Oil

CHARTERED INSTITUTE OF TAXATION, GHANA
FINAL LEVEL I
PAPER 8 – OIL, GAS AND OTHER MINERALS TAXATION
AUGUST 2012 EXAMINATIONS
Time Allowed – 3 Hours

Answer All Questions
Candidates will lose marks for giving irrelevant answers
Question 1
Indonesia was the first country to sign a revolutionary fiscal petroleum contractual
agreement in 1966 to bring the worldwide fiscal petroleum contractual frameworks to two
main classified regimes. Identify these two fiscal petroleum regimes and explain the main
features of each of them.
(20 marks)
Question 2
What tax concessions do a holder of a mineral right and the holder’s employees may be
granted in accordance with the Minerals and Mining Act 2006 Act 703? (9 marks)
Question 3
Winston Petroleum Resources Limited, Jefferson Investment Limited and Lenora Oil
Limited are in joint venture agreement in a ratio of 4.3:3.8:1.9 respectively to undertake
petroleum operations within an oil block upstream off the coast of the Greater Accra
Region of Ghana known as Odom Oil block. The consortium, led by Winston Petroleum
Resources Limited, has a petroleum agreement with the Government of Ghana. The
Government of Ghana and the Ghana National Petroleum Corporation (known as the
Ghana Group) has a carried interest of 10% and a Participating Interest of 3.75%. The
agreement is same as the Petroleum Model Agreement. A total of 11 742,928 barrels of
crude oil was produced and lifted for the three month period ended on 31 st March, 2012.
The market price per barrel in respect of the barrels of crude oil lifted by the Ghana
Group was US$110.10 with a marketing cost of US$.10 per barrel.
Required
(a) Prepare the Distribution of crude oil lifting by the Odom Partners for the first
ended 31st March, 2012.
(b) Prepare Petroleum Receipts and Distribution Report for the first quarter 2012
in accordance with the Petroleum Revenue Management Act 2011 (Act 815)
(20 marks)
Question 4
Write short notes on the following within the context of revenue and cost stream of Oil
and Gas Taxation.
a. Cost oil
b. Profit oil
c. Signature Bonus
d. Additional Oil Entitlement
e. Production Bonus
f. Surface Rental
g. Royalty (14 marks)
Question 5
(a) What is the rationale for empowering the Minister of Lands and Mineral
Resources to enter into a stability agreement with a holder of a mining lease?
(b) What are the possible tax concessions a holder of a mining lease who has a
stability agreement with the Government of Ghana enjoyed? (9 marks)
(c) What is the operational time limit for a stability agreement to elapse? (1 marks)
Question 6
Qantas Mineral Resources Limited was incorporated and commenced business in
Ghana on 1st July 2011 and acquired mineral rights which included a mining lease for
gold production from Danka Gold Limited at a price of GH¢2,120,000.00 on 1 st August,
2011. Before the acquisition Danka had only one mining project which is located at
Anyang in the Western Region. The purchase and sale agreement was approved by the
Minister of Lands and Mineral Resources. During the year Qantas Mineral Resources
Limited incurred the following capital expenditures.
Plant and Machinery GH¢18,320,000

Mine Development GH¢15,750,000
Computers GH¢ 30,000
Bullion vans GH¢ 240,000
The Mine Development expenditure includes buildings, structures and works of a

permanent nature for mining operations.
Required
Compute the capital allowance (if any) claimable by Qantas Mineral Resources Limited
for its 1st year of assessment. State clearly any assumption you made. (16 marks)
END OF QUESTIONS
FINAL LEVEL I
PAPER 8 – OIL, GAS AND OTHER MINERALS TAXATION
Examiner’s Report
Question 1
This question was the best answered question on the paper with a significant number of
candidates scoring the maximum mark. The question required candidates to identify the
two main fiscal petroleum contractual regimes and explain the main features of each of
them. Candidates identify the Concessionary system (the tax and royalty system) and
Production Sharing Agreement (PSA) system. However, some candidates were not
aware that the Risk Contract system is a form of the Petroleum Agreement (PSA)
system.
Candidates enumerated some of the main features to include the issues of duration of
the exploration and periods which are in phases; successive relinquishments of portions
of the contract area; right and obligations of the contractor; how petroleum is to be
valued, how the contractor may recover costs out of their share of the production, how
the remainder of production is to shared, tax obligations of the contractor, and when and
for which payment streams fiscal stability might be granted and other provisions such as
dispute resolution, confidentially and transparency.
Question 2
This question requires candidates to state the tax concessions a holder of a mineral right
and the holder’s employees may be granted in accordance with the Minerals and mining
Act 2006, Act 703. The question was poorly answered. Many candidates failed to state
the three tax concessions are:
1. Exemption from payment of customs import duty in respect of plant, machinery,

equipment and accessories imported specifically and exclusively for the mineral
operations.
2. Exemption of staff from the payment of income tax on furnished accommodation

at the mine site.
3. Personal remittance quota for expatriate personnel free from tax imposed by a
regulation for the transfer of money out of the country.
Question 3
This question was concerned with t the operation of an oil and gas consortium. The first
part of the question required candidates to prepare a Distribution of crude oil report.
Candidates failed to recognize that the GNPC’s carried interest and participation interest
are part of equity of the Odom Partners. This fundamental error affected the performance
of candidates. Most candidates lost vital marks as a result.
The second part of the question required candidates to prepare Petroleum Receipts and
Distribution Report. In accordance with the Petroleum Management Act 2011, Act 815.
This second part was poorly answered by most candidates because of the fundamental
error committed by candidates in the first part of the question. The calculations required
to prepare the report were not accurate as a result.
Question 4
This question was well answered by most candidates. Candidates scored high mark and
overall performance was above average. The question required candidates to write short
notes on terms relating to revenue and cost streams of Oil and Gas Taxation. These
terms are cost oil, profit oil, Signature bonus. Additional oil entitlement, Production
bonus, Surface rental and Royalty.
In brief, Cost oil refers to the oil retained by the contractor to recover the costs of
exploration, development, and production. Profit oil is the share of production remaining
after the royalty is paid and cost oil has been retained by the contractor. Signature
bonuses are paid when the contract becomes effective, and can be considerable in
highly prospective areas. Additional Oil Entitlement is a resource rent tax designed for
the purposes of capturing a progressively larger share of the profit from projects with a
high rate of return. Production bonuses are paid at the start of commercial production
and when production reaches specified levels. Surface rental fees are often given in
monetary units per square kilometer, so that the overall flow to the government declines
with each relinquishment. Royalties are based on the volume or value of petroleum
extracted. Royalties may be paid in cash or in kind; if the later, specified amounts of oil,
gas, or both are delivered to the government.
Most candidates scored the maximum mark for this question.
Question 5
This question, which is in three parts, examined candidates’ knowledge of stability

agreement in respect of mining.
(a) In the part candidates were required to state the rationale for empowering the
Minister of Lands and mineral Resources to enter into a stability agreement with a
holder of mining lease. Candidates’ performance was far below expectation.
Candidates failed to recognize that the rationale was explicitly stated in the
Mineral and Mining Act 2006, Act 703. The rationale is to ensure that the holder of
the mining lease will not be adversely affected by a new enactment, order
instrument or other action made under a new enactment or changes to an
enactment, order, instrument that existed at the time of the stability agreement, or
other action taken under these that have the effect or purport to have the effect of
imposing obligations upon the holder or applicant of the mining lease.
(b) The second part of the question required candidates to state the tax
consequences a holder of a mining lease enjoyed. According to law a taxpayer
who has a stability agreement may not be adversely affected by subsequent
changes to t
- the level of and payment of customs or other duties relating to the entry
materials, goods, equipment and any other inputs necessary to the mining
operations or project,
- the level of and payment of royalties and other taxes specifically mentioned in
the stability agreement
The performance of the second part of the question was on the average.
(c) The last was well answered by majority of candidates. Most candidates state the
correct answer being a period not exceeding fifteen years from the date of the
stability agreement.
Question 6
This question requires candidate’s to compete the capital allowance claimable by mining
company. Candidates’ performance was below average. Most candidates failed to
classify the fixed assets into the appropriate classes. They also failed to use to use the
correct rates to calculate the capital allowances. They lack the knowledge of calculating
residue carried forward. Candidates who use the rule of ring fences to compute the
capital allowances were not penalized even though the law was less than the month old
as at the time of the examination.
CHARTERD INSTITUTE OF TAXATION (GHANA)
FINAL EXAMINATIONS
FINAL LEVEL 1
PAPER 8 – OIL AND GAS AND OTHER MINERALS TAXATION
FEBRUARY 2013
TIME ALLOWED – THREE (3) HOURS
INSTRUCTIONS: ANSWER ALL QUESTIONS
Question 1
Following the discovery of petroleum resources in commercial quantities in Ghana, there
weresome concerns in the industry about the role of the Ghana National Petroleum
Corporation (GNPC) acting as both an operator and regulator. Consequently, the
National Petroleum Commission Act, 2011 (Act 821) was promulgated with the main
object of “regulating and managing the utilisation of petroleum resources and co-
ordinating the policies in relation to them”.
Discuss the functions of the National Petroleum Commission as mandated by the
enabling Act and explain whether the establishment of the NPC has resolved the
concerns of the industry. (20 marks)
Question 2
In recent times, there have been some major tax reforms in the upstream petroleum
industry and the mining industry. As a result of the reform, some attemptshave been
made to harmonise the tax regimes of the upstream petroleum industry and the mining
industry.
You are required to identify and discuss the specific areas where the reforms were
made. Explain also the problems these reformsposed to the mining sector.(20 marks)
Question 3
Vivandi Limited has been engaged in exploration and development of its oil fields for five
(5) years and finally commenced commercial production of crude on 1st January 2011.
An abridged version of the Company’s full set of accounts produced for the financial year 2011 is
produced below for your attention:
Description GH¢ (“M”)
Total income 500
Less: Total costs 420
Net Profit before tax 80
You will find the information below also useful:

The make-up of the Company’s income for the year was as follows:
a. Income from sale of crude at selling prices 200
b. Sale of crude to affiliates at world market prices per Petroleum 50
Agreement (PA) to which such a person is a party
c. Export without sale at world market prices as per the PA 75
d. Income from assignment of interest in the PA 100
e. Income from sale of qualifying petroleum assets in 2011 75
Total 500
Total cost is made up of the following:
a. Rental of equipment for petroleum operations 94
b. Royalties 17
c. Interest paid on total money borrowed for petroleum operations. 48
The Commissioner-General has confirmed that, the interest rate
applied to the loan was in excess of the commercial rate. The
commercial rate is 75% of the interest amount.
d. Bad debts for 2011 46
e. Social security payments that complied fully with the new 35
Pensions Act
f. Sums paid in educating and training Ghanaian nationals abroad 15
in approved technical institutions in line with the PA
g. Domestic and private expenses paid for the Managing Director to 10
ensure he does not leave for other companies in the industry
h. Depreciation of petroleum assets 70
i. Income tax charged in Nigeria in respect of rental of properties in 31
Nigeria. There is no Double Taxation Agreement between Ghana
and Nigeria
j. Cost of repairs to the recreational centre of the Company located 1
at Takoradi where Senior Officers use for recreational activities
k. Sums employed as capital 51
m. Losses incurred prior to the commencement of commercial 2
operations
The following information relates to petroleum capital expenditure prior to the year of
commencement, 2011 (i.e. before commercial production):
a. Exploration costs 250
b. Development costs 350
c. Consideration received for sale of proportionate interest in 100
petroleum agreement
d. Sale of qualifying exploration assets after exploration activities 20
ceased
e. Insurance monies received in respect of assets destroyed during 30
exploration and development activities
f. Sums received by reason of reimbursement of cost for sole risk 100
operations
During the year 2011, the following petroleum capital expenditures were incurred:
a. Cost of installation of facilities for production 70
b. Further cost of geological and geophysical surveys in the area 3
c. Acquisition of further petroleum information as well as costs 9
relating to surveys to all reservoir
d. Plant, machinery & equipment for erection of drilling rigs 12
You are required to:
I. Determine the chargeable income of Vivandi Limited for the 2011 year of
Assessment.
(24marks)
II. Identify six items (either incomes or expenses) that you did not allow in your
computations and explain why you did not consider them as deductible for tax
purposes.
(6 marks)
(Total: 30 Marks)
Question 4
a) A foreign company engaged in petroleum exploration, development and production in

