strengthening oil tax administration in angola presented by aupec ltd may 2006
TRANSCRIPT
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Strengthening Oil Tax Administration in Angola
presented by
AUPEC LtdMay 2006
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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)
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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
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Institutional Strengthening
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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
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Further Institutional Strengthening
• Staff resources
• Training and guidance
• IT infrastructure
• Reporting and auditing of performance
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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
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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
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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
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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
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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.
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Action: IT Infrastructure
Improve IT networking facilities
Extend and improve current management information
systems
Integrate with aggregate model
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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?
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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
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Procedural Strengthening
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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
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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
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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
$
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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:
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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$)
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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
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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
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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
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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
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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
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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
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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
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Revision Commission
Clear backlog
Reduce issues considered by Commission
Problem with perceived lack of
independence/neutrality?
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Advice to Taxpayers
Consolidated Oil Taxation Act
Oil tax manual
Improved feedback and dialogue on audit adjustments
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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