Scotland Proposes UK Oil And Gas Tax Breaks
Scotland’s Energy Minister, Fergus Ewing, has published a new report calling for urgent reform of the UK’s oil and gas tax regime.
In his January 8 discussion paper, Ewing said the recent fall in the oil price has increased the urgency of progress on reform. The paper sets out a series of options for maximizing the industry’s economic contribution in the near- and long-term.
The report makes three main recommendations. First, it proposes the introduction of an investment allowance to provide support for fields that require greater investment to develop. This allowance would enable companies to reduce their tax bill linked to the value of their capital expenditure. The Scottish Government estimates that the additional activity an investment allowance could generate may support between 14,000 and 26,000 UK jobs a year.
The report also calls for a phased and timetabled reversal of the increase in the Supplementary Charge (SG) implemented by the UK Government in 2011. The SC is an additional charge that was originally set at ten percent on a company’s ring-fenced profits excluding finance costs. The SC was increased to 20 percent for accounting periods beginning on or after January 1, 2006, and 32 percent from March 24, 2011.
The report says that the Government should released a clear timetable on reductions, to provide certainty for investors. It points out that such a reduction would reduce the overall tax rate levied on the industry to 50 percent for non-petroleum revenue tax (PRT) paying fields.
Last, Ewing suggests the introduction of an exploration tax credit, to help increase levels of exploration and sustain future production. The paper says that this would equalize the treatment of companies in a tax paying and non-tax paying position, and could significantly boost exploration activity in the North Sea.
In December 2014, the UK Government announced radical reforms to reduce the effective tax rate for companies investing in the future of the UK Continental Shelf. As a result, the Supplementary Charge was reduced from 32 percent to 30 percent from January 1, 2015, and the ring-fenced expenditure supplement was extended from six to ten years.
The UK Government has said that it will begin consultations this year on a proposed single, basin-wide investment allowance that will reward investment and simplify the tax regime. It also intends to implement a new cluster allowance for high-pressure, high-temperature projects. Together with the new Oil and Gas Authority, it will consider options for a new tax credit or similar mechanism, reform of the fiscal treatment of infrastructure, and improved access to decommissioning relief.
Speaking in Aberdeen on January 8, Alistair Carmichael, the UK Government’s Scottish Secretary, said: “I and my colleagues will be listening closely to what the industry has to say and having a full exploration of the additional options available to us to help secure jobs and the future of this key sector. The package of allowances and tax reliefs the UK Government unveiled as part of last month’s Autumn Statement reflects our close working relationship with the industry, and the action we are already taking now to ensure it continues to thrive and contribute to our economy.”
Source: taxnews – Scotland Proposes UK Oil And Gas Tax Breaks
