A major point of professional and legal friction arises when an expenditure qualifies as a recoverable cost under the PSA’s broad guidelines but fails to meet the strict statutory requirements for a tax deduction under the Income Tax Act.

As a fundamental constitutional principle, a contract signed by the executive arm of government cannot override or alter enacted laws passed by Parliament (SEE DISCUSSION OF THE TULLOW CASE). Therefore, if a direct contradiction occurs regarding an income tax issue, the Income Tax Act will naturally prevail over the PSA, unless the legislation itself has explicitly carved out an exception or given the petroleum code supremacy.

To clarify these operational interactions, an auditor or regulatory team must systematically answer four foundational questions:

• In the event of a conflict between the PSA and the tax legislation, is the Uganda Revenue Authority (URA) bound by contractual constraints regarding tax issues?
  Generally, the URA is a statutory body mandated to enforce laws enacted by Parliament. It is bound by the Income Tax Act rather than private or commercial contracts. If a PSA purports to grant a tax exemption or structural deduction that is not supported by the Income Tax Act, the URA must follow the legislative statute, treating the contractual modification as ultra vires (beyond legal power) unless backed by explicit enabling statutory provisions.
• Are tax matters subject to the arbitration clause in a PSA?
  Taxation is an inherent sovereign power. Under international and public law, public tax disputes, such as whether a cost is legally deductible under national tax legislation, are typically considered non-arbitrable because they fall under the exclusive jurisdiction of national tribunals and courts (like the Tax Appeals Tribunal). However, commercial disputes regarding the calculation of ‘Cost Oil’ under the contract can go to arbitration.
• Is the URA part of the government and thus bound by the contractual provisions of the PSA requiring disputes to be resolved through arbitration?
  While the URA is an agency of the Government, it functions as an independent statutory revenue collector. It cannot be contractually barred from carrying out its statutory duties of assessing and collecting tax. Therefore, even if the Ministry of Energy signs a PSA containing an all-encompassing arbitration clause, that clause cannot legally block the URA from executing its independent statutory mandate via standard tax assessment channels.
• Is there a conflict between the petroleum legislation and national tax legislation?
  URA has to check whether the country’s broader petroleum laws contain a ‘supremacy clause’ over tax rules. For example, some jurisdictions insert provisions stating that in the event of a conflict between the general income tax code and the specialized petroleum legislation, the petroleum code shall prevail (similar to statutory configurations like Section 95(2) of the ITA. If such a clause exists, it creates a lawful statutory hierarchy that resolves the conflict without relying on the contract itself.