March 2009, United States Agency for International Development
The oil sector has a number of features that makes its taxation not only especially important for many countries, but also particularly challenging. This practice note provides an overview of the key issues and trends in the taxation of crude oil extraction. While oil operations are also commonly subject to a number of levies that fall under the government's general powers of taxation (e.g., import and export duties, excises, value-added tax), the discussion here relates more directly to fiscal arrangements designed to tax the "rents" from crude oil extraction. This document begins by touching upon the issues underpinning the case for oil-specific tax regimes. This is followed by an overview of the main instruments used by governments to secure revenues from oil projects, including royalties, income taxes, and "resource rent taxes" as well as non-tax arrangements, such as production sharing and equity participation, oftentimes through the national oil company (NOC). The final section discusses recent trends in oil taxation.
