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Oil producers unsure about new royalty tax

The trinidad Guardian / Oil and gas producers are looking at the 12.5 per cent royalty rate across the board on the extraction of all gas, condensate and oil but admit they need more details.

The tax announced on Monday by Finance Minister Colm Imbert will take effect from December 1.

Contacted by the T&T Guardian bpTT said it had been in discussions with the Ministry of Finance over the past few weeks regarding proposals for tax reform.

But bpTT said, “before we can comment on the measures announced in the budget we will first need much more clarity on the details of these measures and their impact.”

The company said, “we look forward to continuing our discussions with the Ministry of Finance and we will continue to work with the Government with the expectation that the changes to the fiscal regime will preserve the competitiveness of the local energy sector and provide the stability and predictability required to underpin long-term investments.”

In announcing the measure Imbert lamented that energy companies were not paying any corporation tax, also known as the Petroleum Profits Tax, “only some royalties and Supplementary Petroleum Tax (SPT) whenever the price of oil exceeds US$50, which is not often.”

This situation, he said, had been occurring because of the high level of investment in exploration and production. “With the present arrangements we are unlikely to get corporation tax from the oil and gas companies for the next seven years,” he said. But not so says former energy minister Kevin Ramnarine.

“I found that to be mind-boggling because those incentives expire in 3 months,” Ramnarine said.

Ramnarine said “there is a sunset clause, the Minister knows that because he voted for it in 2014. The incentives expire in three months on December 31, so how then could it be impacting the tax revenue for seven years.”

He said what could impact revenue is the “carry forward losses,” for which provision is made in Section 16 of the Income Tax Act, which allows companies to carry forward losses into the next year.

Accounting firm KPMG in its analysis of the budget said the royalty would be predicated on fair market value for oil and gas fixed by the Petroleum Pricing Committee.

The accounting firm noted that the proposed amendments to the fiscal regime, had been proposed and discussed in prior years and in the 2016 mid-year review, Imbert indicated that discussions were in advanced stages with the energy companies, on a suitable fiscal regime that would work for all parties by continuing to provide sufficient incentives for investment and exploration while recognising the Government’s need for revenue.

President of the Energy Chamber Dax Driver said it was “difficult “to say too much about the 12.5% royalty for oil and gas production. He said, “we have to look at it in the context of the overall proposed changes to the entire oil and gas regime.”

Driver said the tax was “still a work in progress,” as the Government was still working on the details. The tax takes effect from December 1.

Commenting on proposed new tax, the American Chamber of Commerce said “most worrying is the potential negative impact on investment of the additional taxes on the upstream energy sector, most significant of which will be the proposed Supplemental Petroleum Tax on gas. We hope that this will only be done after consultation with the industry.”

 

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