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Uganda Govt earns Shs180b from oil taxes despite exemptions

In Brief:

Tax revenue, experts say, is expected to increase with a surge in oil activities as Uganda prepares for first oil by around 2025

Tax from oil-related activities earned government Shs181b in the last six months despite various exemptions to different service providers.

Uganda Revenue Authority (URA) Commissioner for Domestic Taxes Sarah Chelangat, in an update of the half year revenue performance, noted that revenues collected from oil-related activities were largely composed of heads such as Pay As You Earn (PAYE), and Withholding Tax from tier one and two companies, signaling that more contributions are expected from the sector as activities increase.

However, some tax experts have questioned the figure in comparison to the $4b (Shs15 trillion) investment injected into the sector since the signing of the Final Investment Decision, about a year ago. 

A Tax expert, who preferred to speak on condition of anonymity, said the Shs180b was “little” compared to the several oil contracts signed under three different company tiers offering goods and services in the sector, and the more than 6,000 oil and gas employees. 

In April last year, URA Commissioner General John Rujoki, estimated that oil activities could raise Shs2.5 trillion before flow of first oil with an additional Shs4.4 trillion  coming in when oil begins to flow. 

Between 2017 and 2021, data from Petroleum Authority of Uganda shows that a total of Shs577m was paid by five oil companies licensed in the country in the form of Income Tax, PAYE, Stamp Duty, Value Added Tax and Withholding Tax.

Ms Juliet Najjinda, a senior manager, tax services at PwC, attributed the low revenue collection to exemptions. 

“The investment in oil and gas is majorly going into capital expenditure. At start up level, a company would be at loss and have no tax to pay from a corporate income perspective. PAYE is valid since the companies are already paying employees,” she said. 

Government provides a number of exemptions in the oil sector, among which include Import Duty on equipment and inputs for direct and exclusive use in oil and gas or geothermal exploration and development, except motor vehicles. 

URA also gives Deemed Value Added Tax provisions in order to incentivise the oil sector. VAT charged by the contractor to the licensee is deemed paid and therefore the contractor is not required to pay it, according to the VAT Act. 

Others exemptions include Excise Duty on supplies to the East African Crude Oil Pipeline, exemption of customs and import duties on machinery, other inputs and temporary importation of motor vehicles for the direct use of the EACOP project. 

Revenues from petroleum projects 

One of URA’s mandate in the oil sector, according to the National Oil and Gas Policy of 2008, is to advise the Ministry of Finance on policy and collecting all petroleum revenues envisaged under the Income Tax Act, government share of petroleum and proceeds from government share of petroleum, sale of state participation royalties, signature bonuses and surface rentals.  

Data from the Petroleum Authority of Uganda indicates that government is entitled to a net take of 75 percent from upstream projects, which translates to $66b ($2.6b annualy) with the 25 percent paying investor returns.

From EACOP, through dividends and applicable taxes, government is expected to earn $400m and $3.3b from the refinery. 

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