28 May 2017, Kampala — President Museveni and Tanzania’s John Pombe Magufuli at the weekend signed a pact, which, among other things, waives taxes on materials to be used in the construction of the crude oil pipeline from Hoima district to Tanga port.
The signing reflects the commitment the two countries have towards the oil pipeline and brings hope to investors who would wish to see the project completed in time.
“The value added tax should be deemed paid during the three years of the construction phase,” said the agreement.
The presidents said the application of the branch profit tax should be reviewed by the two states as and when the pipeline company structure is complete.
The branch profits tax is charged on the repatriation of earnings, in the form of dividends, from a foreign corporation’s branch. Currently, Uganda has a liberalised capital account where investors can ship their entire profits out of the country. Tanzania has the same system.
In the agreement, the attorney generals of both countries have been directed to include the agreed positions in the inter-governmental agreement and have ministers of energy to sign it by this Friday.
The depreciation of the assets will be set at five percent throughout their lifetime. The depreciation can be counted as an expense and, therefore, not be taxed.
The countries are racing against time to have the first oil at least by 2020. Unlike the refinery, which can come after the states have started production, the crude pipeline is crucial for the transportation of the oil to the coast for sale.
In January, the two governments hired Gulf Interstate Engineering to do the Front- End Engineering Design study, which would give the exact estimates of what is needed for the pipeline. This would be completed in eight months.
The 1,445km pipeline will cost up to $3.5bn. Uganda preferred Tanzania to Kenya for the route because Tanzania has a large flat terrain and also did not appear to have a lot of issues to do with land management. The environmental impact was also deemed to be less in Tanzania than with a route to Lamu in Kenya.
*Alon Mwesigwa – The Observer