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South Africa Mulls Windfall Tax On Petrochemical Firm

by Robert Lee, Tax-News.com, London

07 April 2006


South African Finance Minister Trevor Manuel has become the latest finance minister to consider slapping a tax on the 'windfall' profits of energy firms, as a barrel of crude oil continues to trade at near record high levels.

Manuel told reporters on Monday that the government will shortly announce a taskforce to explore the possibility of imposing a windfall tax on the profits of Sasol, the petrochemical group.

Last month, Sasol announced in its interim financial results that higher average international oil prices boosted operating profit by about R2.9 billion ($480 million) in the six months which ended on December 31, 2005. Meanwhile, the firm's attributable earnings for the first half of the financial year 2006 increased by 86% from R3.9 billion to R7.3 billion.

Governments around the world have jumped on the opportunity that high oil prices have brought to extract more revenues from hugely profitable oil companies. A recent example is the UK, which has doubled the supplementary tax on North Sea oil companies to 20%.

So far, the United States government has held off from such measures, despite mounting pressure from members of Congress to address escalating energy costs.

Responding to questions in a Senate hearing last October, Energy Secretary Samuel Bodman stated that he would be opposed to any proposals that would amount to a windfall tax on the profits of energy companies, suggesting that similar measures had failed to work in the past.

"We have proven, I thought, to our general satisfaction back in the '70s and '80s that that didn't work," he remarked.

Senate Democrats have been calling for a 50% tax on every barrel of oil sold for more than $40, and even some Republicans have suggested that the oil companies should be brought to book for 'immorally' benefiting from the rising price of oil.


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