Sierra Leone is contemplating entering the upstream petroleum industry in Ghana.
Management of the Company is however not sure of the need for a Petroleum
Agreement in the upstream petroleum industry.
The Company has hired you as a Tax Consultant to advise them on the strategic
importance of the Petroleum Agreement.
State briefly the importance of the Petroleum Agreement? (5 marks)
b) In a recent Daily Graphic Publication, it was alleged that certain major contractors,
their affiliatesand sub-contractors in the upstream petroleum industry in Ghana were
not complying with the tax provisions relating to expatriate employees and were
therefore not deducting and remitting Pay As You Earn (PAYE) taxes for their
expatriate employees. Following this publication, the then Commissioner of the
Domestic Tax Revenue Division of the Ghana Revenue Authoritygranted interviews to
the media and explained the position of the Law and the practice by the tax
administration.
To further clear any confusion regarding taxation of foreign national employees

working for contractors and sub-contractors in Ghana, you are being required as a
“budding tax professional” to discuss the provisions of both the Petroleum Income
Tax Law, 1987 (PNDCL 188) and the Petroleum Agreement regarding taxation of
employment income of foreign nationals working for petroleum contractors in
Ghana.In your discussion, show how the two laws have resolved the issue. (10
marks)
Question 5
Explain the strategic importanceof the following in petroleum operations:
1. Additional oil entitlement;

2. Make up of receipts into Petroleum Holding Fund; and
3. Prohibited use of the Petroleum Holding Fund.
(Total: 15 Marks)
BEST WISHES
CHARETERED INSTITUTE OF TAXATION (GHANA)
FEBRUARY 2013 EXAMINATIONS
FINAL LEVEL 1 – PAPER 8 – OIL AND OTHER MINERALS TAXATION
RECOMMENDED PASS MARKS 50%
EXAMINER’S REPORT
INTRODUCTION
All the question in this paper were compulsory and candidates were expected to answer or attempt
all the question.
QUESTION 1
This question was a twenty (20) marks question that required a discussion of the functions of the
Petroleum Commission (PC) in view of the apparent concerns of players in the industry of the
dual role of the Ghana National Petroleum Corporation (GNPC) as both an operator and a regular
of the industry. It also requested candidates to express their view as to whether or not the
establishment of the PC had resolved the industry concerns.
Expected approach to answering the question
It was expected that candidates approach the question logically by discussing:
1. GNPC as an operator;
2. GNPC as a regular;
3. Identifying the problem or issues associated with GNPC playing the dual role;
4. The need to separate the operator role by establishing the PC. In other words, why
establish the PC; and
5. Whether or not the establishment of the PC has resolved the issues.
On this question, five (5) candidates representing 11% achieved the pass mark of half of the
total of twenty (20) marks available.
Reasons why most of the candidates did not achieve the pass mark are enumerated as follows:
1. Failure of candidates to approach the question in a logical manner;
2. Candidates did not appreciate clearly the roles of GNPC and its effects on the industry;
3. Most candidates failed to discuss why the PC was established and the specific roles of the
PC;
4. Most candidates failed to appreciate how the PC has legally resolved the issues posed by
GNPC regarding their dual role (i.e. as operator and regulator).
General Comments:
Of the five (5) questions for this examination, this question was poorly answered compared to
the rest.
Candidates answered this question in a vague manner rather than addressing the question on
hand.
To achieve a pass mark, candidates needed to have a reasonable knowledge of the regulatory
of the GNPC and the PC and their interrelationships.
QUESTION 2
Question two (2) was also a twenty (20) marks question that required candidates to identify
and discuss the specific areas where tax reforms were made in the upstream petroleum
industry. The question also required candidates the challenges/problems the reforms posed to
the mining sector.
It was expected that candidates approached the question as follows:
1. Give an introductory background to the reforms in the extractive industry (i.e. upstream
petroleum and mining industry);
2. Identify and discuss the specific areas of the reforms; and
3. Discuss the challenges/problems posed to the mining sector
On this question 19 candidates representing 42% achieved the pass mark.
Reasons why some candidates did not pass this paper include:
1. Candidates failed to provide an introductory background, which would have highlighted
the main objectives of the reform. (i.e. Harmonisation of the Tax regime in the extractive
industry);
2. Most candidates could not relate sufficiently to the reforms that were introduced recently
in the extractive industry and therefore were unaware of the developments in the industry.
Candidates therefore gave answers that were generic in the tax environment;
3. Most candidates provided answers that related mostly to the upstream petroleum sector
and neglected the mining sector;
4. In certain instances, candidates mentioned only the new rates applicable to the industry
without making references to the provisions of the Act to which the changes related;
5. In addressing the problems posed by the reform, most candidates explained the reforms
rather than explaining the problems it posed.
General Comments:
This question was reasonably well answered compared to question one (1).
To achieve a pass in this question, candidates needed to be aware of the tax reforms that are being
introduced in the industry and the challenges such reforms pose to the players of the industry.
Question 3
The first part of question three (3) was computational in nature with twenty (20) marks and
required candidates to determine the Chargeable Income of an entity in the upstream petroleum
industry. The second part of six (6) marks was a follow-up theory aspect of the question and
required candidates to identify either incomes or expenses that they did not allow in their
computations and explain they did not allow such income or expenses.
It was expected that candidates approached the question as follows:
1. Set put and answer the question in accordance with the requirements of the Petroleum
Income Tax Law, 1987 (PNDCL 188) (“PITL”); and
2. Identify the six (6) items and provide comments in accordance with section 3 (1) of the
PITL.

Reason why some candidates did not pass this paper include:
1. Candidates failed to follow the format for determining chargeable income of an upstream
petroleum company as provided for in the PITL and instead used the approach for
determining chargeable income under the Internal Revenue Act, 2000 (Act 592) as
amended;
2. Some candidates failed to explain the basis for not allowing certain incomes and expenses
in determining chargeable income.
General Comments:
This question was fairly well attempted with 58% pass. This is due to the fact that candidates
prefer computation questions to written or theory questions.
It is also important to mention that candidates need to appreciate the requirements of PITL when
computing the chargeable income.
Question 4
Question 4 was made of two parts namely (a) and (b). Part (a) which was for five (5) marks
sought to examine candidates understanding of the strategic importance of a Petroleum
Agreement.
Part (b), was for 10 marks and tested both a technical and current hot tax issue in Ghana regarding
taxation of foreign national employees working for contracts, sub-contractors and
affiliates in Ghana.
It required candidates to discuss the various provisions in the PITL and the Petroleum Agreement
regarding the issues as well as providing a reasoned conclusion on the tax implication of
the employees.
It was expected that candidates approached the questions as follows:
1. For part (a), mention specifically Article 12 (1) and highlight some of the contents on
Article 12 of the PA relating to the fiscal concessions as well as the importance of the PA:,
and
2. In terms of part (b), discuss section 28 of the PITL relating to foreign national employees
and Article 12.8 of the PA and provide a reasoned conclusion.

Reasons why some candidates did not pass this paper include:
1. Part (a) which was a five (5) marks question was fairly well answered.
2. However, candidates had challenges in answering part (b) partly due to their inadequate
knowledge and understanding of the PITL;
3. Even though most candidates knew the 30 days provision in the PA relating to foreign
national employees, they failed to appreciate how this related to the provision of section
28 of the PITL and therefore could not link their answers in a provision of the PITL and
the PA, hence arriving at an inappropriate conclusion.
General Comments:
Candidates did not really discuss the provisions of the PITL and PA relating to the issue but just
went ahead to mention the 30 day or less rules affecting the foreign national employees. To
achieve a reasonable pass mark, candidates need to know the law and be able to apply the law.
Question 5
Question five (5) is a fifteen (15) marks question that requires candidates to explain the strategic
importance of the following three terms used in petroleum operations. The terms are Additional
Oil Entitlement; Petroleum Holding Fund; and Prohibited use of Petroleum holding fund. Each
term carries five (5) marks.
It was expected that candidates approach the question as follows:
1. Mention and explain the key elements of each if the terms; and
2. Explain the strategic importance of each term.

Reasons why a few candidates still did not pass this paper include:
1. Most candidates explained the additional oil entitlement satisfactorily. However, they had
few challenges with what constituted the receipts of the Petroleum Holding Fund and the
prohibited use of the Petroleum Holding Fund;
2. In terms of the Petroleum Holding Fund, candidates discussed other funds under the
Petroleum Revenue Management Act, 2011 (Act 815) instead of discussing the receipts
and the make-up of the Petroleum Holding Fund, and;
3. On the use the Prohibited use of the Petroleum Holding Fund, a few candidates failed to
achieve a pass mark by not identifying the prohibitions on the use of the fund.
Overall comments on the questions and recommendations
Generally, candidates made little reference to the substantive laws/Acts relating to the
questions asked thus demonstrating to the examiner that they did not really appreciate the laws
that affected the areas being examined.
Candidates need to really read and understand the Acts relating to the industry to ensure good
performance at the examinations.
Examiner: Isaac Nyame (FCIT)

PROFESSIONAL EXAMINATIONS
AUGUST 2013
FINAL LEVEL 1
PAPER 8 – OIL AND GAS AND OTHER MINERALS TAXATION
TIME ALLOWED – THREE (3) HOURS
INSTRUCTIONS: ANSWER ALL QUESTIONS
Question 1
Explain, briefly the following sources of revenue accruing to the Government of Ghana from the
upstream petroleum operations in Ghana:
a) Royalty;
b) Carried Interest;
c) Additional Interest;
d) Additional Oil Entitlement; and
e) Surface Rentals.
(4 marks each)
(Total: 20 marks)
Question 2
a) Section 2 of the Petroleum Income Tax Law, 1987 (PNDCL 188) (“PITL”) provides the basis
of ascertainment of chargeable income. It stipulates that the chargeable income of a person
from petroleum operation is calculated by deducting from “gross income” for the year,
amounts allowed as deductions under section 3 of the PITL.
Required:
With reference to section 2 of PITL and Article 11.7 of the Model Petroleum Agreement,
(“MPA”), you are required to explain to a group of potential investors, what is meant by
“gross income” for purposes of determining chargeable income of a person in petroleum
operations in Ghana. Identify also, what gross income does not include.
(10 marks)
b) Outline the composition and strategic importance of Joint Management Committee (JMC) as
contained in the MPA. (10 marks)
Question 3
a) Explain to the management of Zizo Limited, the significance of unrelieved tax losses and
capital allowances for a mining company. Briefly advice on tax efficient ways of relieving tax
losses. (4 mark).
b) Zizo Limited, is a medium-sized mining company which has been in operation for several
years. The Company recorded tax losses from 2005 to 2007 years of assessment as follows:
Year 2005 2006 2007

Amount (GHȻ) 200,000 150,000 100,000
However, from 2008 onwards Zizo Limited made the following assessable incomes after the
required adjustments to its accounting profit in accordance with the Internal Revenue Act,
2000 (Act 592) as amended:
Year 2010 2011 2012
Amount (GHȻ) 150,000 160,000 200,000
Capital allowances for the company from the 2010 to 2012 years of assessment were as
follows:
Year 2010 2011 2012
Amount (GHȻ) 60,000 55,000 60,000
You are required to:

Determine the chargeable income of Zizo Limited and tax liability, if any,from 2010 to 2012 years
of assessment and comment on the outcome of the utilization of the losses and capital allowance
for each year of assessment. (21 marks)
Total: (25 marks)
Question 4
a) Mr. Warmer is a specialist in oil and gas testing. He comes from Serbian and is ordinarily
resident in Serbia for tax purposes. His services are in high demand across the globe and
therefore, he shares his time with several companies in many jurisdictions.
The Ghanaian upstream petroleum industry has been using the services of Mr. Warmer, who
visited Ghana on a number of occasions in 2012. Whilst in Ghana, he earned money from the
services he rendered to the players.
Information available from the Immigration Service as well as his passport disclosed the
following with respect to his travels:
Date From To
2January 2012 Serbia Ghana
13 January 2012 Ghana Sierra Leone
30 July 2012 Sierra Leone Ivory Coast
1 September 2012 Ivory Coast Ghana
13 September2012 Ghana United Arab Emirates
1 December 2012 United Arab Emirates Serbia
Required:
You are required to determine whether or not Mr. Warmer is taxable in Ghana. Support your
answer with relevant provisions of PITL and MPA. (10 marks)
b) The Public Interest and Accountability Committee (PIAC) was established under Section 51
of the Petroleum Revenue Management Act (Act 815) with the following objectives as spelt
out in Section 52:
 To monitor and evaluate compliance with Act 815 by government and other relevant
institutions in the management and use of petroleum revenues and investments;
 To provide space and platform for the public to debate whether spending prospects and
management and use of petroleum revenues conform to development priorities; and
 To provide an independent assessment on the management and use of revenues to assist
Parliament and the executive in the oversight and performance of related functions.
The Committee is mandated by the law to publish a semi-annual and an annual report by the 15th
September and 15th March each year. Since its establishment, PIAC has issued two (2) reports in
compliance with Act 815.
You are required to identify at least five (5) non-compliance issues or violations of the provisions
of Act 815 disclosed by the PIAC report. (10 marks)
(Total 20 marks)
Question 5
Does the functions of the Petroleum Commission conflict with that of the Ghana National
Petroleum Corporation? - Discuss. (15 marks)
END OF QUESTIONS

FINAL LEVEL 1 – PAPER 8 – OIL AND GAS AND OTHER MINERALS
TAXATION
RECOMMENDED PASS MARKS 50%
EXAMINER’S REPORT
Introduction
All the questions in this paper were compulsory and candidates were
expected to answer or attempt all questions.
Question 1
This question was a twenty (20) marks question that required candidates to
briefly explain five (5) sources of revenue that accrue to the Government of
Ghana from the upstream petroleum operations in Ghana.
This question was well attempted. A reasonably high number of candidates
achieved the pass mark in this question. Forty four (44) candidates
representing sixty four percent (64%) achieved either the pass mark of 50%
or above. The remaining 25 candidates that failed in this question was due to
either one or a combination of the following reasons:
1 1. Candidates provided vague answers;
2 2. Candidates could not explain the percentage or rates of incomes
receivable by Government. Candidates could not also explain what
counterpart contributions/costs Government (GNPC) was expected to make to
the petroleum operations; and
3 3. Candidates did not link or support their answers with the provisions
of the Petroleum Agreement, the Petroleum Income Tax Act, 1987 (PNDCL
188) or any other relevant legislation and rather choose to discuss issues that
they may have been hearing from the media which in most cases may not be
factual.
Question one was a fairly straight forward question. To achieve the desired
marks therefore, candidates needed to appreciate the key elements of the
revenue types under consideration.
Question 2
This question is a two part question for 20 marks. Part “A” carried 10 marks
and part “B” carried 10 marks. Section “A” of the question sought to test
candidates understanding of the constituent elements of gross income for
purposes of ascertaining chargeable income from petroleum operations as
provided for in Section 2 of the Petroleum Income Tax Act, 1987 (PITL 188)
and the Petroleum Agreement. The question also requested candidates to
identify what gross income does not include.
The “B” aspect of the question required candidates to outline the composition
and strategic importance of the Joint Management Committee as contained in
the Model Petroleum Agreement (MPA).
Overall, twenty three (23) candidates representing 33% achieved the pass
mark for this question. Reasons why some candidates failed to achieve the
pass mark for this question include:
1 1. Candidates confused gross income from petroleum operations with
chargeable income and discussed chargeable income instead of the gross
income. Candidates did not therefore answer the question asked.
2 2. Even those candidates who discussed gross income were not abreast
of the composition or elements of gross income;
3 3. Some candidates could not identify the incomes that are excluded
from the gross income;
4 4. Regarding JMCs most candidates had little or no knowledge of the
composition of the Joint Management Committee, neither did they know the
role of JMC in the petroleum industry; and
5 5. Candidates failed to logically structure their answers to the extent
that most candidates could not pick-up easy marks allocated to introductions
and conclusions, hence candidates did not have good presentation of their
answers.
General Comments:
Candidates generally gave common sense answers and were not meticulous
enough about the elements of gross income of petroleum operations.
Candidates did not care to understand the requirements of the question,
hence most comments, though true, did not answer the question.
Question 3
Question three (3) was a 25 marks question which had two parts. Part “A”
constituting a theory question of four (4) marks and question “B” had twenty
one (21) marks for calculations and commentary. Part “A” of the question
required candidates to explain to management of a mining company, the
significance of unrelieved tax losses and capital allowances and advice briefly
on the tax efficient ways of relieving tax losses.
Part “B” of the question required candidates to compute the chargeable
income and tax liability (if any) of Zizo Limited (a mining company), taking
cognisance of the interplay between tax losses and capital allowances
available to the company and further comment on the outcome of the
utilisation of the losses and capital allowances for each year of assessment.
Only eleven (11) candidates comprising sixteen percent (16%) of the total
candidates were able to achieve the minimum pass mark available for this
question.
Key reasons for most candidates failing to achieve the pass mark may be
attributed to:
1 1. Most candidates knew little or nothing about utilisation of unrelieved
tax losses available under the Internal Revenue Act, 2000 (Act 592) to mining
companies. Most candidates were under the mistaken belief that the word
“unrelieved” meant that the company would not be able to relieve the losses
available to them;
2 2. Lack of knowledge by most candidates in relieving tax losses caused
most candidates to perform abysmally in the “B” part of the question (i.e.
computation of chargeable income and tax liability of Zizo Limited);
3 3. Some candidates also failed to comment on the outcome/effect of the
relief of the tax losses and capital allowances on Zizo Limited in each year of
assessment; and
4 4. Most candidates that commented on the effect of the tax loss and
capital allowance relief on Zizo Limited were wrong as a result of the
ignorance demonstrated in solving this question.
General Comments:
This question was the most poorly answered.
Candidates basically knew nothing or very little about what was expected of
them.
Question 4
Question four (4) was a twenty (20) marker question comprising part “A” and
“B” each for ten (10) marks. Part “A” required candidates to determine
whether or not an expatriate employee or foreign national employee of a
petroleum company was taxable in Ghana and support the answers with the
relevant statutory/legal provisions.
In part “B”, candidates were to outline at least five (5) non-compliance issues
or violations of the provisions of the Petroleum Revenue Management Act 815
as disclosed by the PIAC reports.
For this question, twenty-two (22) candidates representing thirty-two percent
(32%) achieved the pass mark.
Reasons why some candidates could not pass include:
1 1. For the “A” part of the question, most candidates just stated whether
the expatriate was taxable or not and did not explain further. This question
indeed required some logical analysis to arrive at the required conclusion;
2 2. Most candidates after discussing the provisions of Petroleum Income
Tax Act (PITA) and the Model Petroleum Agreement (MPA), wrongly concluded
that the expatriate would still suffer withholding tax of 15% on his income;
3 3. Most candidates discussed the Internal Revenue Act 592 (IRA) instead
of the PITA and the MPA;
4 4. With regards to the “B” part of the question, most candidates wrote
about public discussions (i.e. issues discussed on radios, televisions, etc.)
rather that the issues outlined in the PIAC reports as required by section 51 of
the Petroleum Revenue Management Act, 2011 (Act 815) (PRMA).
General Comments:
Candidates did not demonstrate knowledge of the contents of the PIAC
reports as required by section 51 of the PRMA.
Candidates did not take their time to understand the question, hence, they
discussed other issues/laws which were not related to the question.
Question 5
This question is a fifteen (15) mark question and part question of question
one (1) of the February, 2013 examination. It required that candidates discuss
the conflict situation of the Ghana National Petroleum Corporation (GNPC) and
its resolution by the Petroleum Commission (PC), discuss the functions of the
PC, and the functions of GNPC.
This question was answered quite well with fifty-five percent (55%) of
candidates (i.e. 38 candidates) either achieving or exceeding the pass mark.
However, some candidates made the following mistakes:
1 1. Some candidates just discussed how the petroleum commission has
resolved the conflicting position of the Ghana National Petroleum Corporation
without identifying the respective functions of the PC and the GNPC; and
2 2. Other candidates did not structure their answers logically.
General Comments:
This question was fairly well answered.
Summary Comment of Examiner

The August 2013 diet of the examination was less demanding than the
February Diet. As such, it was expected that students would perform better
than the previous sitting. Students have consistently been in the habit of
writing answers based on public discussions instead of applying the technical
contents of the various laws. Going forward, it is expected that students
develop deeper understanding of the various statutes and practices of the
Ghana Revenue Administration. Where current developments are required in
the examinations, it will involve the application of the law and not discussion
of public opinion.
CHARTERED INSTITUTE OF TAXATION (GHANA)
PROFESSIONAL EXAMINATAIONS
AUGUST, 2014
FINAL LEVEL 1 – PAPER 8 –OIL, GAS & OTHER MINERALS TAXATION
TIME ALLOWED: THREE HOURS
ATTEMPT ALL QUESTIONS
Questions 1
There are many contract structures that countries use to grant exploration and production rights to
oil and gas companies. But there are three main ones referred to as the Home Government
Contracts or World Fiscal Systems for oil and gas. Identify the three main contractual
arrangements, explain their main features and also specify the differences in their structures, if
any. (25 marks)
Question 2
The petroleum industry has three different but related operations. Mention the three operations
and explain the processes involved in each operation. (20 marks)
Question 3
The Petroleum Revenue Management Act, 2011 (Act 815) provides for disbursement from the
Petroleum Holding Fund. Discuss how the disbursement is required to be made and how the
amounts disbursed are to be used. (25 marks)
Question 4(a)
Companies involved in the exploration and production of oil and gas have the option of choosing
between two accounting approaches. Discuss the two accounting approaches and also state the
differences between the two approaches.
(b) Explain briefly the following and also state their differences, if any.
(i) Depletion;
(ii) Depreciation; and
(iii) Amortisation. (12 Marks)
QUESTION 5
Minecom Ltd. is a mining company operating in the Lake mining area in Ghana for the past twenty years.
It has disposed of 25% of its exploration and production rights in the Lake mining area for a sum of GH
¢20,000,000 in 2013. In the same year Minecom Ltd acquire 10% exploration and production rights in the
XYZ mining area for GH¢15,000,000.
From the tax returns filed by Minecom Ltd, the highlights of its 2013 revenue and expenditure are as
follows:
Revenue GH¢
Consideration received from sale of exploration and production rights 20,000,000
Gross income from its operations in 2013 100,000,000
Gross Dividend from a resident company in which it has 30% voting rights 10,000
Total Revenue 120,010,000
Expenses include the following:
Operating Cost 20,000,000
Depreciation 10,000,000
Exploration and production rights (XYZ mining area) 15,000,000
Administrative Expenses 5,000,000
Profit before tax 30,000,000

