Ministry of Finance should clarify on Oil Taxes to Ugandans


People:

The issue of Heritage  and oil taxes needs to be clarified.   I bet you some MPs are speaking out because it is the popular thing to do  so. But is it the right thing?  The current MPs including Minister Onek-since when did line ministers have the power to levy taxes.The government cannot  undo what was done when the oil agreements/contracts were signed.   If Ugandans slept on their rights then and  government representatives appended their signature on the document, Iam sorry, there is nothing the MPs or Minister Onek can do. They are too late and totally out of luck.   A deal is a deal, period.

The MPs , Minister Onek and you UAH folks should blame Uganda’s legal representatives, but especially the then Solicitor-General-I suppose it was Mr Peter Kabatsi whose wife is now legal adviser to the president-and the office of Attorney general. Who advised the Ugandan government in its dealings with oil companies? Did Uganda seek outside/private legal help from the big hitters abroad ? If it did, who were they? And if it did not whose fault was it? What are the consequences of violating the contracts? I bet you, those oil companies must have included heavy penalty clauses in there in case Uganda nationalized their oil/violated contract terms.

MPs should be given the proper legal opinion which is: A deal is deal.  Ugandans can then hopefully  learn from the folly of doing things the way they did.   If MPs and Minister Onek are so sure; let them release the oil contracts so we can read and see who is playing to the gallery. That is the price to pay when you have mediocre third rate lawyers right ouf of law school-and having failed bar exams over and over-masquerading as first rate legal brains and serving as legal advisers.  Ugandan are about to find out the painful way that things cheap are actually very costly.

Anyways let the Hon Minister of Finance, Haati  Syda Namirembe Bbumba  pronounce  her self on this matter.   But before you come out swinging reflect on whether the current MPs  and well meaning minister Onek can undo what was done and get away with it.

It should also be noted that  Uganda Revenue Authority(URA) does not make tax policy. It is an agent of the state.  The ministry that should come out and clarify for all Ugandans is the ministry of finance.  The Hon Minister should be asked by MPs and she should be able to make a ministerial statement.   The issues needs to be clarified by the Minister of finance and not Energy Minister Mr Onek.

Some people say that URA has assessed the tax. Let them clarify under what rates. The rates are set by the Ministry of finance. Exmeptions are also set by the ministry of finance.  Once the Ministry exempts certain sectors, there is nothing the rest can do. The minister cannot reverse her or his decision ex-post (after the fact).

The Solicitor-General’s decision is what will cunt in this saga. Who was the SG when the oil contracts were being signed? What legal opinion did he give to the government of Uganda? What about the  Antorney General(AG)? What did they advise the government to do.   Whatever they did cannot be undone period.  If they appended their signatures to the oil contracts recommending, for example ,arbitration in case of of misunderstanding that is what must be done. There is no way out.

The lawyers who advised the oil companies must be international lawyers perhaps based there in the UK.  Did Ugandan get external legal help or did it rely entirely on the office of the SG and AG? How is their record on important national legal opinions/ Blame should be placed at the former SG and AG. They blinked and Uganda has to pay the heavy price.

What Iam trying to do is to caution Uganda that before they fight the oil compnaies, they should read the fine print of the oil contracts.They should also answer the questions: Is the money being fought about income from investment? If the answer is yes, then they can talk about capital gains assuming there are no exemptions.  I also doubt whether the entire portion is subject to capital gains.  If it is subject to capital gains, what portion is subject to such taxation? Is it 100, 50, 25 or 10 percent?  But if the income is deemed cash from operations, then it has to be subject to corporate tax and not capital gains.  These are questions that must be tackled.  There is no need to waste money litigating the obvious. A deal is a deal period. That is the message I want Ms Kesaasi Phionah to covey forward. If the government is not sure, it should swallow hard and let the oil company enjoy its kill. Yes, it hurts but that is what the SG and AG signed onto. Mujjega afa alaba.

And that is why the oil contracts are not being disclosed. The MPs have not seen the fine print of oil contrcats up to now.  The truth of the matter is that no one, not Minister Onek, not URA, not MPs , not Minister Bumba and not even public outrage can undo the oil contracts without paying a heavy fine. Uganda has to live with what the SG and Ag signed on.   I feel sorry for our motherland but it is Uganda’s fault.  There is mediocrity everywhere.

WBK

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Comments

5 Comments so far. Leave a comment below.
  1. Phionah Kesaasi,

    WBK,
    Heritage should pay the oil taxes but there are much more urgent issues that we need to sort out as a country for example there are many loopholes in our laws that we should be working to sort out.For example Income Tax Act is silent on many complex Petroleum taxation matters. Therefore MPs should focus more on sorting out these loopholes and leave the tax issues to URA and Ministry of Finance. Otherwise if all arms of government are drawn into debating tax matters, we shall miss the broad picture of preparing for the complex oil industry. The Heritage saga is a blessing to this country because it has happened now in the early stages so that we can sort out the leakages in our laws.
    Phionah Kesaasi

  2. WB Kyijomanyi,

    Ugandans are paying for the mediocrity among its top legal talent but especially the SG-must have been Mr. Kabatsi, whose wife is now legal adviser to YKM-and the AG.

