Revenue Note for Guidance

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Revenue Note for Guidance

696H Charge to petroleum production tax

(1)(a) The tax is charged in addition to corporation tax for each taxable field and will apply for each year of production.

(1)(b) The amount of tax payable shall be the greater of —

  1. a minimum rate of 5% charged on gross revenue with an allowable deduction for transportation expenditure
    or
  2. a rate charged on net income that operates on a sliding scale basis depending on the profitability of the taxable field. Each field’s profitability is determined by the calculation of the R factor (defined above).

The tax rates are as follows—

R factor

Petroleum production tax rate

THE GREATER OF

Any

5% of gross revenue less transportation costs

OR

=1.5

10% of net income

>1.5 to 4.5

10% + {(R-1.5)/(4.5-1.5) * (40%-10%)} of net income

≥4.5

40% of net income

(2) The disposal and acquisition of petroleum or a petroleum related asset is treated as having been made for a consideration equal to the market value of the petroleum or petroleum related asset at the time the disposal and acquisition were made.

(3) Where a charge to petroleum production tax applies to a taxable field, then no charge to profit resource rent tax under section 696C shall apply to the same field. Hence, a double charge to tax is prevented.

Relevant Date: Finance Act 2021