The written down values of classes of assets brought forward from 2012 are as follows:
Class 1 assets 1,000,000
Class 3 Assets 3,000,000
Class 4 Assets 500,000
Identify the tax types that Minecom Ltd will be liable to pay and also compute the liability for each tax
type. State the assumptions underlying your calculations.
Additional Information
The capital allowance rates for the classes of assets are as follows:
Class 1 40% on reducing balance basis

Class 3 20% on straight line basis
TAX RATES
Corporate - 35%,
Capital Gains Tax – 15%
Gift Tax – 15%
Branch Profit – 10%
Withholding Tax Rates
Dividends and Interest - 10%
Royalties and Natural Resource Payments – 10%
Management and Technical Services Fee – 15% (18 Marks)
MARKING SCHEME
Q1. The three contractual arrangements are the Royalty/Tax Regime also known as the
Concession, Production Sharing Contract and Risk Service Agreement. (4 marks)
The Royalty Tax Regime is a contractual arrangement under which

• A State grants petroleum exploration and production rights to a contractor.
• Contractor carries risk of exploration failure
• The State levies royalty on production and tax on income as revenue to the State.
• The contractor has the right to export the oil and gas less any domestic supply
arrangement.
(5 marks)
Production Sharing Contract is a contractual arrangement under which

• Exploration and production rights are granted to a contractor by a State.
• Contractor carries economic risk of exploration.
• The state as the resource owner is entitled to a proportion of the oil and gas produced.
• The contractor keeps agreed proportion of the oil to cover cost.
• The remaining oil which is the profit oil is shared between the contractor and the state.
(5 marks)
Risk Service Contract is a contractual arrangement under which

 The State hires a contractor to explore and produce oil and gas for a fee.
• The contractor shares economic risk with the State.
• The contractor keeps an agreed proportion of the oil or gas to cover cost and fee.
• The State keeps the remaining oil and gas.
(5 marks)
Main Differences
Risk – The state does not carry any risk in the Royalty/Tax Regime and the Production
Sharing Contract. The State share risk with the Contractor in the Risk Service Contract
(1 mark)
Royalty – Under the Royalty/ Tax Regime, royalty could be in cash or kind. In the case of
Production Sharing Contract and the Risk Service Contract the State as the resource owner
is entitled to an agreed percentage of the oil. (I mark)
Profit Tax – Payable in cash under Royalty Tax Regime, payable in kind under Production
Sharing Contract. In some countries tax jurisdictions oil is lifted in lieu of profit tax under
the Royalty/Tax Regime. No tax is paid under the Risk Service Contract. The State keeps
the remaining oil after compensating the State as the resource owner and the Contractor
for its costs and fees under the Risk Service Contract. (1
mark)
Cost Oil – Production Sharing Contract and the Risk Service Agreement have cost oil. The
Royalty tax/Regime has no cost oil. Cost /expenses are allowed as deduction under the
Royalty Tax/Regime (1 mark)
Profit Oil – Production Sharing Contract and some types of the Risk Service Contract
have profit oil. The Royalty/Tax Regime has no profit oil. (1 mark)
Fee – No fee payable to the Contractor under Royalty/Tax Regime and Production Sharing
Contract. Fee payable under Risk Service Contract. (1 mark)
Q2. The three different but related petroleum operations include the Upstream, Midstream and
Downstream Petroleum Operations. (3 marks)
The upstream oil and gas operations involve exploration, evaluation and appraisal,
development, and production of oil and gas. (3 marks)
 Exploration – means the search for petroleum by geological, geophysical and other
methods, and the drilling of exploration wells. (2
marks)
 Evaluation and Appraisal – means analysis of seismic data and other information, and
drilling of wells to determine the commerciality of a discovery. (2
marks)
 Development – This refers to the drilling of development wells, construction and
installation of equipments and facilities for production. (2
marks)
 Production – refers to the activities undertaken to extract, save, treat and transport oil and
gas to storage or offloading points. (2 marks)
The Midstream oil and gas operations include storage and transportation of oil and gas.
Oil is transported by tanker, pipeline, barge, truck. Gas is transported mainly through
pipelines. (3 marks)
The downstream petroleum operations include oil refineries, petrochemical plants, fuel
product distribution and retail outlets. Fuel products include gasoline, diesel, jet fuel,
heating oil, asphalt, lubricants, synthetic rubber, plastics, fertilizers, antifreeze, pesticides,
natural gas, propane, etc. (3 marks)
Q3. The Petroleum Revenue Management Act, 2011 (Act 815) provides for the disbursement
of petroleum revenue into the Consolidated Fund in support of the Budget (Annual
Budget Funding Amount); into the Ghana Petroleum Funds (Ghana Stabilisation Fund
and the Heritage Fund); and for exceptional deductions. (5
marks)
The Annual Budget Funding Amount – The ABFA is a percentage of petroleum revenue
transferred into the Consolidated Fund to support the national budget. According to the
Law the ABFA shall not be more that seventy percent of the Benchmark Revenue – an
estimate of expected revenue from petroleum. The percentage of the Benchmark Revenue
allocated to the ABFA each year is approved by Parliament. The ABFA is part of the
national budget and its use is subject to the same budgetary process to ensure responsible
use and effective monitoring of expenditure.
The ABFA is to be used to maximize the rate of economic growth; to promote equality of
economic opportunity with a view to ensure the well-being of citizens; to undertake even
and balanced developments of the regions; and ts use is to be guided by a medium-term
expenditure framework aligned with a long-term national development plan approved by
Parliament The law also provides that the ABFA should be used on specified programmes
where the long-term national development plan is not in place. The Minister is required to
prioritise not more than four areas out of twelve areas specified in the Act for the use of
the petroleum revenue. The Minister has selected the following areas which were
approved by Parliament:
1. Expenditure and Amortisation of loans for oil and gas infrastructure;
2. Agriculture Modernisation;
3. Roads and other infrastructure; and
4. Capacity Building (including oil and gas)
The ABFA may also be used as collateral for debts and other liabilities of Government for
a period of not more than ten years after the commencement of the PRMA. (10 marks)
• Ghana Petroleum Funds – made up of Ghana Stabilisation Fund and Ghana Heritage
Fund. Petroleum revenue that exceeds one quarter of the ABFA in each quarter is
transferred into the Ghana Petroleum Funds. The Ghana Heritage Fund receives a
minimum of thirty percent of the excess revenue and is to be used to provide an
endowment to support development for future generations when petroleum reserves have
been depleted. (5 marks)
The Ghana Stabilisation Fund receives the balance of the excess revenue and is to be used
to sustain public expenditure during periods of unanticipated petroleum revenue
shortfalls.
• Transfer for Exceptional Purposes – Transfer can only be made for exceptional purposes
from the Petroleum Holding Fund to refund tax overpayment and to pay management fees;
to pay royalties in accordance with relevant laws where petroleum operations are carried
out onshore, and to pay benefits to any community which have been adversely affected by
petroleum operations. (5 marks)
Q4. (a) The two accounting approaches are the Successful Efforts Method and the Full Cost
Method. (2 marks)
The Successful Efforts Method allows a company to capitalize only those expenses
incurred in respect of search for petroleum that results into discovery of petroleum. Costs
associated with unsuccessful searches for petroleum are expensed. According to the
proponents of the Successful Efforts Method, the ultimate objective for any search for
petroleum is to discover and produce petroleum, and therefore only costs associated with
successful efforts should be capitalised. Also, because there is no effect on productive
assets of a company if the company is unsuccessful in its efforts, costs and expenses
associated with the unsuccessful efforts should be expensed. (3
marks)
The Full Cost Method allows all costs incurred in respect of search for petroleum to be
capitalised, regardless of the outcome. The reasons adduced by the proponents of this
method are that the main activity of upstream petroleum company is exploration and
production of oil and gas. Therefore all costs incurred in that regard, whether successful or
unsuccessful, should be capitalised. (3 marks)
The main difference between the two according approach is the treatment of exploration
costs associated with unsuccessful search for petroleum. (1 mark)
(b) (i) Depletion is an accounting method for accounting for the reduction of the reserves
of natural resources, such as minerals and petroleum, when under exploitation. Its purpose
is to reflect accurately the reducing value of the natural resources at the balance sheet date.
(2.5 marks)
(ii) Depreciation – It is an accounting concept which means a decrease in the value of a

tangible asset or the allocation or the writing off of the cost of a tangible asset over its
useful life to reflect the decrease in the value of the asset. Tangible assets decrease in value
due to wear and tear, effluxion of time, and obsolescence. There are two main methods of
computing depreciation. These are the declining balance method and the straight line
method. (2.5 marks)
(iii) Amortisation – It is an accounting method of writing off or reducing the value of an

intangible asset, such as debt, goodwill, etc. to reflect their reduced value over time.
(2.5 marks)
Depletion, Depreciation and Amortisation are similar. They are all accounting methods of
writing off the value of assets so as to reflect their actual value at the balance sheet date.
The difference relates to the type of asset. Depleteion is used when writing off the value of
reserves of natural resources. Depreciation is used for writing off the value of tangible
assets, and amortisation is used for intangible assets. (1.5 marks)
Q5. (a) Ring Fencing – This refers to the segregation of the operations of a company into
separate income streams for regulatory reasons or for tax purposes. Cost from one
operation is not allowed to be deducted from the income of another operation.
Under the Petroleum Income Tax Law, 1987 (PNDC Law 188) the income from contract
area of a petroleum agreement is ring fenced for tax purposes. That is cost from one
contract area cannot be deducted from the revenue of another contract area belonging to
the same person. Under the Internal Revenue Act, 2000 (Act 592) the income from a
mining area is ring fenced for tax purposes. That is expenses incurred in one mining area
cannot be deducted from the revenue of another mining area belonging to the same person.
(3 marks)
(b) Finance Lease – This is a commercial arrangement under which a lessor leases an
asset to a lessee. The lessee pays rentals for the use of the asset. The lessor recovers a large
part of or all the cost of the asset from the lease rentals paid. Under finance lease
arrangements the lessee has the option to acquire ownership of the asset.
Under the Internal Revenue Act, 2000 (Act 592), a lease is a finance lease where
(a) the lease agreement provides for transfer of ownership following the end of the lease
term, or the lessee has an option to purchase the asset after expiry of the lease term for
a fixed or an agreed price, or
(b) the lease term exceeds seventy-five percent of the useful life of the leased asset; or
(c) the estimated residual value of the asset after expiry of the lease term is less than
twenty percent of its market value at the commencement of the lease; or
(d) the present value of the minimum lease payments equals or exceeds ninety percent of
the market value of the asset at the commencement of the lease term; or
(e) the leased asset is custom-made for the lessee and after expiry of the leased term it will
not be usable by anyone other than the lessee.
The lease rental payable by the lessee is treated as an expense. The lessor is not entitled to
capital allowance in respect of the asset. The lessor may deduct a capital amount
determined in accordance with guidance issued by the Commissioner-General from the
income from the lease rental to arrive at the taxable profit. (6 marks)
(c ) Thin Capitalisation – A company is typically financed ( or capitalised) through a

mixture of debt and equity. Thin capitalisation refers to a situation where a company is
financed through a relatively high level of debt compared to equity. Thinly capitalised
companies are sometimes referred to as ‘Highly leveraged” or “highly geared”.
The way a company is financed has significant effect on the amount of profit it reports
for tax purposes. Interest payable or paid on debt is allowed as deduction to arrive at
the taxable profit of a company. Thus the higher the level of debt , the higher the
interest deducted and consequently the lower the taxable profit.
Countries therefore put in place rules that set limits on interest that can be deducted in
calculating the taxable profit of any person. The limit on the deductible interest is set
by reference to the ratio of interest bearing debt and equity. That is debt equity ratio.
Where debt exceeds the debt equity ratio, the interest on the excess debt is not allowed
as deduction in calculating the taxable profit.
Under the Internal Revenue Act, 2000 (Act 592), the debt equity ratio is two is to one.
(2:1) (3 marks)
FINAL LEVEL 1 – PAPER 8 - OIL AND GAS EXAMINATION PAPER
FEBRUARY 2015
Q1. Gold Ltd. is a mining company operating in the Terra mining area in Ghana for the past twenty
years. It has disposed of 25% of its exploration and production rights in the Terra mining area for a sum of
GH¢50,000,000 in 2014. In the same year Gold Ltd acquire 10% exploration and production rights in the
Sunshine mining area for GH¢25,000,000.
The highlights of 2014 revenue and expenditure disclosed in tax returns filed by Gold Ltd. Include the
following:
Revenue GH¢

Exploration and production rights (Sunshine mining area) 25,000,000
Class 4 Assets 600,000
Identify the tax types that Gold Ltd will be liable to pay in 2014 and also compute the liability for each
tax type. State the assumptions underlying your calculations.

Gold Ltd. claimed GHC1,000,000 as capital allowances for class 3 assets in 2013.
TAX RATES
Corporate - 25% or 35%
Gift Tax – 15%

Royalty – 5%
Natural Resource Payments – 10%
Technical Services Fee – 15%
Management Fee – 20%
Q2. Explain briefly the following and state their tax treatment under the relevant tax laws of
Ghana.
(a) Ring Fencing;
(b) Finance Lease; and
(c) Thin Capitilisation
Q3 (a) Special Carried Interest Allowance is an allowable deduction under the Petroleum
Income Tax Law, 1987 (PNDC Law 188). Please define or explain what is meant by the
Special Carried Interest Allowance.
(b) Under what circumstances can an assessment be regarded as final and conclusive
under the provisions of the Petroleum Income Tax Law, 1987 (PNDC Law 188).
(c) Explain the tax treatment of proceeds realised from the sale of an asset in the year of
commencement and after the year of commencement as provided under PNDC Law 188.
Please note that the sale of an asset here does not refer to assignment of interest in a
petroleum agreement.
Q4 Under the Petroleum Revenue Management Act, 2011 (Act 815) the Ghana Revenue
Authority has been mandated to assess, collect and account for petroleum revenue. Please
mention and write short notes on what constitutes petroleum revenue under Act 815.
Q5 Each Petroleum Agreement provides for the establishment of a Joint Management
Committee. Outline the provisions of a petroleum agreement relating to a Joint
Management Committee.
MARKING SCHEME-FEB 2015
Q2 (a) Ring Fencing – This refers to the segregation of the operations of a company into
separate income streams for regulatory reasons or for tax purposes. Cost from one
operation is not allowed to be deducted from the income of another operation.
Under the Petroleum Income Tax Law, 1987 (PNDC Law 188), the chargeable of a person
engaged in petroleum operations is required to be determined for each petroleum
agreement. That is the contract area of a petroleum agreement is ring fenced for tax
purposes. This means that cost from one contract area cannot be deducted from the
revenue of another contract area belonging to the same person. Under the Internal
Revenue Act, 2000 (Act 592) the income from a mining area is ring fenced for tax
purposes. That is expenses incurred in one mining area cannot be deducted from the
revenue of another mining area belonging to the same person.
(5 marks)
(b) Finance Lease – This is a commercial arrangement under which a lessor leases an
asset to a lessee. The lessee pays rentals for the use of the asset. The lessor recovers a large
part of or all the cost of the asset from the lease rentals paid. Under finance lease
arrangements the lessee has the option to acquire ownership of the asset.
Under the Internal Revenue Act, 2000 (Act 592), a lease is a finance lease where
(f) the lease agreement provides for transfer of ownership following the end of the lease
term, or the lessee has an option to purchase the asset after expiry of the lease term for
a fixed or an agreed price, or
(g) the lease term exceeds seventy-five percent of the useful life of the leased asset; or
(h) the estimated residual value of the asset after expiry of the lease term is less than
twenty percent of its market value at the commencement of the lease; or
(i) the present value of the minimum lease payments equals or exceeds ninety percent of
the market value of the asset at the commencement of the lease term; or
(j) the leased asset is custom-made for the lessee and after expiry of the leased term it will
not be usable by anyone other than the lessee.
The lease rental payable by the lessee is treated as an expense. The lessor is not entitled to
capital allowance in respect of the asset. The lessor may deduct a capital amount
determined in accordance with guidance issued by the Commissioner-General from the
income from the lease rental to arrive at the taxable profit. (10 marks)
(c )Thin Capitalisation – A company is typically financed ( or capitalised) through a
mixture of debt and equity. Thin capitalisation refers to a situation where a company is
financed through a relatively high level of debt compared to equity. Thinly capitalised
companies are sometimes referred to as ‘Highly leveraged” or “highly geared”.
The way a company is financed has significant effect on the amount of profit it reports
for tax purposes. Interest payable or paid on debt is allowed as deduction to arrive at
the taxable profit of a company. Thus the higher the level of debt , the higher the
interest deducted and consequently the lower the taxable profit.
Countries therefore put in place rules that set limits on interest that can be deducted in
calculating the taxable profit of any person. The limit on the deductible interest is set
by reference to the ratio of interest bearing debt and equity. That is debt equity ratio.
Where debt exceeds the debt equity ratio, the interest on the excess debt is not allowed
as deduction in calculating the taxable profit.
Under the Internal Revenue Act, 2000 (Act 592), the debt equity ratio is two is to one.
(2:1) (5 marks)
TOTAL MARK 20
Q3 (a) Special Carried Interest Allowance:
Definition – “The gross income derived from the sale or export without sale of petroleum
transferred to a contractor from what would otherwise be the entitlement of the
Corporation where a petroleum agreement has provided for the advance of sums of money
to the Corporation by a contractor in respect of the Corporations participating interest and
for the reimbursement of the advances from the Corporation’s entitlement to the
production.”
Explanation: The SPCI is gross income realised from the sale of the Corporation’s
petroleum that was surrendered to the Contractor to settle cash calls paid by the Contractor
on behalf of the Corporation in respect of its participating interest. The SPCI is required to
be deducted from the gross income of the Contractor because the Contractor in
compliance with the accounting principle of full disclosure would have included the sale
of the Corporations oil in its turnover and since this a payment of a loan by the
Corporation to the Contractor it has to be deducted, otherwise the Contractor will pay tax
on its sum of money advanced to the Corporation.
3 MARKS
(b) Final and Conclusive Assessment
Under section 22 of PNDC Law 188, an assessment becomes final and conclusive where:
(i) a valid objection has not been lodged against an assessment. An objection is valid
where it is a written notice stating the precise grounds of the objection, supported
by a projection of the chargeable income and the tax liability, and made within
thirty days of the service of notice of the assessment or within any extended period
granted by the Commissioner-General;
(ii) the tax payable has been agreed to after an objection;
(iii) the notice of refusal has been issued to the taxpayer;
(iv) the tax payable has been determined by a competent court of jurisdiction on
appeal;
(v) an appeal against an assessment to a competent court of jurisdiction has been
withdrawn.
(10 MARKS)
(c) Tax treatment of Proceed from sale of Fixed Assets
Under the Schedule to PNDC Law 188 proceeds from the sale of an asset before or
in the year of commencement is required to be deducted from the petroleum capital
expenditure before granting capital allowances in respect of the year of
commencement. The proceeds of the sale of an asset in a year after the year of
commencement is required to be divided into five and the quotient shall be added
to the gross income of the person in that year and in each of the four successive
years.
(2 MARKS)
TOTAL MARK 15
Q4 Petroleum Revenue
Under the Petroleum Revenue Act, 2011 (Act 815) petroleum revenue includes
(i) Royalty in cash or in equivalent barrels of oil or equivalent units of gas;
(ii) Corporate income tax payable by upstream and midstream operators;
(iii) Participating Interest;
(iv) Additional Oil Entitlements;
(v) Dividend from the National Oil Company;
(vi) Investment income derived from accumulated petroleum funds;
(vii) Surface Rentals;
(viii) Capital Gains Tax derived from the sale of ownership of exploration, development
and production rights;
(ix) Any other revenue determined by the Minister to constitute petroleum revenue
derived from upstream and midstream petroleum operations.
(10 MARKS)
Royalty – A payment for the right to take oil or gas from the land or the sea. It is levied as
a percentage of the gross value of oil and gas won, irrespective of profitability.
Corporate Income Tax – This is the tax payable on income derived from sale of oil and
gas produced. Tax rate agreed in petroleum agreement is 35%.
Participating Interest – This includes Initial Interest and Additional Participating Interest
Initial Interest – GNPC on behalf of the State is entitled to hold 10% interest in any
petroleum operations in respect of which GNPC does not pay exploration and
development cost but contributes towards production expenses. This is partially a Carried
Interest. By virtue of this interest GNPC is entitled to 10% of any distribution of
petroleum or revenue to interest holders in any petroleum operation.
Additional Participating Interest – This is interest that is acquired in any petroleum
operations by GNPC on behalf of the State after the discovery of oil and gas in
commercial quantities. GNPC does not pay the exploration cost but contributes towards
development and production costs. This is also a partially Carried Interest. GNPC is
entitled to additional take in any distribution of oil or gas to interest holders, by virtue of
this additional interest.
Additional Oil Entitlement – AOE is in the nature of an additional profit tax based on the
rate of return achieved. The AOE is meant to ensure that the State shares in excess profit
accruing to Contractors. The State is entitled to additional oil, if the Contractor achieves a
specified after tax real rate of return.
Example of AOE Structure
Real ROR AOE-Rate
Up to 12.5% 0%
>12.5% - 17.5% 10%
>17.5% - 22.5% 15%
Dividend – payable by the national oil company for Government’s equity interest in
petroleum operations
Investment Income– The PRMA provides for the investment of Ghana Petroleum Funds
(Stabilisation and Heritage) in financial instruments. Interest accruing from such
investment constitutes petroleum revenue
Surface Rental – Contractors are obliged to pay surface rentals for blocks assigned to
them for petroleum operations. The rates are charged per square kilometre
Capital Gains Tax – Gains from the realisation of an asset is taxable under the capital
gains tax provisions of the Internal Revenue Act 2000 (Act 592) as amended by the
Internal Revenue Amendment Act, 2013, Act 871.
Any other revenue determined by the Minister to constitute petroleum revenue.
(15 MARKS)
TOTAL MARK 25
Q5 Joint Management Committee
The Joint Management Committee (JMC) is required to be established by the petroleum
agreement to ensure that parties to the petroleum agreement can cooperate at all times in
petroleum operations. (2 marks)
Composition- Four representatives of GNPC and four representatives of the Contractor.
The PA provides for alternate for each member who assumes automatically the rights and
obligations of absentee member. GNPC is responsible for designating chairperson of the
JMC. (2 MARKS)
Meetings of JMC –At least twice yearly and can be convene by GNPC or the Contractor.
Six members present shall constitute a quorum. Contractor in consultation with GNPC
shall be responsible for preparing the agenda for the meeting and also for keeping records
and decisions of the JMC. Venue of meeting is Accra, Dublin or London. (2 MARKS)
Decisions of the JMC require unanimity but decisions for budget and day to day
operational matters shall be approved by the Contractor’s representatives. Decisions can
be taken without holding meeting if members notify their consent to specified matters.
Experts can be invited to assist in the discussion of technical or other matters that require
expert advice.
(2 MARKS)
Sub-committees – The JMC can establish sub-committees to assist in the performance of
its functions: Technical Sub-committee, Auditing Sub-committee, Accounting Sub-
committee.
(2 MARKS)
Functions-
Oversight of Exploration Activities- The JMC is responsible for review of work
programmes and budget for all exploration activities. Review of appraisal programmes
after discovery of petroleum. Review of annual production schedules. JMC approves
lifting schedules. Review all Contractor’s report on petroleum operations.
Other Functions - JMC shall approve insurance programme and the programmes
submitted for training and technological transfer and their associated budgets.
(2 MARKS)
TOTAL MARK 15
PROFESSIONAL LEVEL
FINAL LEVEL 1
PAPER 8 - OIL, GAS & OTHER MINERAL TAXATION
TIME ALLOWED: THREE (3) HOURS

