Strengthening Oil Tax Administration in Angola

 

presented by

AUPEC LtdMay 2006

2

Background and Objectives

• Oil Industry Diagnostic recommended strengthening oil tax administration.

• GOA asked Aupec Ltd to review current oil tax administration within National Tax Directorate (DNI) and recommend improvements.

• Review carried out during 2005. Project to implement recommendations now under way – to be completed in March 2007.

• Work is focussed on the DNI’s Special Tax Regimes Department (DRET) 

3

Contents

Institutional strengthening          Current strengths         Areas needing strengthening         Actions planned

Procedural strengthening         Legal framework         Outline of administrative procedures         Current strengths         Areas needing strengthening         Actions planned

Tax Policy and forecasting         Actions planned

Institutional Strengthening 

5

Current Institutional Strengths       

• Specialist department

• Experienced, dynamic and resourceful head of department

• Good financial resources • First class external professional support for

Department’s key functions: • Audit• Legal

• Good accommodation and equipment levels

6

Further Institutional Strengthening     

• Staff resources

• Training and guidance

• IT infrastructure

• Reporting and auditing of performance 

7

Action: Staffing

Aupec project manager appointed• One year contract• Oil economist with good experience of model building

New senior staff recruited• Angolan nationals• Good professional experience• English/Portuguese• Degree level background• Initial recruitment on a one-year contract basis

Need for new clerical staff being assessed 

8

External tax audit

Original DRET Structure

Limited clericalassistance

Limited clericalassistance

Limited clericalassistance

Budget / Forecasts

Monitoring filing and payments

Tax audits

Dispute Resolution

Policy

All functions are currently undertaken by Martins Soares

Director DNI

Head of DRET

ValuationTaxpayer advice

External legal services

9

Analyst Analyst Analyst Analyst

New DRET StructureDirector DNI

Head DRET

Project Manager + Aupec

Consultants

Operational reporting

Functional reporting

Budget & Forecasts

Tax auditsDispute

resolution

Clerical assistance

Taxpayer advice

Policy

Clerical assistance

External Legal ServicesExternal Tax Audit

Clerical assistance

Monitoring filing and payments

Valuation

Clerical assistance

Clerical assistance

10

Analyst Analyst Analyst Analyst

Possible re-assigned responsibilities

Monitoring filing and payments

Valuation & tax audits

Dispute resolution

Taxpayer advice &

policy

External Legal ServicesExternal Tax Audit

Project Manager + Aupec

Consultants

Director DNI

Head DRET

11

Action: Staff Training and Guidance

Induction training• Currently being delivered in Aberdeen

Oil taxation manual• First draft 95% complete• Three sections: overview; the oil taxes; oil tax administration• Will serve as basis for induction training• Oil industry to be consulted• Version of manual to be published• Portuguese and English language versions?

Desk procedures• Detailed desk procedures outlining the day-to-day steps required to

perform the functions described in the manual. 

12

Action: IT Infrastructure

Improve IT networking facilities

Extend and improve current management information

systems

Integrate with aggregate model 

13

Action: Reporting and Accounting

Devise comprehensive reporting system for theDRET – to include

• oil taxes assessed• oil taxes collected• performance in completing annual work cycle• any other significant issues

Annual report to be published?

Annual report to be independently audited? 

14

Longer Term Institutional Issues

Oil Industry Diagnostic recommended setting up a RevenueManagement Agency, outside normal civil service structure

Potential advantages:• More visible - higher profile• Autonomous, with control over budget and staffing • Potentially more transparent and accountable• Not encumbered with bureaucratic culture and tradition

In the short term, essential to try to achieve thoseadvantages within the current framework

Independent budget for Customs Department may be auseful precedent to follow

 

Procedural Strengthening 

16

Legal Framework

Rules for Calculating Oil Taxes• Complicated by

– dual regime – equity partnerships and PSAs– multiplicity of concession agreements

• But – rules comparatively well-designed and straightforward– recent consolidated Act extremely helpful

Rules for Administering Oil Taxes• Clear rules backed by strong powers• Based on self-assessment principle• Some minor weaknesses• Problem of duplication between tax rules and PSA rules

 

Tax Administration Cycle

ProvisionalTax

Declaration

Oil Valuation

Payment ofTax

FinalDeclaration& Payment

TaxAudit

FixationCommission

RevisionCommission

Before tax year

During tax year

After tax year

AmendedProvisional

Declarations

Every November oil companies must submit a:

