Uganda: Oil, gas, minerals private sector fret at govt go-slow on VAT

Posted on : Wednesday , 4th February 2015

 Through the Uganda Chamber of Mines and Petroleum (UCMP), the private sector have consistently complained of value added tax (VAT) and withholding tax imposed during the investment phase of the oil, gas and minerals labeling it an additional cost.

During a member’s meeting over the weekend, Elly Karuhanga, president of UCMP said after this tax is removed, investors will have no excuse not to come.
“(the abolition of this tax) is going to be the key to opening the flood gates of investments in Uganda and somebody is sitting on it, it is a serious roadblock,” said Karuhanga.
Currently, VAT is imposed on imported goods and services used in the sector.
The president said the tax should be removed during the last Mineral Wealth Conference.
But the finance ministry which is in charge of tax policies argues that the tax can be refunded after exploration when the company begins to make taxable supplies. But sector players argue that spending the money in VAT and withholding tax and waiting to be refunded is sinking non-existent capital where it is not needed at a time when global finance cash is very scarce.
“It is a deterrent in the long run, at the presidential level it was abolished, at implementation level, it is still a problem, we have prepared a paper which we are going to present to the cabinet,” says Karuhanga.
During the meeting at the Kampala Sheraton hotel, Jennifer Hinton of Beta minerals noted that 95% of mineral companies have closed in the last two years.
“So Uganda is competing for the 5% remaining, oil prices are down, there are dramatic changes,” noted Hinton.
Aeronautical surveys done in mid 2000s indicate that the entire country is dotted with mineral deposits.
The commercial viability of some of the minerals like iron ore, aluminous clay, gold have been established. But the greater chunk of the country is yet to be explored and viability needs to be established which calls for investment capital.
Private sector say the above two taxes are the single biggest deterents to attracting this capital.
Denis Kusaasira, a mineral law expert asserts that the elimination of this frontloaded taxes may improve Uganda’s attractiveness as a mining investment destination.
“The chances that an exploration project will turn into a mine are less than 1%, it would be more prudent to exempt exploration companies from payment of VAT until when they have discovered mineable deposits,” notes Kusaasira.
He adds that a reduction of the rate of withholding tax on imported services from 15% to 6% is likely to make a difference as it will reduce the exploration costs.
Ann Babinaga, special presidential aide in the investment unit said the VAT and withholding tax matter is high on their agenda and more engagement is needed.





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