INSTRUCTIONS: ATTEMPT ALL QUESTIONS
Question1 (a)
Write short notes on “Petroleum Capital Expenditure” as provided in the Petroleum Income Tax Act,
1987 (PNDC Law 188)
(b)
Explain the tax treatment of “Petroleum Capital Expenditure” during pre-production period; production
period and when interest in a petroleum agreement is assigned as provided in the Petroleum Income Tax
Law, 1987, (PNDC Law 188).
(c)
Best Petroleum is one of the companies engaged in petroleum production in the Keta Oil Fields. On
January 1, 2014 Best Petroleum assigned 25% of its interest in the Keta Oil Fields to Ultimate Energy Plc at
GHC300,000,000.00. Best Petroleum has been computing capital allowances at the rate of 20% on
straight line basis. In 2013, Best Petroleum claimed its capital allowance entitlement of
GHC50,000,000.00, and the written down value of petroleum capital expenditure at the end of that year
was GH200,000,000.00. Calculate the capital allowance Best Petroleum and Ultimate Energy Plc are
entitled to in 2014. Explain the assumptions underlying your calculations.
(Total Marks 25)
Question 2
Write short notes on the following:
(a) Benchmark Revenue

(b) Petroleum Holding Fund
(c) Ghana Petroleum Wealth Fund (Total Mark 15)
Question 3
Lead Exploration Ltd. and Energy Resources Inc. are joint venture partners who hold 50% and 35% interest
in the Volta Oil Producing Field respectively. They have a petroleum agreement with the government of
Ghana. The fiscal terms of the agreement include Royalty of 5%, Initial Interest of 10%, and Additional
Participating Interest of 5%. In 2014, total production from the Volta Oil Producing Field was 50,000,000
barrels of crude oil and was sold at an average price of US$100 per barrel. Lead Exploration Ltd. and
Energy Resources Inc. incurred costs of US$575,000,000 and US$462,500,000in 2014 respectively.
Assuming that they are not entitled to any capital allowance in 2014, calculate government take in 2014.
Explain the assumptions underlying your calculations.
(Total Marks 25)

Question 4
(a) Carried Interest
(b) Additional Oil Entitlement
(c) Profit Oil
(d) Signature and Production Bonus (Total Marks 15)
Page 1 of 2
Question5
Precious Metals Ltd. is a mining company operating in the Prestea Huni Valley mining area in Ghana for
the past ten years. It has disposed of 20% of its exploration and production rights in the Prestea Huni
Valley mining area for a sum of GH¢45,000,000.00 in 2014. In the same year PreciousMetals Ltd acquire
20% exploration and production rights in the Tarkwa mining area for GH¢20,000,000.00
The highlights of 2014 revenue and expenditure disclosed in tax returns filed by Precious Metals Ltd.
include the following:
Revenue GH¢

Exploration and production rights (Tarkwa mining area) 20,000,000

Precious Metals Ltd. claimed GHC2,000,000 as capital allowances for class 3 assets in 2013.
TAX RATES
Corporate -35%

Royalty – 5%
Technical Services Fee – 15%
Identify the tax types that Prestea Metals Ltd. will be liable to pay in 2014 and also compute the
liability for each tax type. State the assumptions underlying your calculations.
(Total Marks 25)
Page 2 of 2
END OF PAPER
OIL AND GAS EXAMINATION PAPER - AUGUST 2015
SUSGESTED ANSWERS AND MARKING SCHEME
Question 1
(a)Petroleum Capital Expenditure includes:

Expenditure incurred in searching for and discovering petroleum, ascertaining and testing the
extent and characteristics of petroleum and installation of facilities for production, gathering,
transportation and sale or export or both of petroleum; 2 Marks
Sums of money expended in the acquisition of an interest or a participating interest in a

petroleum agreement but not including an expenditure incurred after the year of
commencement in or on acquisition from a person who is conducting production of petroleum
under a programme of continuous production and sale; 2 Marks
Expenditure of revenue nature incurred prior to the year of commencement which would have
been allowed as deduction in or after the year of commencement. 2 Marks
Expenditure incurred by a contractor on behalf of GNPC in respect of carried interest if not

included in any expenditure described above as petroleum capital expenditure. 2 Marks
(b) All petroleum capital expenditure incurred prior to the year of commencement, that is when
commercial production commenced, are accumulated and capital allowance computed and
granted on the aggregate amount at 20% on straight line basis from the year of commencement
and in subsequent years. Where a fixed asset is disposed of in a year prior to the year of
commencement, the realised sum is deducted from the aggregate amount of petroleum capital
expenditure standing in the books in that year. 2 Marks
In and after the year of commencement, capital allowance is computed on the sum of the
petroleum capital expenditure of that year and of the previous years at a rate of 20% on straight
line basis. Where a fixed asset is disposed of in and after the year of commencement the realised
sum is divided into five and the quotient is added to the assessable income in the year the fixed
asset was sold and in the four subsequent years.
2 Marks
In or after the year of assessment, where all the interest of a person in a petroleum agreement is
assigned to another person, the capital allowance that the assignor is entitled to is transferred to
the assignee. But where only part of the interest is assigned the proportionate part of the capital
allowance entitlementis transferred to the assignee.
2 Marks
(c) Capital Allowance Computation
Best Petroleum
Y/A WDV Disposal Total Capital Allowance WDV
2014 200,000,000 50,000,000 150,000,000 37,500,000 112,500,000
Ultimate Energy Plc

Y/A WDV Disposal Total Capital Allowance WDV
2014 50,000,000 --- 50,000,000 12,500,000 37,500,000
Ultimate Energy Plc. under the provisions of the Petroleum Income Tax Law is entitled to inherit
proportionate part of the capital allowance of Best Petroleum. The cost incurred by Ultimate
Energy Inc. is not reckoned in granting capital allowances to it. That is there is no step up.
6 Marks Total Mark 20
Question 2
(a)Benchmark revenue is the estimated revenue from petroleum operations expected by the
Government in a particular year. It is the sum of the expected revenue from crude oil, expected
gas royalties and expected dividends from the national oil company. 3 Marks
Expected revenue from crude oil - A seven year moving average price for crude oil is multiplied
by a three year average of government annual lifting of crude oil to arrive at expected revenue
from crude oil. The seven years being the fours before the current financial year, the current
financial year, and the two years immediately following the current financial year.
1 Mark
Expected gas royalty –is based on a seven year moving average of anticipated royalty from gas.
Seven years being four years before the current financial year, the current financial year and two
years immediately following the current financial year. 1 Mark
National Oil Company Dividend –payable by GNPC to Government. 1 Mark
(b)Petroleum Holding Fund – It is a designated public fund at the Bank of Ghana to receive and
disburse petroleum revenue, as defined. 1 Mark
PHF Receipts – royalties from oil and gas; initial and additional participating interest; income tax,
additional oil entitlement; surface rentals; dividend, capital gains tax, any amount received by
government directly or indirectly from petroleum resources. 2 Marks
Disbursements from the PHF – to (a) the Consolidated Fund (b) to the Ghana Petroleum Funds
(Stabilisation and Heritage Funds) and (c) Exceptional Deductions (Refund tax overpayment, to
pay management fees, royalty payable in respect of onshore operations to communities and
payment of compensation to communities adversely affected by petroleum operations)
2 Marks
Prohibited use of PHF – Amount in PHF earmarked for transfer into the Ghana Petroleum Funds
shall not be used to (a) provide credit to any person including government and (b) as collateral
for debts, guarantees, commitments or other liabilities, and (c) cannot be ear marked for any
purpose. 2 Marks
(c)Ghana Petroleum Wealth Fund – After petroleum reserves are depleted, the amounts held in
the Stabilisation and Heritage Funds shall be consolidated into one fund which is the Ghana
Petroleum Wealth Fund (GPWF). Earnings from the GPWF are transferred into the ABFA to
support the Budget.
2 Marks
Total Mark 15
Question 3
Distribution of Crude Oil Produced
Crude Oil Produced 50,000,000 barrels

