Incentives for exploration, drilling
01 October 2021 | Business
As with many other African countries, Namibia offers important indirect tax incentives to promote the exploration and drilling for oil and natural gas.
The incentives, in the form of a customs rebate and import VAT exemption provisions, are laid down in Schedule 4 to the Customs and Excise Act, 1998 and Schedule 5 to the Value-added Tax Act, 2000, respectively.
Companies which have obtained a prospecting or drilling licence in any of the prospecting blocks identified by the ministry of mines and energy would be the prime beneficiary.
This notwithstanding, any subcontractor to the main license holder is also included in the rebate/exemption provisions should they be engaged in constructing any installation, device or equipment to be used solely for the exploration or mining of oil and natural gas.
It is important to note that the rebate or exemption provisions are not automatic and are subject to certain pre-approvals and conditions outlined in the Customs and Excise and VAT Act respectively.
Prescribed procedure for granting of a rebate or exemption for exploration or drilling for oil or natural gas.
- The company undertaking the survey or exploration/drilling campaign should be registered in Namibia.
- Said company must have all prospecting licenses necessary to carry out such tasks prior to commencement of their activities in Namibia.
- The main contracting party has been awarded the prospecting/mining licence in Namibia including the territorial waters by the ministry of mines and energy.
- The rebate permit is approved and issued by the ministry of industrialisation, trade and SME development.
- A rebate/exemption confirmation letter issued by the Namibian Revenue Authority (NAMRA) confirming the granting of the rebate/exemption and capturing of the rebate code/exemption of the customs AsycudaWorld system to facilitate the efficient clearing of the goods at the customs office of entry.
The following goods do not qualify for a customs rebate on importation, even if to be used for exploration and drilling for oil and natural gas:
- Distillate fuels (diesel), residual fuel oils and bio-diesel ;
- Goods for the personal use of any person; or
- Goods for use in the exploration or prospecting of any product other than petroleum as defined in the Mineral and Petroleum Resources Development Act.
Customs duties and import VAT will be payable on importation of these goods, except diesel, which enjoys an exemption from import VAT under the provisions of the VAT Act.
Since a few ministries and government agencies are involved in obtaining a customs rebate and import VAT exemption on goods intended for exploration and mining of oil and natural gases, it is suggested that the application for granting of customs rebates and VAT exemptions be initiated as a co-ordinated project in this highly technical field, to ensure all approvals are in place to avoid any duties and import VAT arising as a result of a lack of proper planning.
Memory Mbai is the senior manager: indirect tax at PwC Namibia. Contact her at [email protected]