During a seminar in London recently, experts pointed to the tax cases Uganda has had with Heritage Oil and Tullow Oil, where they commended the government for winning the cases, but feared they could later lose cases if the laws are not clear enough.
“Tullow Oil’s capital gains tax case was an open one and the Uganda Revenue Authority did a very good job and won it. However, it is quite possible that Uganda might lose the Tullow case later if Uganda doesn’t change its tax legislation,” experts who were willing to talk but sought for anonymity said recently during a course on tax and development organized in partnership with the Institute of Development Studies (IDS), University of Sussex, London, African Tax Administration Forum (ATAF) and International Centre for Tax and Development (ICTD) said.
Tullow disputed the tax assessment on the $ 2.9 billion farm-down of its assets to Total and Cnooc, while Heritage did the same when it sold its assets to Tullow.
At the moment, the three major oil companies in Uganda – Tullow, Total and Cnooc – are holding closed-door negotiations with government over a spate of taxes that could define their investment in the infrastructure needed before the country gets to first oil.
Without going into the details of the alleged ambiguity of Uganda’s tax legislation, the experts said: “It’s a right to charge capital gains tax on companies operating in Uganda. However, Tullow Oil can take advantage of the ambiguity, play around it and on appeal rip Uganda off billions of dollars in taxes”.
A Ugandan tax appeals court ordered Tullow Oil to pay a $ 407 million in tax for the sale of two thirds of its Uganda assets to Total and Cnooc. Tullow Oil, which had already paid $ 142 million or 30 per cent of the bill as is legally required before the case goes for appeal, contested the decision and said it might seek international arbitration.
In his presentation on extractive industry taxation during the course, Dr Tomas Balco, an international tax expert, cautioned countries who had just discovered oil like Uganda to ensure that the tax treaties they subscribe to were binding. Citing the OECD model treaty as opposed to the UN model, Balco said developing countries were most times disadvantaged by the treaties they signed with developed countries.
“Uganda should look at its tax treaties and see how they were concluded to avoid any loss of taxing rights,” Balco said.
Dr Mick More, the chief executive officer of the International Centre for Tax and Development (ICTD), said Uganda’s oil revenues should not be kept by central government as recurrent revenue; rather, it should be distributed to different places including sovereign wealth fund, which is used for investment and not for consumption.
Moore said some revenues should be kept in the national treasury for development while some should be distributed directly to citizens each year or month.
Dr Nara Monkam, the director research ATAF, said the inaugural course aimed at understanding the main challenges of tax mobilisation in developing countries, particularly in Africa, and the links between tax, governance, accountability, state building and development.
