foreign firms incorporated in Uganda will be charged a 30% tax on profits and allowed to claim costs as tax deductible expenses in arriving at taxable income.
This new ‘Ugandan’ firm will be required to prepare financial statements and file accounts and tax returns with the Uganda Revenue Authority.
It will also be subjected to withholding tax on distribution of profits (paying dividends) to its parent company.
It will pay withholding tax of 6% on payments from contractors and the tax is recoverable.
However, for a foreign firm that refuses to register in Uganda, a 15% tax on gross income (no deduction for expenses) will be charged.
It is not allowed to claim costs as tax deductible expenses as the 15% is paid on gross income.
No branch repatriation profits will apply since the 15% withholding tax on gross income will be a final tax and it will subjected to withholding tax of 15% on payments from contractors.
However, the new tax law mandates all firms and their sub-contractors to withhold tax on payments in respect of a service rendered under a Ugandan contract.
This will help in developing local skills, technology transfer, and use of local manpower and establishment of local small businesses.
Cabinet has also approved the Petroleum Resource Management and Petroleum Revenue management bills awaiting Parliament to pass them into laws.
UGANDA wants to have strong financial laws before it starts oil production to avert instability and the resource curse.
“Our focus is to put in place strong laws and institutions to manage the oil resources and revenues,†Fred Kabagambe-Kaliisa, the energy ministry permanent secretary, said.
The resource curse, meaning less economic growth and more impoverished local communities despite plenty of minerals and oil, is common in most mineral-rich African states despite the influx of oil drillers and investments.
Kaliisa argued that one cannot talk about future benefits of the oil industry without good laws.
“They are long-term benefits. Therefore, we need to build a strong foundation for the industry, with good financial laws first, before thinking of the future benefits, which are obvious,†he explained.
The permanent secretary was responding to Dr. Duncan Clarke, an expert in Africa’s oil and gas sector, at the ongoing 5th East African Petroleum Conference and Exhibition at the Serena Kampala Hotel.
Clarke was concerned about Uganda’s approach that focuses on fiscal policy rather than waiting for future benefits accruing from oil exploitation like jobs, revenues and infrastructure development.
Kaliisa, however, disagreed. “Without strong laws to manage the industry, we can cause instability.
“That is why we passed the income tax laws, which contain taxing provisions relating to the oil and petroleum sector,†he said.
He said royalties, cost recovery and profits should be included in the laws before production starts.
Kaliisa’s remarks come at a time when Ugandans are ‘dreaming’ of ‘petro-dollars’, following the discovery of oil and gas in commercial quantities in the Bunyoro region.
The country has confirmed oil reserves estimated at about 2.5 billion barrels, which are expected to reach five billion barrels. This will generate about $2b every year.
Last year, Parlimament passed the Amended Income Tax Act, which provides tough punitive actions for any oil operator failing to pay tax and presenting false financial information to evade taxes on the income earned.
The laws are realigned with the production sharing agreements.
According to the new laws, a contractor, who fails to file returns in time or gives false information, is liable to a fine of between $50,000 and $500,000 (about sh1.1b).
Foreign firms incorporated in Uganda will be charged a 30% tax on profits and allowed to claim costs as tax deductible expenses in arriving at taxable income.
This new ‘Ugandan’ firm will be required to prepare financial statements and file accounts and tax returns with the Uganda Revenue Authority.
It will also be subjected to withholding tax on distribution of profits (paying dividends) to its parent company.
It will pay withholding tax of 6% on payments from contractors and the tax is recoverable.
However, for a foreign firm that refuses to register in Uganda, a 15% tax on gross income (no deduction for expenses) will be charged.
It is not allowed to claim costs as tax deductible expenses as the 15% is paid on gross income.
No branch repatriation profits will apply since the 15% withholding tax on gross income will be a final tax and it will subjected to withholding tax of 15% on payments from contractors.
However, the new tax law mandates all firms and their sub-contractors to withhold tax on payments in respect of a service rendered under a Ugandan contract.
This will help in developing local skills, technology transfer, and use of local manpower and establishment of local small businesses.
Cabinet has also approved the Petroleum Resource Management and Petroleum Revenue management bills awaiting Parliament to pass them into laws.