Over the last few years, there has been a steady upswing in the level of activity in the oil and gas industry in South Africa (SA.)
Oil and gas companies and oilfield services companies continue to play a significant role in these increased levels of activity in the sector and whilst there has seemingly been a slowdown in the sector, SA should continue its efforts to encourage investment into this very important industry.
There are still many hurdles to cross in the industry in SA, but what is clear is that continued investment will be highly dependent on SA having a stable and fair regulatory (including tax) framework to govern the sector.
One of the more effective ways to encourage oil and gas investment into South Africa is to provide a favourable tax regime for companies in the sector.
The Tenth Schedule to the South African Income Tax Act goes a long way to achieving some of these objectives. The Schedule aims to act as an incentive for companies to invest in the high risk arena of oil and gas exploration, also seeks to create fiscal certainty for companies embarking on oil and gas activities in SA. As such, it aims to provide a clear tax framework for both oil and gas companies and the tax authorities on the taxation of oil and gas companies in SA.
Whilst the Tenth Schedule is relatively new and the efficacy of its practical application should still be tested in many ways, various positive tax amendments have been effected to it over the last few years to ensure that all oil and gas companies do actually benefit in the manner intended by the tax rules. The Schedule currently offers significant preferential tax treatments to oil and gas companies, but there are also various issues which taxpayers should be aware of to avoid tax pitfalls.
It is further also encouraging to note that it is being considered to exclude the oil and gas legislation from the Minerals and Petroleum Resources Development Act (MPRDA) Amendment Bill and instead to deal with the oil and gas legislation through a specific oil and gas legal framework – thereby recognising the unique nature of the challenges faces by the industry.
A holistic tax incentive regime for the oilfield services industry to stimulate the growth and encourage investment in this very important industry would also be welcomed.
The country’s oil and gas prospects and standards in inter alia fabrication, logistics and repairs and maintenance pose a significant opportunity for SA to position itself as:
- A major, regional services hub for the oil and gas industry
- The ideal location for foreign oil and gas companies from which to service their operations on the African continent, in particular in sub-Saharan Africa
It is for this reason that SA should certainly continue to encourage investment into the industry and the tax incentives provide us with a platform to do so.