Strengthening Oil Tax Administration in Angola

1
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 DNIs 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

4
Institutional Strengthening 
5
Current Institutional Strengths       

• Specialist department
• Experienced, dynamic and resourceful head of
  department
• Good financial resources
• First class external professional support for
  Departments 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
Original DRET Structure
Director DNI
Head of DRET
All functions are currently undertaken by Martins
Soares
Monitoring filing and payments
Valuation
Taxpayer advice
Budget / Forecasts
Tax audits
Dispute Resolution
Policy
Limited clerical assistance
Limited clerical assistance
Limited clerical assistance
External tax audit
External legal services
9
New DRET Structure
Budget Forecasts
Tax audits
Dispute resolution
Taxpayer advice
Policy
Monitoring filing and payments
Valuation
Clerical assistance
Clerical assistance
Clerical assistance
Clerical assistance
Clerical assistance
External Legal Services
External Tax Audit
10
Possible re-assigned responsibilities
Director DNI
Head DRET
Project Manager Aupec Consultants
Analyst
Analyst
Analyst
Analyst
Monitoring filing and payments
Valuation tax audits
Dispute resolution
Taxpayer advice policy
External Legal Services
External Tax Audit
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 the
• DRET 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
  Revenue
• Management 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
  those
• advantages within the current framework
• Independent budget for Customs Department may be
  a
• useful precedent to follow 

15
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 

17
Tax Administration Cycle
Before tax year
Provisional Tax Declaration
During tax year
Oil Valuation
Payment of Tax
Amended Provisional Declarations
After tax year
Final Declaration Payment
Tax Audit
Fixation Commission
Revision Commission
18
Provisional Tax Declaration
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 Concessionarys Revenue

19
Amended provisional declarations
Every quarter oil companies must review and
amend their provisional tax declarations
20
Payment of Tax
Payment of oil taxes is made throughout the year
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

22
Oil Valuation
Every quarter the Government sets the oil
reference price for each concession
Oil Price (US/Bbl)
23
Oil Valuation 

• Limited DRET involvement to date
• Need to learn from colleagues in Ministry of
  Petroleum
• Scope for manipulation of prices to be examined

24
Final Tax Declaration
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
25
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

26
Tax Audits
Tax declarations are audited by Deloittes on the
DRETs behalf
2006 2007
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar

Final Tax Declaration

Equity Partnership Concessions

Oil-Producing PSAs

Non-Producing PSAs
27
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

28
Fixation Commission
Based on the audit results, the DRET determines
the oil taxes due. This must be done within 18
months of the fiscal year end. Further tax
determined is payable within 15 days.
2006 2007
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr
Equity Partnership Concessions
Oil-Producing PSAs
Non-Producing PSAs
29
Revision Commission
Oil companies have the right to appeal against
the Fixation Commission determination. Collection
of the tax appealed against is postponed.
2006 2007
Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May
Equity Partnership Concessions
Oil-Producing PSAs
Non-Producing PSAs
30
Revision Commission
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.
2005 2006 2007
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
Equity Partnership Concessions
Deadline
Oil-Producing PSAs
Deadline
Non-Producing PSAs
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