Year: 2024 | Month: November | Volume: 11 | Issue: 11 | Pages: 409-428
DOI: https://doi.org/10.52403/ijrr.20241139
Politics of Economic Rents and Petroleum Resources Taxation in Oil and Gas Industry
Jacob Dut Chol Riak
Associate Professor, Department of Political Science. University of Juba, South Sudan.
ABSTRACT
This paper argues the politics of economic rents and petroleum resources taxation in oil and gas industry. It does this through the understanding concept of economic rent, royalties, corporation tax, resource rent tax and brown tax. It surveys the comparative merits and demerits of royalties, corporation tax, resource rent tax and brown tax. The paper discusses the concept of tax structure and proposes that it should be progressive and fair to both government and investors. The principles of a good tax structure should include simplicity, convenience, ability to pay, economical, equity and certainty. While the characteristics of a good tax structure should include proportionality, it should ensure fairness and acceptability by both the government and the citizens together with foreign investors. This way, it enhances the longevity of that particular tax system and rewards will be very high. Although taxation is mandatory to all income earners and profits gainers, there are key economic considerations in designing a tax structure for new petroleum producing countries. The paper argues these economic considerations to include ownership of petroleum resources, good investments laws, strong, accountable and transparent economic institutions, good fiscal and monetary policies, land ownership, strong private banking industry, market driven insurance policies, market for consumption of petroleum products, dynamic and friendly technology, strong regulatory environment and affordable trained workforce.
As the taxation is implemented, the concept of source and residence taxation become very handy and the paper argues that source of the income and residence of the investor should be taken into the consideration from the onset of the designing of tax system and particularly in oil and gas industry. While the source of income may be in the country and residence outside the country, the tax system should carefully consider this so that the investor and the tax agency (the government) consent and each party plays it role conveniently. Although advantages and disadvantages of source tax and residence tax stand, the main rules in determining sources of investment income remains of source rules. The paper notes interest-based politics has let to unsuccessful implementation of tax system in oil and gas industry. While the paper reviews copies of empirical literature, it uses comparative method and process-tracing in understanding politics of economic rents and petroleum resources taxation in oil and gas industry. It concludes that incremental sliding scale taxation is appropriate in oil and gas industry and politics of greed affects the tax regime implementation in petroleum industry.
Keywords: politics, economic, rents, petroleum, resource, taxation, structure, oil, gas, industry
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