Government will not endorse Heritage Oil PLC's sale of assets to Tullow Oil PLC until Heritage pays in full around $405 million in capital gains tax on the deal, the Ugandan presidency has said.
The Dow Jones news wire quotes President Museveni saying that Heritage must pay in full.
Approval of the $1.5 billion sale of Heritage's stakes in blocks 1 and 3A to Tullow has been delayed by the dispute, which has been ongoing since February.
The government gave conditional approval of the sale In July and asked Heritage to deposit 30% of the assessed capital gains tax on the transaction pending resolution of the tax dispute.
Heritage deposited around $121.4 million with government and put the remaining $283.4 million in an escrow account pending resolution.
Heritage suggested the dispute be referred for arbitration in London, but the head of Uganda's tax body advised the president against this.
Hilary Onek, Uganda's Energy Minister, has since written to Heritage demanding taxes in full before the deal can be endorsed, and has informed Tullow that its transaction with Heritage remains incomplete.
Onek said tax disputes fall under the jurisdiction of the Ugandan courts according to the oil production sharing agreement signed with Heritage.
People familiar with the situation, say the dispute is likely to be referred to local courts.