Royalty @ 5% 2,500,000
Net after Royalty 47,500,000
Carried Interest @ 10% of Net 4,750,000
Additional Interest @ 5% of Net 2,375,000
Lead Exploration Ltd share of 50% of Net 23,750,000
Energy Resources Inc. share @ 35% of Net 16,625,000 10 Marks
Government Take is the total revenue that accrues to the State from upstream petroleum
operations. In this case it consists of Royalty, Carried Interest, Additional Interest, Corporate Tax.
Calculations of Government Take are as follows: 2 Marks
Government Take
US$ US$
Royalty = 2,500,000 X 100 250,000,000
Carried Interest = 4,750,000 X 100 475,000,000
Additional Interest = 2,375,000 X 100 237,500,000 962,500,000
3 Marks
Corporate Tax Computation
Lead Exploration Ltd.
Revenue = 23,750,000 X 100 2,375,000,000
Less Cost 575,000,000
Chargeable Income 1,800,000,000
Tax @ 35% 630,000,000 630,000,000
4 Marks
Energy Resources Inc.
Revenue = 16,625,000 X 100 1,662,500,000
Less Cost 462,500,000
Tax @ 35% 420,000,000 420,000,000
4 Marks
Government Take 2,012,5000,000
2 Marks
Total Mark 25
Question 4
(a)Carried Interest – This is a type of working interest in a petroleum operation. Any person who
holds carried interest in a petroleum operation does not pay exploration, appraisal and
development costs, but pays its proportionate share of production costs (Administrative and
Operating Costs). A carried interest holder is entitled to any distribution of petroleum or revenue
from sale of petroleum based on the interest holding. In Ghana,GNPC on behalf of the State
holds 10% interest in any petroleum operation in respect of which GNPC does not pay
exploration and development cost butcontributes towards production expenses. This initial
interest entitles GNPC to 10% of any distribution of petroleum or revenue to all interest holders.
5 Marks
(b)Additional Oil Entitlement (AOE)-It is one of the elements under the fiscal regime of the
upstream petroleum sector in Ghana. It is an additional profit tax based on the rate of return
achieved. This isto ensure that the State shares in excess profit accruing to Contractors. Where a
specified after tax real rate of return is achieved in cash flow calculations the State is entitled to
additional oil. 4 Marks
(c) Profit Oil –It is a fiscal element of production sharing contracts. It is the oil that remains after
allocating oil produced to cover costs (Cost Oil) and royalty (where royalty is an element of the
production sharing contract. It is the portion of oil produced that is shared between the oil and
gas companies and the State. 2 Marks
(d)Signature Bonus and Production Bonus –Bonus is a fiscal element of some Production
Sharing Contracts. It is a fixed fee paid by oil and gas companies to the government at differing
stages of the project. Signature bonuses are paid immediately after the completion of
negotiations and signing of the PSC. Production bonuses are paid when the production from a
specific contract area reaches an agreed threshold. 4 Marks
Total Marks 15
PROFESSIONAL LEVEL EXAMINATION
FEBRUARY 2016 EXAMINATIONS
FINAL LEVEL 1- PAPER 8 – OIL, GAS & OTHER MINERAL TAXATION
ANSWER ALL QUESTIONS
TIME ALLOWED: THREE (3) HOURS
Question 1
Countries grant exploration and production rights to oil and gas companies under various
contractual arrangements. But there are four main ones referred to as Host Government Contracts
or World Fiscal Systems for oil and gas. Identify and explain the main features of the four main
contractual arrangements. Specify and explain the contractual arrangement under which Ghana
grants exploration and production rights to oil and gas companies.
(15 marks)
Question 2
(a) Disbursement of the Petroleum Holding Fund;
(b) Annual Budget Funding Amount; and
(c) Ghana Petroleum Funds. (15 marks)
Question 3
Excellent Petroleum Ltd is an oil and gas exploration and production company that has started
exploration in the Voltaian Basin of Ghana in 2006. It discovered oil and gas in commercial
quantities in 2009 and started commercial production in 2013. Ghana has initial (carried) interest
of 10% in the operations. Excellent Petroleum Ltd sold 10% of its interest in the Voltaian Basin to
Lakeside Oil Fields for US$500,000,000 in 2014. Information on total income, exploration and
development costs incurred before production commenced disclosed in the financial statements of
Excellent Petroleum Ltd are as follows:
US$
 Exploration Costs 200,000,000.00
 Development Costs
2,000,000,000.00
 Income from sale of an asset in 2009 60,000,000.00
 Insurance receipt in respect of destruction of an asset 2010 40,000,000.00
 Cost incurred on assignment of the interest 5,000,000.00
You are required to calculate the following:

(a) Capital allowance entitlement of Excellent Petroleum Ltd and Lakeside Oil Fields for the
applicable years. Rate of capital allowance is 20% on straight line basis. Explain the
assumptions underlying your calculations.
(b) Capital gains tax liability of Excellent Petroleum Ltd. CGT rate is 15%. Explain the
assumptions underlying your calculations.
(25 marks)
1
Question 4
Underground Resources Ltd and Surface Exploration Ltd are joint venture partners who have
petroleum agreement with the government of Ghana in respect of the Tano West Producing Field.
Underground Resources Ltd and Surface Exploration Ltd hold 50% and 35% interest respectively
in the Tano West Producing Field. The fiscal terms of the agreement include Royalty of 5%,
Initial Interest of 10%, Additional Participating Interest of 5%, and corporate tax rate of 35%.
Total production in 2015 from the Tano West Producing Field was 100,000,000 barrels of crude
oil and was sold at an average price of US$50 per barrel. Production expense incurred in 2015
was US$10 per barrel. Capital allowance entitlement of Underground Resources Ltd and Surface
Exploration Ltd in 2015 was US$650,000,000 and US$450,000,000 respectively. Assume that
GNPC is not liable to corporate tax. Royalty, initial and additional participating interests are taken
in kind.
You are required to determine the following and also explain the assumptions underlying your
calculations:
(a) How crude oil produced should be distributed;
(b) 2015 income tax liability of Underground Resources Ltd;
(c) 2015 income tax liability of Surface Exploration Ltd; and
(d) 2015 Government Take in US Dollars and expressed as a percentage.
(25 marks)
Question 5
Gold Resources Ltd. is a mining company operating in the West Amansie mining area in Ghana for the past
six years. In 2013 it acquired 25% exploration and production rights in an exploration field in the Tarkwa
mining area for a sum of GH¢40,000,000.
From tax returns filed by Gold Resources Ltd, the highlights of its 2013 revenue and expenditure are as
follows:
Revenue GH¢
Expenses include the following: GH¢

Exploration and production rights (Tarkwa mining area) 40,000,000

Gold Resources Limited claimed GHC2,500,000 for class 3 assets in 2012.
TAX RATES
Corporate Tax - 35%,
Royalty - 5%
Dividend Tax - 8%
Required:
You are required to identify the tax types that Gold Resource Ltd will be liable to pay and also compute
the liability for each tax type. State the assumptions underlying your calculations.
(20 marks)
END OF PAPER
PROFESSIONAL LEVEL – FINAL LEVEL 1
PAPER 8 – OIL, GAS & OTHER MINERAL TAXATION
FEBRUARY 2016 EXAMINATIONS – SUGGESTED ANSWERS AND MARKING
SCHEME
Q1. There are threecontractual arrangements plus one controversial one. These are the
Royalty/Tax Regime also known as the Concession, Production Sharing Contract, Service
Agreement, and fourth one is the so called Hybrid, which is a blend of the fiscal elements
of the three contractual arrangements. Some therefore argue that there is no fourth
contractual arrangement.(4 marks)
The Royalty Tax Regime- The key features of this contractual arrangement are as
follows:
• A State grants petroleum exploration and production rights to a contractor.
• Contractor carries risk of exploration failure.
• If there is a commercial discovery and petroleum is being produced the State levies royalty
on production and tax on income as revenue to the State.
• The contractor has the right to export the oil and gas less any domestic supply
arrangement.
(3 marks)
Production Sharing Contract – The key features of this contractual arrangement are as
follows:
• Exploration and production rights are granted to a contractor by a State.
• Contractor carries economic risk of exploration.
• The state as the resource owner is entitled to a proportion of the oil and gas produced.
• The contractor keeps agreed proportion of the oil to cover cost (cost oil).
• The remaining oil which is the profit oil is shared between the contractor and the state.
(3 marks)
Service Contract – (Pure and Risk)

Pure Service Contractis a contractual arrangement under which
 The State hires a contractor to explore and produce oil and gas for a fee. A form of
technical service.
 Contractor carries no economic risk of exploration
• The contractor is paid for its services. It could be an agreed proportion of the oil or gas to
cover cost and fee.
• The State keeps the remaining oil and gas. (1.5 marks)
Risk Service Contract

• As in the case for Pure Service Contract above, except bullet 2 to be replaced with the
contractor bears economic risk of failure or share the risk with the State.
(1.5 marks)
Blend of Royalty/Tax Regime and Production Sharing Contract (Hybrid)

 This is an emerging classification. It is a blend of some fiscal elements of the
threecontractual arrangements. Some are calling this contractual arrangement Hybrid and
cite the Development and Fiscal Agreement of Qatar as an example. Another school of
thought also believes that there is no fourth contractual arrangement and that depending on
the dominance of the fiscal term of any of the three contractual arrangements, such a blend
of fiscal terms can be called a Royalty/Tax Regime, a Production Sharing Contract, or
Service Agreement. (2 marks)
Ghana’s Contractual Arrangement

Ghana has a Royalty/Tax Regime with State Participation. The dominant fiscal terms are
Royalty/Tax and Ghana’s interest in each oil field known as Initial Interest and Additional
Participating Interest. (2 marks)
Total Mark 15
Q2. (a) Disbursement of the Petroleum Holding Fund
A designated public fund at the Bank of Ghana to receive and disburse petroleum revenue due the
Republic. Disbursement of the fund is done in order of priority as follows:
 National Oil Company for:
1. Equity finance costs, advances and interest of the carried and participating interest of
the Republic; and
2. Cash or the barrels of oil equivalent of petroleum that shall be ceded to a national oil
company out of the carried and participating interest on the recommendation of the
Minister and approval by Parliament. The cash or barrels of oil equivalent shall not
exceed 55% of the cash flow from the carried and participating interest after deducting
the equity finance cost. Fixed for 15 years the Act came into force, but subject to 3
year review by Parliament. After receipt of funds into the Petroleum Holding Fund,
Bank of Ghana is obliged to transfer the amount to a national oil company within 3
days.(2 Marks)
 Consolidated Fund to support the annual budget. That is the Annual Budget Funding
Amount (ABFA). (1Mark)
 Ghana Petroleum Funds (Stabilisation and Heritage Fund) for purposes of savings and
investments.(1 Mark)
 For exceptional purposes. To refund tax overpayment; to pay management fees, payment
of royalties to communities in respect of offshore operations; payment of compensation to
communities adversely affected by petroleum operations.(1 Mark)
Total Mark 5
Q2. (b)Annual Budget Funding Amount (ABFA)
 Amount of petroleum revenue allocated annually for spending in the budget of each year.
 Not more than seventy percent (70%) of the Benchmark Revenue (BR) is allocated to the
ABFA. Exact percentage of BR allocated to the ABFA is required to be guided medium
term development strategy aligned with a long term development plan, absorptive capacity
o the economy and the need for prudent management of the economy, and shall be
approved by Parliament. The exact percentage of BR allocated to the ABFA is required to
be revised every three years and subject to ratification by Parliament.(2 Marks)
 ABFA is required to be used to maximize the rate of economic development; to promote
equality of economic opportunity with a view to ensure the well-being of citizens; and to
undertake even and balanced development of the regions, and guided by the national
development plan approved by Parliament.25% of amount allocated to the ABFA is
allocated to the Ghana Infrastructure Investment Fund for the purpose of infrastructure
development. The balance of 75% is required to be used in line with the national
development plan. Where national development plan is not in place the ABFA is required
to be used to finance 4 areas specified in the Act. (2 Marks)
 ABFA amount can be used as collateral for debts and other liabilities of Government for
not more than 10 years after the commencement of the Act.( 1 Mark)
Total Mark 5
Q2 (c) Ghana Petroleum Funds
 The Stabilization Fund and the Heritage Fund are collectively called the Ghana Petroleum
Funds.
 Where the actual petroleum revenue net of allocation to the national oil company is equal
to or more than the BR, 70 % the BR is allocated to the ABFA, 30% of the BR and the
excess of the BR is required to be paid to the Ghana Petroleum Funds. Where the actual
revenue net of allocation to the NOC is less than the BR not less than 30% of the actual
revenue is required to be paid into the Ghana Petroleum Funds. (2 Marks)
 Ghana Stabilisation Fund (GSF) –is to sustain or cushion public expenditure capacity
during unanticipated shortfalls in petroleum revenues. The GSF receives 70% of the
amount allocated to the Ghana Petroleum Funds. Transfer from the GSF shall be for the
following only:
1. Alleviate shortfalls in actual petroleum revenue; and
2. Payment into the Contingency Fund and for repayment of debt.
Withdrawals from the GSF where revenue collected in a quarter of the year falls short of
the ABFA is required to be done as follows:
1. The lesser of 75% of the estimated amount of the shortfall or 25% of the balance
of the GSF in the first quarter;
2. Double the amount of the third quarter shortfall were there are revenue shortfalls in
the second and third quarters in the same year;
3. Where there are revenue shortfalls for the first three quarters of the financial year,
the fourth quarter withdrawal from both the GSF and PHF should be enough to
meet the ABFA amount approved for the year.(2 Marks)
 Ghana Heritage Fund (GHF) – is to provide an endowment to support development for
future generations when petroleum revenue has been depleted; and to receive excess
petroleum revenue. No withdrawals are required to be done from the GHF. One year after
petroleum reserves are depleted, the GSF and GHF shall be consolidated into the Ghana
Petroleum Wealth Fund (GPWF). The ABFA shall be the dividends from the NOC and
earnings on the GPWF.(1 Mark)Total Mark for 2C (5 marks)
Total Marks 15
Q3.
(a Capital Allowance Computation
Excellent Petroleum Ltd
Cost on which capital allowances should be computed when production commences
should be all costs incurred in the years prior to and in the year production commenced,
less any income or receipt in those years and determined as follows:
Netting of Expenditure
Exploration Costs 200,000,000
Development Costs 2,000,000,000
Income from sale of Asset (60,000,000)
Insurance Receipt (40,000,000)
Total Cost 2,100,000,000 (5 marks)
Capital Allowance Computations

