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The petroleum sector offers governments huge potential revenues that could be invested in poverty alleviation and inequality reduction, but those revenues must first be collected. Taxes are levied on profits, but companies may seek to reduce their taxes by deducting ineligible or exaggerated costs, often paid to related parties.
Governments’ essential tool to combat petroleum cost overstatement is the right to audit costs, but there is limited data on whether governments use this right effectively. Cost auditing practices in Ghana, Kenya, and Peru suggest that governments face significant challenges.
Oxfam proposes recommendations to address these challenges and ensure that governments collect the taxes owed for the exploitation of their finite, nonrenewable petroleum resources.