    Let me put things into context for those furious Ugandans. In the USA, ordinary income is taxed at 35% (we are talking here about marginal tax rate beyond a certain income threshold), while capital gains on investments held for more than one year are taxed at only 15% , a low rate designed to attract investment in capital markets.

    And capital gains do not apply to the entire income, but to about 50% (used to be only 30%). That is if one made 1 billion dollars, capital gains would only be levied on 500 million. That is why URA/Ministry of Finance should clarify the issue about Heritage. How did they come up with the income figure?

    Now listen to this to understand the power of certain actors. In the USA, managers of private equity funds (the gamblers) and other investment partnerships enjoy an exception. The performance fee they charge investors is treated as capital gain and taxed at the lower rate of 15% instead of 35%.

    When the Democrats tried to reverse that under the recently passed Financial reform bill, (read Wall Street financial reform), Wall Street poured millions into their lobbying efforts and the issues was killed. It means that equity managers fees will continue to be treated as capital gain and thus subject to 15% and not 35% since they certainly make over 200, 000-250, 000 dollars a year (individuals who make 200, 000 and families that make 250,000 are subject to the high income bracket of 35%. It used to be 39.6% under Clinton. And those who make this kind of income make up about 2-3% percent of all American taxpayers.

    I tell this story so Ugandans can begin to understand the battle they face if they try to undo what the SG and AG signed on. Folks, there is a reason why those oil contracts have never, and will never be disclosed to the Ugandan public and even MPs.

    I really mean it when I say blame lies with the former SG, AG and any outside legal counsel. I hear ‘pregnant’ files with huge financial impacts are now routinely given to one or two firms belonging to young and inexperienced lawyers, not because they are the best in town, but because of their connection. I will not name names and invite UAH members to use their imagination.

  3. feel,

    Kyijomanyi

    I would advise Heritage and Tulloow to pay their dues without further challenges, they would not have done that is American or UK. So let them pay their dues to Ugandans, 400million is not evn alot of money for such oil companies who make billions in profits.

    When you talk about this capital gains rules, are you assuming that uganda is using the same rate oftax as America or what? because they could have a diferent rate according to their economic requirements.

    The when you say 15% you mean 15% of what, of how much? and what is the limit for the gains on that? am sure the Uganda Revenue Authorities knows its work and have no reason to cheat any companies.

    Just pay them their money and carry on with business as normal, stop being stingy companies.

  4. WB Kyijomanyi,

    EJ:

    400 millions dollars in taxes is a lot of money anywhere. 400 million off 1.5 billion dollars is about 27%. Is 27% the rate which applies to capital gains in Uganda? If so, let the relevant Minister in this case Hajati Sydda Namirembe Bbumba come out and say so. Why is there no communication from the ministry of Finance which is what matters?

    When I talk about capital gains rules, I am trying to put things into context so we can have an informed debate. I am not saying that Uganda should use American rates. But if the rate in the USA is 15% then most likely it is much lower in Uganda. So what is the rate? It sure cannot be 27%. Also it cannot be the case that UAS would levy capitals gains on only 50% and Uganda does on the entire portion. If anything the portion in Uganda should be much lower. That is why I have serious doubts about this 400 million dollars.

    15% is the marginal tax rate on capital gains beyond a certain threshold. That is why it cannot be 27% in Uganda. If that were to be the case, it would defeat the purpose of capital gains which is to reward people for saving and investing.

    Uganda is desperate than the USA to attract investment therefore it must have much lower tax rate, given the risk profile of our motherland. Risk determines return. The higher the risk, the higher the return. That is why – risk neutral-big companies come to risky countries such as Uganda: make a kill because other firms are not willing to invest in such a risky environment.

    Many in UAH have said that Uganda is a failed state. If that is so, swallow hard and let Heritage take its kill for daring to invest in a ‘failed’ state. Things could have gone the other way. It was lucky and if Uganda’s legal brains signed on to the contracts calling for arbitration in the UK in the event of disagreements, who is to blame? The SG/AG could have told the Ugandan govt, no do not sign, they chose not to do so and the deal became a deal.

    The lesson here and on the basis of what I was told by my Makerere guests, “gakyali mabaga”. The caliber of lawyers being minted out-sorry you lawyers-will cost Uganda big time down the road. Omujjega affa alaba.

    WBK

  5. Ej(feel),

    Kesaasi

    You you absolutely correct, laws should be set ready to regulate all aspects of the oil and other minng business. businesses in the absence of clear law is a risk and you could lose your profits or rights without having and legal rights or claims. Its good Uganda is trying to fix things early before they get deep into the murky oil business.

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