Uganda Plans Law Changes to Tax Oil Revenue

KAMPALA (Dow Jones Newswires), Aug. 18, 2010

The Ugandan government is planning to amend its Income Tax law to enable it to tax profits from oil production slated to start in the next couple of years, government officials said Wednesday.

Uganda's minister of state for finance, Fred Omach, tabled the 2010 Income Tax Amendment Bill in parliament Tuesday, and the new bill requires oil exploration and production companies to provide the Uganda Revenue Authority with details of their returns to enable the tax body to audit them in order to recover taxes due.

The bill also proposes that a company intending to transfer its interest in a petroleum agreement must pay the taxes in full before the interest is taken over.

According to officials with the Ugandan parliament, the speaker has now referred the bill to the parliamentary finance committee for further scrutiny before it can be sent for approval.

The new tax proposals come at a time when the Ugandan government is embroiled in a capital gains tax dispute with London-listed Heritage Oil over the sale of interests in two exploration blocks in the Lake Albert Basin to Tullow Oil.

Heritage said in June it had been advised that the sale of its half stakes in the two blocks doesn't attract capital gains tax. However, the Ugandan government says Heritage must pay a 30% capital gains tax on the deal, worth as much as $1.5 billion.

According to Omach, the bill is expected to be passed before the end of the third quarter, ahead of Tullow's oil production trial in Block 2.

Tullow estimates proven and probable reserves in the Lake Albert basin at 950 million barrels of oil equivalent. Heritage has previously said that 2 billion barrels of oil equivalent could eventually be discovered in the area. Uganda is expected to reach commercial oil production output levels in the next couple of years.

The bill also proposes guidelines on the filing of tax returns by oil companies and provides for penalties for companies that file returns late or file false or inaccurate documents.

A company that fails to file returns in time is liable to a fine not less than $50,000 but not exceeding $500,000, the bill states.

Jimmy Kiberu, spokesman for Tullow Oil Uganda, told Dow Jones Newswires separately that the new bill hadn't caught the company by surprise because it has been working closely with the government in the formulation of new legislation ahead of the commencement of oil production in the country.

"Recently officials from Uganda Revenue Authority visited our operations in Ghana, they have also been keeping abreast of how Ghana is formulating new oil legislations," he said.

Finance Minister Syda Bumba has said the new law won't be applied retrospectively and that the government is trying to ensure that it puts in place a progressive taxation taxation regime ahead of oil production.

"It is necessary that we reform our tax laws as we move into the oil production phase," she said. Taxation levels vary with oil production sharing agreements but companies will be required to file tax returns on a quarterly basis.

According to company officials, Uganda's daily oil output could reach 350,000 barrels by 2018 if the right production plan is adopted. Currently Uganda is expected to produce at least 200,000 barrels of oil a day by 2015.

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