Excellent Petroleum Ltd.
Y/A Cost/WDV Disposal Total Capital Allowance WDV
2013 2,100,000,000 Nil 2,100,000,000 420,000,000 1,680,000,000(3)
2014 1,680,000,000 168,000,000 1,512,000,000 378,000,000 1,134,000,000(3.5)
Lakeside Oilfields
2014 168,000,000 Nil 168,000,000 42,000,000 126,000,000(3.5)
(10 marks)
(b) Capital Gains Tax
Cost of Asset 2,100,000,000
Proceeds 500,000,000
Less Cost Base:
2,100,000,000 x 10% = 210,000,000
Incidental Cost 5,000,000 215,000,000
Capital Gain 285,000,000
Deduct Exempt Gain 50
Assessable Income 284,999,950
CGT @ 15% 42,749,992.50 (10
marks)
Total Marks 25
Assumption: Exempt gain is fifty currency units. It is assumed to be US$50. If can also be
assumed as GHC50 and converted to US Dollars.
Q4.
(a) Distribution of Crude Oil
Crude Oil Produced 100,000,000 barrels
Royalty @ 5% 5,000,000
Net after Royalty 95,000,000
Initial Interest @ 10% of Net 9,500,000
Additional Participating Interest @ 5% of Net 4,750,000
Underground Resources Ltd @ 50% of Net 47,500,000
Surface Exploration Ltd @ 35% of Net 33,250,000(5
Marks)
(b) Underground Resources Ltd -Corporate Tax Computation

Revenue – (47,500,000 x 50) 2,375,000,000
Less
Production Cost – (47,500,000 x 10) 475,000,000
Capital Allowance 650,000,000 1,125,000,000
Tax @ 35% 437,500,000 (5 Marks)
(c) Surface Exploration Ltd – Corporate Tax Computation

Revenue – (33,250,000 x 50) 1,662,500,000
Less
Production Cost – (33,250,000 x10) 332,500,000
Capital Allowance 450,000,000 782,500,000
Chargeable Income 880,000,000
Tax @ 35% 308,000,000 (5 Marks)
(d) Government Take – It is the percentage of the disposable income or profit from
petroleum operations that accrues to the Government.
In monetary terms it is the total revenue that accrues to the State from petroleum exploration and
production. In this case it is made up of Royalty, Initial Interest, Additional Participating Interest,
and Corporate Tax paid by Underground Resources Ltd and Surface Exploration Ltd. (2
Marks)
Government Take Calculation US$
Royalty - (5,000,000 x 50) 250,000,000
Initial Interest (9,500,000 x 50) 475,000,000
Add. Participating Interest (4,750,000 x 50) 237,500,000
Corporate Tax –Underground Resources Ltd 437,500,000
Corporate Tax – Surface Exploration Ltd 308,000,000
Government Take 1,708,000,000 (2 Marks)
Government Take as a percentage

Revenue from total production (100,000,000 x 50) 5,000,000,000
Less
CAPEX – (650,000,000 + 450,000,000) 1,100,000,000
OPEX – (100,000,000 X 10) 1,000,000,000 2,100,000,000
Disposable income 2,900,000,000 (4 Marks)
Government Take as % = (1,708,000,000/2,900,000,000) x 100 58.9% (2
Marks)
Assumption: Capex and Opex represent the total cost incurred.
Total Mark 25
PROFESSIONAL EXAMINATIONS
AUGUST 2016
FINAL LEVEL 1 - PAPER 8 – OIL, GAS & OTHER MINERAL TAXATION
TIME ALLOWED: THREE HOURS
ANSWER ALL QUESTIONS
Question 1
(a) Explain the concept of Separate Petroleum Operation as provided under the
provisions of the Income Tax Act, 2015 (Act 896).
(b) Explain the tax treatment of direct and indirect assignment of interest in a
petroleum right as provided under the provisions of the Income Tax Act 2015 (Act
896).
(c) What are Signature Bonus and Production Bonus. Explain the tax treatment of
bonus as provided under the provisions of Income Tax Act, 2015 (Act 896).
(25 MARKS)
Question 2
It is the opinion of some people that “Production Sharing Contract is better than the
Royalty/Tax contractual arrangement under which Ghana grants exploration and
production rights to oil and gas companies”
Evaluate the above statement and state whether you agree with it or not and assign
reasons. (20 MARKS)
Question 3
(a) Upstream Petroleum Operations
(b) Additional Oil Entitlement and Additional Participating Interest.
(c) Full Cost and Successful Efforts accounting methods. (15 MARKS)
Question 4
The Petroleum Revenue Management Act, 2011 (Act 815) was passed by the
Parliament of Ghana to regulate the collection, allocation and management by
government of petroleum revenue derived from upstream and midstream petroleum
operations. Act 815 therefore has provisions for the establishment of certain funds.
Required:
Mention the said fund sand explain how the funds are required to operate towards the
achievement of the said objectives of Act 815. (20 MARKS)
1
Question 5
Precious Goldfields Ltd. Is a mining company operating in the Obuasi mining area in
Ghana for the past fifteen years. It has disposed of 25% of its exploration and production
rights in the Obuasi mining area for a sum of GH¢50,000,000.00 in 2014. In the same
year Precious Goldfields Ltd acquired 20% exploration and production rights in the Ahafo
mining area which was under development for GH¢55,000,000.00
The highlights of 2014 revenue and expenditure disclosed in tax returns filed by Precious
Goldfield Ltd. in respect of Obuasi mining area include the following:
Revenue Details GH¢

Consideration received from sale of expl. & prodrights (Obuasi) 50,000,000
Gross Dividend from a resident company in which it has 10% voting rights 1,000,000
Main Costs & Expenses include:

Exploration and production rights (Ahafo) 55,000,000
Interest 5,000,000
The written down values of classes of assets brought forward from 2013 are as
follows:
Precious Goldfields Ltd. Claimed GHC2, 500,000 as capital allowances for class 3
assets in 2013.
2
TAX RATES
Corporate – 35%
Royalty – 5%
Dividends and Interest -10%
Required:
Mention the tax types that Precious Goldfields Ltd is liable to pay or not liable to pay, and
state your reasons for the tax types that you have indicated it is not liable to pay.
Compute the liability for the tax types that Precious Goldfields Ltd. Is liable to pay in
2014, and state the assumptions underlying your calculations.
(Total Mark 20)
END OF QUESTION

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CHARTERED INSTITUTE OF TAXATION, GHANA

Time Allowed – 3 Hours

Plant and Machinery GH¢18,320,000

The Mine Development expenditure includes buildings, structures and works of a

1. Exemption from payment of customs import duty in respect of plant, machinery,

2. Exemption of staff from the payment of income tax on furnished accommodation

Most candidates scored the maximum mark for this question.

This question, which is in three parts, examined candidates’ knowledge of stability

TIME ALLOWED – THREE (3) HOURS

INSTRUCTIONS: ANSWER ALL QUESTIONS

You will find the information below also useful:

a) A foreign company engaged in petroleum exploration, development and production in

State briefly the importance of the Petroleum Agreement? (5 marks)

To further clear any confusion regarding taxation of foreign national employees

Explain the strategic importanceof the following in petroleum operations:

1. Additional oil entitlement;

On this question 26 candidates representing 58% achieved the pass mark.

On this question 18 candidates representing 40% achieved the pass mark.

On this question 35 candidates representing 78% achieved the pass mark.

Examiner: Isaac Nyame (FCIT)

CHARTERD INSTITUTE OF TAXATION (GHANA)

TIME ALLOWED – THREE (3) HOURS

INSTRUCTIONS: ANSWER ALL QUESTIONS

Year 2005 2006 2007

You are required to:

CHARTERD INSTITUTE OF TAXATION (GHANA)

Summary Comment of Examiner

Profit before tax 30,000,000

Class 1 40% on reducing balance basis

The Royalty Tax Regime is a contractual arrangement under which

Production Sharing Contract is a contractual arrangement under which

Risk Service Contract is a contractual arrangement under which

(ii) Depreciation – It is an accounting concept which means a decrease in the value of a

(iii) Amortisation – It is an accounting method of writing off or reducing the value of an

(c ) Thin Capitalisation – A company is typically financed ( or capitalised) through a

Expenses include the following:

Profit before tax 40,000,000

Class 1 40% on reducing balance basis

Withholding Tax Rates

TIME ALLOWED: THREE (3) HOURS

(a) Benchmark Revenue

(Total Marks 25)

Expenses include the following:

Profit before tax 150,000,000

Withholding Tax Rates

(a)Petroleum Capital Expenditure includes:

Sums of money expended in the acquisition of an interest or a participating interest in a

Expenditure incurred by a contractor on behalf of GNPC in respect of carried interest if not

Ultimate Energy Plc

Distribution of Crude Oil Produced

Crude Oil Produced 50,000,000 barrels

You are required to calculate the following:

Expenses include the following: GH¢

Class 1 40% on reducing balance basis

Gold Resources Limited claimed GHC2,500,000 for class 3 assets in 2012.

Service Contract – (Pure and Risk)

Risk Service Contract

Blend of Royalty/Tax Regime and Production Sharing Contract (Hybrid)

Ghana’s Contractual Arrangement

Capital Allowance Computations

(b) Underground Resources Ltd -Corporate Tax Computation

(c) Surface Exploration Ltd – Corporate Tax Computation

Government Take as a percentage

Revenue Details GH¢