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What’s the plan for taxing crude oil? The Finance Ministry is looking to register crude oil suppliers before implementing recent VAT amendments that would see them face a 10% tax, a senior government source told EnterpriseAM.
REFRESHER- President Abdel Fattah El Sisi this summer ratified VAT amendments, which are estimated to help the government bring in an additional EGP 200 bn in tax revenues. These amendments introduce a new tax treatment for crude oil — making it subject to a 10% tax.
Who will be impacted? The Egyptian General Petroleum Corporation (EGPC) will face the burden of this new tax, seeing as it is the sole buyer of crude oil in Egypt. The Finance Ministry is currently holding meetings with the EGPC to set a mechanism for implementing the amendments.
What will the mechanism look like? The government is looking into the possibility of registering the suppliers under the simplified system with the Egyptian Tax Authority in the foreign suppliers registry, which would allow for reverse tax charging. The move would see the EGPC collecting the tax and verifying that the companies have paid it, which would allow the foreign suppliers to deduct the sum from their own tax obligations in their home countries. EGPC will pay the VAT after collecting it from the supplier, as it is considered an indirect tax.
That’s not all: The mechanism will include controls for issuing electronic invoices between the EGPC and its suppliers, including foreign players and irregular suppliers, seeing as at the moment EGPC agreements don’t stipulate the issuance of e-invoices.
The timeline: The government will start taxing crude oil as soon as the mechanism is finalized and the law’s executive regulations are issued, according to our source, who affirmed that the process may take some time due to the specific handling required for petroleum agreements.
EGPC’s financial stability is a top priority. To achieve this, the finance and oil ministries are working together to improve the EGPC's financial position by settling subsidy allocations and resolving financial entanglements across various sectors, our sources said.
A committee has been formed to review all the legislation governing the oil and energy sectors, an informed source from the oil sector told us. The move aims to attract new investments and update the system, including the tax laws, legislative policies, and various agreements. The government is looking to achieve financial stability within the oil sector with the ultimate goal of becoming a regional energy hub.
SPEAKING OF OIL AGREEMENTS- There is an ongoing study to amend a number of petroleum agreements to make the sector more attractive to oil companies, two government sources told EnterpriseAM, adding that this includes revising the production sharing ratios and usufruct rights.