Provisional Tax Declaration

Oil taxes due for the following fiscal year, i.e:• PPT• PIT• PTT• Surface Tax• National Concessionary’s Revenue

Provisional Tax Declaration

0

2

4

6

8

10

12

J-05 F-05 M-05 A-05 M-05 J-05 J-05 A-05 S-05 O-05 N-05 D-05

MM

US

$

Amended provisional declarations

0

5

10

15

20

25

30

35

J-05 F-05 M-05

A-05 M-05

J-05 J-05 A-05 S-05 O-05 N-05 D-05

MM

US

$

Every quarter oil companies must review and amend their provisional tax declarations:

Payment of Tax

Payment of oil taxes is made throughout the year

0

5

10

15

20

J-05 F-05 M-05

A-05 M-05

J-05 J-05 A-05 S-05 O-05

N-05 D-05

MM

US

$

2003 Revision Commission Determination2004 Final Tax Payment2004 Surface Tax2005 Training Contribution2005 Main Oil Taxes

Payment of Taxes (MMUS$)

21

Payment of Tax 

Tax generally paid on time but there is a need for

• Closer monitoring of provisional declaration/payment regime

• Improved accounting/reconciliation systems

• Improved enforcement powers

• Resolution of Sonangol issues• Offsets• Retention for supervisory costs

• Interest to be charged on undeclared tax

30

35

40

45

50

55

60

65

70

J-05 F-05 M-05 A-05 M-05 J-05 J-05 A-05 S-05 O-05 N-05 D-05

US

$/B

bl

Oil Price (US$/Bbl)

Oil Valuation Estimation: • Oil Companies• 15 days before the beginning of each quarter

Oil Valuation

Every quarter the Government sets the oil reference price for each concession

Final Oil Valuation: • Oil Companies submit reports with the actual prices obtained • Ministry of Petroleum & DRET determine the final price • Within15 days of the end of each quarter

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Oil Valuation 

Limited DRET involvement to date

Need to learn from colleagues in Ministry of Petroleum

Scope for manipulation of prices to be examined

0

5

10

15

20

25

J-05 F-05 M-05

A-05 M-05

J-05 J-05 A-05 S-05 O-05 N-05 D-05

MM

US

$

In March after the end of the fiscal year oil companies must submit the final tax declaration

and pay any further tax due:

Final Tax Declaration

Final Tax Declaration

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Final Tax Declaration 

New standardised form

Comprehensive information requirements

Based on extensive consultation with oil industry

To be submitted in electronic as well as paper form

Tax Audits

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

Equity Partnership Concessions

Oil-Producing

PSAs

Non-Producing

PSAs

Final Tax Declaration

2006 2007

Tax declarations are audited by Deloittes on the DRET’s behalf

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Tax Audits 

Strong audit powers

Professional approach

Spectacular results

But need to

improve company understanding of tax rules

reduce audit burdens and improve procedures

tighten up interest/penalty regime

Fixation Commission

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr

Based on the audit results, the DRET determines the oil taxes due. This must be done within18 months of the fiscal year end. Further tax determined is payable within 15 days.

Equity Partnership

Concessions

Oil-Producing PSAs

Non-Producing PSAs

2006 2007

Revision Commission

Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May

Oil companies have the right to appeal against the Fixation Commission determination.Collection of the tax appealed against is postponed.

Equity Partnership

Concessions

Oil-Producing PSAs

Non-Producing PSAs

2006 2007

Revision Commission

J F M A M J J A S O N D J F M A M J J A M O N D J F M A M J J A S O N D

Determinations by the Revision Commission must be made within 2 years of the end of the fiscal year. Further tax determined by the Revision Commission is payable within 15 days.

Equity Partnership

Concessions

Oil-Producing PSAs

Non-Producing PSAs

Deadline

2005 2006 2007

Deadline

Deadline

31

Revision Commission 

Clear backlog

Reduce issues considered by Commission

Problem with perceived lack of

independence/neutrality?

32

Advice to Taxpayers

Consolidated Oil Taxation Act

Oil tax manual

Improved feedback and dialogue on audit adjustments

33

Tax Policy & Forecasting

More resource for policy work

Update and improve aggregate model

Use for

- longer term forecasting

- improved planning for different scenarios

- evaluation of new/re-negotiated agreements

- monitoring working of current regime