A Critical Examination of the Ita in Optimization of Income Tax Revenues in Uganda’s Oil and Gas Industry

Abstract

The discovery of oil and gas in commercial quantities in Uganda is a source of great joy for the peoples of Uganda. The Government as well as the people are expectant that the oil and gas revenues will speed up socio-economic developments and drive out poverty from Uganda. The key expectation is that the oil and gas revenues will contribute the much-needed funding to improve Uganda’s physical infrastructures and improve the people’s livelihood. Whereas this expectation may be true, great care should be taken to ensure that the revenues from the oil and gas industry in Uganda is safeguarded and secured through effective management of costs of petroleum exploitation. The cost of petroleum exploitation is a significant factor in ensuring that the oil and gas resources fetch a better economic rent compared to the tourism industry as well as other agricultural activities that are currently being carried out in the Albertine Graben. The effective management of petroleum exploitation cost by the Host Government should ensure a balance between maximization of returns on investments by the International Oil Company and maximization of the Host Government revenues. This balance is a delicate but achievable by the Host Government through the design and application of effective fiscal instruments and fiscal regimes. The effective management of costs in the oil and gas industry in Uganda will ensure optimization of the income tax from the oil and gas revenues by increasing the size of the profit oil as well as the share of the Host Government take. If the costs are managed poorly the revenues will be wiped away by the cost recovery provision under the Production Sharing Agreements as well as the ITA. The ITA is therefore the litmus test to reveal whether the much-desired oil and gas revenues will be optimized or not. The second most important determinant for optimization of the oil and gas revenues in Uganda is the institutional and legal frame work regulating petroleum activities. Where the institutions and the laws are weak, revenues from the oil and gas industry will not be optimized and the possibility of attracting an oil curse will become a high likelihood.