Strengthening Oil Tax Administration in Angola

1. Strengthening Oil Tax Administration in Angola presented by AUPEC LtdMay 2006

2. 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) Background and Objectives

3. 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 Contents

4. Institutional Strengthening

5. 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 Current Institutional Strengths

6. Staff resources Training and guidance IT infrastructure Reporting and auditing of performance Further Institutional Strengthening

7. 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 Action: Staffing

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. Director DNI Head DRET Project Manager + Aupec Consultants Analyst Analyst Analyst Analyst Functional reporting Operational reporting New DRET Structure Budget & Forecasts Monitoring filing and payments Valuation Tax audits Dispute resolution Taxpayer advice Policy Clerical assistance Clerical assistance Clerical assistance Clerical assistance Clerical assistance External Tax Audit External Legal Services

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 Tax Audit External Legal Services

11. 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. Action: Staff Training and Guidance

12. Improve IT networking facilities Extend and improve current management information systems Integrate with aggregate model Action: IT Infrastructure

13. 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? Action: Reporting and Accounting

14. 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 Longer Term Institutional Issues

15. Procedural Strengthening

16. 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 Legal Framework

17. Tax Administration Cycle Before tax year Provisional Tax Declaration During tax year Amended Provisional Declarations Payment of Tax Oil Valuation 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 Concessionary’s 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. 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 Payment of Tax

22. 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 • 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 Oil Price (US$/Bbl)

23. Limited DRET involvement to date Need to learn from colleagues in Ministry of Petroleum Scope for manipulation of prices to be examined Oil Valuation

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. New standardised form Comprehensive information requirements Based on extensive consultation with oil industry To be submitted in electronic as well as paper form Final Tax Declaration

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

27. 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 Tax Audits

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. 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. Equity Partnership Concessions Oil-Producing PSAs Non-Producing PSAs

30. RevisionCommission 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 Deadline Oil-Producing PSAs Deadline Non-Producing PSAs Deadline

31. Clear backlog Reduce issues considered by Commission Problem with perceived lack of independence/neutrality? Revision Commission

32. Consolidated Oil Taxation Act Oil tax manual Improved feedback and dialogue on audit adjustments Advice to Taxpayers

33. 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 Tax Policy & Forecasting