South Africa: Technical Assistance Report-Petroleum Sector Fiscal Regime Reform-Additional Analysis for the Davis Tax Committee

IMF Staff Country Reports, August 1, 2016

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South Africa: Technical Assistance Report-Petroleum Sector Fiscal Regime Reform-Additional Analysis for the Davis Tax Committee

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Bibliographic details

• Published: August 1, 2016
• Series: IMF Staff Country Reports
• DOI: https://doi.org/10.5089/9781475520286.002

Overview

• Technical Assistance report summarizing key issues discussed between the IMF’s Fiscal Affairs Department (FAD) and the Davis Tax Committee on tax reforms for the oil and gas sector in South Africa.
• The report evaluates the royalty regime and corporate tax treatment of petroleum-sector expenditures and their revenue implications.

Key Findings

• The royalty should have a single flat rate, rather than the current variable rate formula.
• The 5 percent flat rate proposed in the FAD report is modest by international standards.
• For corporate tax purposes:
  • The current immediate expensing of capital expenditure is considered overly generous.
  • The 100 percent and 50 percent uplifts for exploration and development expenditure are considered overly generous.
  • These provisions will lead to both a revenue loss and a long delay before revenue is collected.

Policy recommendations and implications

• Adopt a single flat royalty rate to replace the current variable rate formula.
• Reassess immediate expensing and uplift provisions:
  • Review or limit immediate expensing of capital expenditure to reduce revenue loss and accelerate revenue collection.
  • Reconsider the 100 percent uplift for exploration expenditure and the 50 percent uplift for development expenditure to align incentives with revenue needs.

Subjects and keywords (as listed)

• Subject: Carbon tax, Commodities, Corporate income tax, Depreciation, National accounts, Oil, Oil prices, Prices, Taxes
• Keywords: Africa, Carbon tax, cash flow, cashflow surcharge, Corporate income tax, CR, Depreciation, depreciation treatment, Global, ISCR, Oil, Oil prices, payback period, price, price assumption, price projection, tax, yield

Content in this bundle

• 1. Fiscal Terms – Current Regime
  • 1. Fiscal Terms – Current Regime (Markdown version)
  • 1. Fiscal Terms – Current Regime (PDF)