On 14 December 2021, the Uganda Parliament considered and passed the Income Tax Amendment Bill No.2 2021.
The approved bill passed without amendments.
The Bill was read for the first time on 19th October 2021.
The Bill amends the Income Tax Act to provide for:
- A limitation of deductions on petroleum operations.
- Windfall tax.
The proposed amendments will become law once assented by the President and after it is published in the Ugandan Official Gazette.
Amendment 1 (Section 89GA of the Income Tax Act)
Currently, the income tax act does not specify the cost recovery limit which a licensee can recover from petroleum operations each year.
The Bill caps the allowable deductions per year to the cost recovery limit stipulated in agreed petroleum production sharing agreements.
Where the total deductions of a licensee exceed the amount which represents the cost recovery limit, the excess shall be carried forward to the next following year of income. The excess is deductible for that year of income against the cost recovery limit set for that year, until the excess is full deducted, or the petroleum operations cease.
The amendments provided above are only applicable to Contract Area 1, Contract Area 3A and Licence Area 2.
A contract/licence area means an exploration area that is subject to a petroleum agreement.
The area is described and shown in a petroleum agreement on the effective date of the agreement.
Amendment 2 (Section 89GDA of the Income Tax Act)
Currently, the law does not take into consideration the volatility in oil prices. The windfall tax is a measure to capture the additional revenues arising from rising international oil prices.
Where international oil price equals USD 75 per barrel or more on any day of a year of income, all licensees for Contract Area 1, Contract Ares 3A and Licence Area 2 shall each pay a windfall tax on their net income after deduction of corporate income tax, at the rate of 15%.
Windfall tax is payable on an annual basis. For instance, it is payable on the same date as corporate income tax due for the last quarter of the year.
Calculation of windfall tax
Windfall tax = 15% * (A/B) *(C-D)
A = number of calendar days in the year of income on which the international oil price equals USD 75 per barrel or more.
B = the total number of calendar days in the year of income.
C = the net income generated from petroleum operations by the licensee in the year of income.
D = corporate income tax payable by the licensee for the year of income.