BC Business
Christy Clark on LNG | BCBusiness
The B.C. government tabled its long-awaited tax structure for future LNG developments Tuesday, carving back its revenue expectations put forward in the budget last February.
Per the new LNG Act, exporters of liquefied natural gas will see a 1.5 per cent tax rate on profit in the initial years that they are up and running. That tax rate will go up to 3.5 per cent once project proponents begin to see a return on investment—which is typically five years for an LNG processing facility.
Minister of Finance Michael de Jong introduced the legislative package to reporters, which also included a new corporate income tax credit that will lower the overall tax rate for natural gas producers in B.C.
Despite the projection that each mid-size LNG plant will add $880 million via the new tax to government coffers over the first ten years in which it operates, that’s around half of the government’s $1.5 billion projection put forward in February.
“There have been significant changes in the market, revealed most dramatically in terms the price LNG is anticipated to fetch,” said De Jong, speaking to reporters. “Demand, is, for a variety of reasons, changing.” De Jong also pointed to rising construction costs as another reason for reducing the main rate. “The tax structure needs to take into account changing market circumstances,” he said.
On the B.C. Liberals’ 2013 campaign promise that the government could eventually establish a $100-billion prosperity fund, de Jong characterized the governments’ expectations as more general: “we’ve set out debt reduction and allocation of proceeds to a fund that would be available for a range of activities [as targets], we’re still in the process of establishing the regulatory underpinnings for the industry.”
The legislation also aims to answer some of the technical questions left unanswered in the 2014 budget which will affect the overall regulatory structure for LNG operators in B.C. The new rules will come into effect in 2017, and any pre-construction investments by LNG proponenets will be counted towards a later tax credit.
Furthermore, a new tax credit for the companies behind the various LNG proposals, will lower their corporate tax rate from 11 per cent to 8 per cent.
“We see this as an overall net win,” said de Jong, who emphasized that revenues from the LNG tax will only make up a small portion of the government’s overall take. Besides royalties and land bonus sales, the government will see revenues from perperty taxes, corporate income taxes, the carbon tax (which will remain unchanged) and provincial income taxes.