Kampala. The government has granted Value Added Tax exemption for companies involved in the production of oil and minerals. There had been mumbling by all players in the oil and gas sector regarding the 18 per cent VAT charge on capital equipment used in prospecting and production of oil and minerals.
In the VAT Amendment Bill 2015, tabled in Parliament by finance minister Matia Kasaijja, it grants the oil and mining companies this exemption.
Mr Kasaijja notes that the amendment is “to provide for tax treatment of the oil and gas and mining sectors.”
“The tax payable on a taxable supply made by a contractor to a licensee to undertake mining or petroleum operations is deemed to have been paid by the licensee to the contractor provided the supply is for use by the licensee solely and exclusively for mining or petroleum operations, as the case may be,” the proposed amendment reads.
At the recently concluded Presidential Investor Round Table, Mr Kasaijja had told oil industry players that companies involved in exploration would be VAT registered but will be exempted from the actual payment.
This had been a demand from the oil companies for over four years, but the government was hesitant to grant the exemption.
During this meeting, the minister had pointed out how cabinet was yet to discuss the proposal.
Cabinet approved the proposal and now it waits passing by Parliament before July 1, 2015.
Oil companies had been against this tax and among them, was Mr Francois Rafin, the Total general manager for nine months, to January 2015.
“There will be production, and then there will be taxation of the production. There will also be a big share of the production for the government as per the Production Sharing Agreements. However, one has to be patient until production to get taxes. Taxing the investment at this stage, dissuades the investor,” he said before he left Uganda in December 2014.
Additionally, at the investor round table, President Museveni questioned the reasoning for taxing companies yet they were yet to make a discovery.
“Taxing prospectors, to me, I think is total madness. How do you tax someone who has not even started mining? Why not wait?” he said.
Boost local content
Another amendment being proposed by the Ministry of Finance is to the Income Tax Act. Any foreign contractor that wins a service contract from an oil and mining company will be required to pay a 10 per cent service charge.
This amount will be deducted from the total amount of the entire contract. The aim is to encourage local service providers to take on service contracts.
The amendment, doesn’t apply “if the service fee is attributable to a business carried on by the non-resident contractor through a branch in Uganda.”
SOURCE: Daily Monitor