Consultant: Oil, gas tax reforms still awaited

ax experts say the budget estimates presented by the Minister for Finance Dr William Mgimwa yesterday in Dodoma must incorporate significant tax reform proposals affecting key areas of the economy.

Alais Mwasha a registered tax consultant based in Dar es Salaam said for most of people, the expectation is that the minister’s tax reforms proposals will include those affecting the oil and gas sector.

He said considering that Tanzania is still exploring for oil and gas, the minister’s proposals are not expected to be limited to measures affecting the operators only but will extend to key players such as oil and gas service companies.

Some of the awaited reforms include but are not limited to extension of Value Added Tax (VAT) relief on goods and services solely to be used in exploration and production of oil and gas to contractors and Sub contractors.

Currently, the relief is limited to operators who possess licenses on specific blocks as per the terms of the Production Sharing Agreement (PSA) signed with Tanzania Petroleum Development Corporation (TPDC) on behalf of the Government of Tanzania.

He said the extension of the relief to service companies provided by the third Schedule to the VAT Act CAP 148 will not only allow flexibility of movement of specialized equipment between licensed operators but will also allow small endogenous players to access the specialized high end technology provided by multinational oil and gas service companies with less cost.

“It is not expected that such reforms will have any revenue impact on the government since the importation by or supply to oil and gas exploration companies, for oil and gas exploration project in Tanzania, are currently relieved from VAT and whatever VAT is paid by the service contractors and sub contractors qualify for refund”, he said.

Service companies are also keen to see more simplified tax regimes to be proposed in 2013/4 tax reforms for ease of operations across the East Africa region.
Introduction of such regimes for service companies will allow smooth operation within the region.

The law imposes assumed profit tax of gross payment to service companies like contractors/subcontracts in which such entities will only pay tax of 30percent or 37.5 percent for subsidiary and branch on 15 percent of gross income received, apart from disbursements such as mobilization and demobilization expenses.

Dr Mgimwa was also expected to propose extension of Duty exemption provided by the legal Notice No. EAC/9/2009 of 2 July 2009 to also cover service companies as most of machinery or inputs used during the exploration phrase are mainly owned by such companies.

The Minister has already listed some of his key budget focus for 2013/4 and long term development plans for the next five years.

One of such focus includes enhancing the concentration in the oil and gas sector. With this motive, it is then inevitable to consider proposal of tax reforms such as the above for smoothening the operation of service companies who are key players during exploration phase.

SOURCE: THE GUARDIAN