Oil Contracts, Progressive Taxation and Government Take in the Context of Uncertainty in Crude Oil Prices: The Case of Chad

Abstract : Concession Contracts (CC) and Production Sharing Contracts (PSC) have quite different implications for Government Take and the properties of the tax system, such as progressivity. In general, taxation via CC introduces significant distortions in activity, particularly due to the balance of royalties which tax production irrespective of the profitability of the project. So CC is normally regressive while PSC is normally progressive, because PSC taxation depends more directly on the profitability of the project. Chad has the distinction of having introduced PSC in the 2007 Chad oil code, while maintaining a royalty on production. Despite this feature, we show with a Cash Flow model and Monte Carlo simulations that the application of the 2007 oil code introduced more progressivity into taxation. This feature is particularly interesting in the current context of falling crude oil prices, because it maintains a favorable tax regime for exploration and exploitation by multinational oil companies. As a result, the Chad government should reactivate a counter-cyclical policy of oil revenue reserves when the crude oil price increases again.
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Submitted on : Monday, October 19, 2015 - 3:41:57 PM
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Guy Dabi Gab-Leyba, Bertrand Laporte. Oil Contracts, Progressive Taxation and Government Take in the Context of Uncertainty in Crude Oil Prices: The Case of Chad. 2015. ⟨halshs-01217417⟩

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