Tax in the petroleum industry
The petroleum industry in Namibia is subject to various pieces of legislation.
Johan Nel - The fiscal regime that applies to the petroleum industry in Namibia consists of the Petroleum (Taxation) Act 3 of 1991, the Income Tax Act 24 of 1981 dealing with administrative provisions and the Petroleum (Exploration and Production) Act 2 of 1991 responsible for the levying of royalties.
Petroleum tax as levied under the Petroleum Taxation Act, is paid annually for the benefit of the State Revenue Fund in respect of taxable income received by or accrued to or in favour of any person from a licence area in connection with exploration operations or production operations carried out in any tax year in such licence area.
Income tax is levied at 35% of taxable income and an additional profits tax (APT) levied on the after-tax net cash flows from petroleum operations. (The after tax net cash flows is determined by deducting the exploration and development expenditure as well as the petroleum income tax from gross income)
The additional profit tax is payable on a sliding scale of between 15% and 25%.
Income tax is levied in respect of each license area. License areas are taxed separately even if the taxpayer has been granted the right of exploration in different license areas.
Royalties
Royalties are payable at 5% of gross revenues. Royalties are generally payable quarterly, calculated by using the market value of the crude oil. The minister may prohibit the removal of petroleum from the production area and any other dealings in respect of the petroleum if the payer fails to remit payment.
Activities relating to downstream activities are not considered to be petroleum activities and are therefore taxed under the Income Tax Act.
Capital gains tax
In terms of the Namibian Income Tax Act, any “sale, donation, expropriation, cession, grant or other alienation or transfer of ownership of a petroleum licence, or right to mine petroleum in Namibia, and includes a sale, donation, expropriation, cession, grant or any other alienation or transfer of ownership of any share or member’s interest in a company that holds a petroleum licence or petroleum right, whether directly”, is specifically included in the definition of gross income.
Oil exploration in Namibia: Indirect tax incentives
Certain rebates or exemptions apply to the importation or supply of goods from a customs bonded warehouse which are to be used in the exploration or production of petroleum in Namibia.
It is suggested that the rebate and exemption provisions in the Customs and Excise Act, 1998 (Act No. 20 of 1998 – “the Customs and Excise Act”) and the Value-added Tax Act, 2000 (Act No. 10 of 2000 – “the VAT Act”) were legislated to provide certain incentives in the search for oil and gas in Namibia and its territorial waters.
A brief description of the applicable rebate of duties in terms of the Customs and Excise Act and exemption terms of the VAT Act follows below:
Rebate of duties
Goods which are imported for the exploration or production of petroleum by a person who has been certified by the ministry of mines and energy in Namibia as (a) exploring for petroleum , (b) producing petroleum or (c ) is a contractor to the exploration or production entity, may be imported free of customs duties.
Goods cleared from a customs bonded warehouse in Namibia also qualifies in terms of the rebate provisions. An importer who supplies goods for the exploration or production of petroleum or a contractor to the exploration or production license holder for the installation of equipment, installation or device for use solely in the exploration or production of petroleum may enjoy a similar rebate of customs duties.
The rebate, however, is not granted automatically, and certain application procedures at Customs and Excise must be followed prior to importation. This is to ensure that duty free exemptions are correctly applied by clearing agents and the customs office of importation.
Exemption from import VAT
The VAT Act provides for the importation of goods solely to be used in the prospecting or mining for petroleum exempt from value-added tax (VAT).
Since Customs and Excise manages the processing of imports on the Customs AsycudaWorld system, written confirmation of this exemption should be obtained prior to the date of importation to avoid costly delays at the point of importation.
Johan Nel is the corporate tax partner at PwC Namibia. Contact him at [email protected]
Petroleum tax as levied under the Petroleum Taxation Act, is paid annually for the benefit of the State Revenue Fund in respect of taxable income received by or accrued to or in favour of any person from a licence area in connection with exploration operations or production operations carried out in any tax year in such licence area.
Income tax is levied at 35% of taxable income and an additional profits tax (APT) levied on the after-tax net cash flows from petroleum operations. (The after tax net cash flows is determined by deducting the exploration and development expenditure as well as the petroleum income tax from gross income)
The additional profit tax is payable on a sliding scale of between 15% and 25%.
Income tax is levied in respect of each license area. License areas are taxed separately even if the taxpayer has been granted the right of exploration in different license areas.
Royalties
Royalties are payable at 5% of gross revenues. Royalties are generally payable quarterly, calculated by using the market value of the crude oil. The minister may prohibit the removal of petroleum from the production area and any other dealings in respect of the petroleum if the payer fails to remit payment.
Activities relating to downstream activities are not considered to be petroleum activities and are therefore taxed under the Income Tax Act.
Capital gains tax
In terms of the Namibian Income Tax Act, any “sale, donation, expropriation, cession, grant or other alienation or transfer of ownership of a petroleum licence, or right to mine petroleum in Namibia, and includes a sale, donation, expropriation, cession, grant or any other alienation or transfer of ownership of any share or member’s interest in a company that holds a petroleum licence or petroleum right, whether directly”, is specifically included in the definition of gross income.
Oil exploration in Namibia: Indirect tax incentives
Certain rebates or exemptions apply to the importation or supply of goods from a customs bonded warehouse which are to be used in the exploration or production of petroleum in Namibia.
It is suggested that the rebate and exemption provisions in the Customs and Excise Act, 1998 (Act No. 20 of 1998 – “the Customs and Excise Act”) and the Value-added Tax Act, 2000 (Act No. 10 of 2000 – “the VAT Act”) were legislated to provide certain incentives in the search for oil and gas in Namibia and its territorial waters.
A brief description of the applicable rebate of duties in terms of the Customs and Excise Act and exemption terms of the VAT Act follows below:
Rebate of duties
Goods which are imported for the exploration or production of petroleum by a person who has been certified by the ministry of mines and energy in Namibia as (a) exploring for petroleum , (b) producing petroleum or (c ) is a contractor to the exploration or production entity, may be imported free of customs duties.
Goods cleared from a customs bonded warehouse in Namibia also qualifies in terms of the rebate provisions. An importer who supplies goods for the exploration or production of petroleum or a contractor to the exploration or production license holder for the installation of equipment, installation or device for use solely in the exploration or production of petroleum may enjoy a similar rebate of customs duties.
The rebate, however, is not granted automatically, and certain application procedures at Customs and Excise must be followed prior to importation. This is to ensure that duty free exemptions are correctly applied by clearing agents and the customs office of importation.
Exemption from import VAT
The VAT Act provides for the importation of goods solely to be used in the prospecting or mining for petroleum exempt from value-added tax (VAT).
Since Customs and Excise manages the processing of imports on the Customs AsycudaWorld system, written confirmation of this exemption should be obtained prior to the date of importation to avoid costly delays at the point of importation.
Johan Nel is the corporate tax partner at PwC Namibia. Contact him at [email protected]
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