Parliamentary Strengthening: Budget Module

A country’s legislation, regulations, and contractual agreements determine which payments the country receives in return for giving a company the right to extract the resource, and to which government entity the company must pay. Usually there are several government institutions responsible for collecting different kind of payments from one company. For effective oversight it is important to track and map the stream of oil or mineral revenues in detail. Government entities that typically are involved with financial flows are:

The central bank for evidence that the payment was received by the government;
The taxation authority responsible for assessing and collecting taxes;
The regulatory authority that usually manages the collection of industry-specific revenues, such as royalties;
The national oil company;
Regional and local governments; and
Quasi-governmental organizations such as training organizations and development corporations (Revenue Watch, 2008).

The government is responsible for revenue collection, revenue management and revenue disbursement. Efficient revenue collection requires adequate incentives and administrative simplicity, but is also dependent on the choice of fiscal regime and fiscal instruments, and in part on the administrative and audit capacity of institutions. All payments should flow into correctly audited government accounts. Parliaments or the relevant parliamentary should hold the government agencies accountable for receiving and managing the revenues on a regular basis. Most revenue payments are dependent upon the quantity and quality of resources produced, so for effective oversight it is crucial to independently collect and verify data on the volumes produced, consumed, and exported, and on the market prices or the resources (Revenue Watch, 2008).

EI activities are subject to taxes that apply to all other sectors of the economy and taxes that are specific to the industry. In addition, non-tax forms of rent collection (such as royalties, bonuses, and production sharing) are often used. When there is a national oil or mining company, the government should receive dividends and other forms of payment as a shareholder of the company. Depending on its sort, revenue streams can be collected in cash or in kind (Revenue Watch, 2008). Indirect benefits such as of infrastructure should also be considered. Total government revenues are an aggregate of the financial share of taxes, royalties, shares of production, and other cash generated.

Governments take in revenue from the oil, gas, and minerals sector in different ways, but primarily through: