Statements by Colm Imbert regarding the fiscal incentives of 2014 are totally wrong and misleading. These statements and their tone also serve to erode investor confidence in T&T’s energy sector. The facts of the matter remain that these incentives (accelerated capital allowances) have had little or no impact on Government revenue from the oil and gas sector since their introduction in 2014. This is largely due to the fact that oil and gas companies have had little or no taxable income in recent years against which these allowances could be applied.
It should be noted too that these allowances do not change the fact that oil and gas companies could have always claimed 100% of capital expenditure for exploration and developmental drilling. The 2014 accelerated allowances simply changed the phasing of how that 100% was claimed. This improved project economics and got more projects approved.
Mr. Imbert however claims that they are responsible for T&T not getting corporation tax from oil and gas companies for the next seven years. This is false. The Finance Act of 2014 makes provision for the expiry of these accelerated allowances on December 31st, 2017. How then can a tax incentive that expires in three months impact tax payments for seven years? Is it that the Minister of Finance is unaware that these incentives expire in three months? Interestingly, the then Opposition PNM voted for the Finance Bill of 2014 that contained these accelerated capital allowances.
These incentives are responsible for the increase in exploration and developmental drilling in recent years. This has led to the increase in natural gas production in the second half of 2017 and the rebound in the energy sector that Mr. Imbert was able to boast about in his budget presentation yesterday. He also cited their benefits in his April 8th, 2016 mid-year review.
Low levels of corporation tax (also called petroleum profits tax) in the oil and gas sector in 2017 and beyond are not because of the accelerated capital allowances but are because of:
1) Carry forward losses from earlier years. Provision is made for this in Section 16 of the Income Tax Act.
2) Low Supplemental Petroleum Taxes collection because oil prices have been under US$ 50 per barrel for most of 2017.