|
British Columbia LNG tax lambasted Canadian expert warns ‘revenue grab’ with no parallel in province’s other resource sectors could be undoing of emerging industry Gary Park For Petroleum News
One of Canada’s most respected tax experts has delivered a harsh assessment of the British Columbia government’s sketchy fiscal regime for its emerging LNG industry.
Jack Mintz, an economist at the School of Public Policy at the University of Calgary and also a director of Imperial Oil, has described the special tax proposed in British Columbia’s budget in February as a “revenue grab” that has no parallel in any of British Columbia’s oil and natural gas operations, mining ventures or manufacturing phases in forestry.
In an article in the National Post, Mintz noted that the tax plan is so far limited to a “rather hazy two-page backgrounder” in the budget that Finance Minister Mike de Jong plans to explain in greater detail and convert to legislation later this year.
For now, the government has said only that it plans to collect a tax of 1.5 percent on net proceeds up front, then levy up to 7 percent once a project’s capital investment has been paid off.
Plan already under attack That plan has already come under attack by Royal Dutch Shell and Chevron, operators of two of the largest LNG proposals for British Columbia.
Mintz said the government has forecast LNG could “yield substantial new provincial revenues (with) the new LNG tax as well as corporate, personal and sales tax revenues ranging from C$4 billion to C$11 billion annually (based on 2012 prices). So there is lots at stake for the B.C. economy in terms of jobs and revenue.
“I think the new LNG tax proposed by B.C. raises critical questions that go beyond questions of competitiveness and revenues. The new LNG tax could create a policy precedent that could lead to poor tax policy in the coming years in Canada and not necessarily in the interest of British Columbia itself,” he wrote.
He said it is far from certain that the tax would “necessarily yield much revenue since the international natural gas markets are becoming increasingly competitive with a single world price (adjusted for transport costs).”
Mintz said it is “unclear as to what expenditures are included in expenses, such as corporate income taxes and borrowing costs. It is also unclear whether investment costs and unused minimum tax credits will be carried forward at a rate of interest to preserve the time value of the credits.”
Gas already taxed at wellhead He noted that British Columbia already collects royalties from the extraction of gas at the wellhead, meaning the special LNG tax would impose an unprecedented second levy on the processing of gas into LNG.
“This raises a deeper issue as to why British Columbia should levy a special tax on one type of manufacturer or processor compared to others,” he wrote. “This creates an unlevel playing field whereby some activities are taxed more than others, resulting in a misallocation of labor and capital resources in the economy.
“It is far from clear what purpose the LNG tax has besides being a revenue-grab by the province.”
Mintz closed with a blunt warning that an LNG tax “could destroy the goose that lays the golden egg.”
Separately, Japan’s Ministry of Economy, Trade and Industry has urged the British Columbia government to lower the rate of taxes it is planning to impose.
There have been hints, none of them confirmed by the government, that the final taxation rate is still under review.
Steve Carr, a deputy minister handling the LNG file in the British Columbia government, told an LNG seminar in Tokyo in early March that the province feels justified in collecting a tax because many of the gas supplies for LNG exports would come from Alberta and Saskatchewan, which would not contribute to British Columbia’s revenues.
He promised that the full details of the tax regime will be available this fall for LNG proponents to make their final investment decisions.
| 