In its current state, the Bill that is being scrutinised by the Finance Committee, is aimed at amending the Income Tax Cap. 340 to provide for windfall tax to be paid annually and cap the allowable deductions per year to the cost recoverable limit as stipulated in the Productions Sharing Agreements (PSAs) in petroleum operations.
According to CSBAG, levying windfall tax on an annual basis will cause Government to lose revenue due to oil price volatility.
A windfall tax is a tax levied by Government against industries that have benefited the most from the prevailing economic conditions causing those industries to experience above average profits.
While appearing before the Finance Committee on Tuesday, 23 November2021, the CSBAG team led by their Executive Director, Julius Mukunga said that whereas they welcome the amendment, which shall allow Government to benefit from the volatility of oil prices as this might encourage entities in the industries to lower their prices to the benefit of consumers, the tax should be levied on a monthly basis, not annually as proposed in the original bill.
“In order to avoid loss of revenue by the Government and the associated negative effects of oil volatility, a payment of Windfall Tax should be made on a monthly basis like it is done in Algeria, China and Venezuela,” Mukunga said.
Government is proposing a windfall tax of 15 per cent on licensees’ net income generated from petroleum operations in the event that the international oil price equals US$75 per barrel or more on any day of a year of income. The Bill is to cater for the volatility in oil prices and is intended to capture the additional revenues arising in the event that the international oil prices rise.
However, using countries like Algeria, Israel and Pakistan which charge windfall tax on oil prices reaching between US$ 30 and US$60, CSBAG thinks that the US$75 minimum threshold for Uganda is high. CSBAG proposes that the windfall tax should be charged upon oil prices reaching US$70 per barrel.
CSBAG further supposes that the tax should be increased from 15 per cent to 20 per cent.
The Bill also intends to cap recoverable costs which a licensee can recover from petroleum operations from a given financial year.
“We welcome these amendments, however, we are concerned that the provision is silent and does not define or determine what constitutes a recoverable cost. We therefore, recommend that Parliament should add a schedule in the Bill containing what constitutes a recoverable cost,” Mukunga said.
Hon. Ochai Maximus (West Budama County North), who was chairing the Finance Committee scheduled the discussion on the proposals from CSBAG to Thursday, 25 November 2021.
CSBAG is a coalition formed in 2004 to bring together Civil Society Organizations (CSOs) at national and district levels to influence Government decisions on resource mobilization and utilization for equitable and sustainable development.