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More and more governments across the world are reconsidering their oil and gas tax regimes in order to cope with the “lower for longer” crude prices and remain competitive, EY said on Thursday in its ‘2016 Global oil and gas tax guide’.
Due to the high share of royalties in their tax burdens, the U.S., Brazil and Kazakhstan were three of the countries that had been most vulnerable to the crude price crash, and all three have amended part of their oil tax policies. Since the oil price decline started, the U.S. has reviewed taxes in oil-rich states, Kazakhstan has cut export duty, and Brazil has enacted a new royalty-like payment, EY noted.
Canada, the U.K. and Norway – which have profit-based taxation regimes and usually adapt well to price volatility – have also moved to amend tax policies so that projects in their territory or waters are still economically feasible, the experts say.
“Now, in a lower for longer price outlook environment, we expect to see more changes. A rebound in oil price won’t come to the rescue,” Alexey Kondrashov, EY Global Oil & Gas Tax Leader, said.
Governments are pursuing more sustainable and flexible tax regimes in order to stay competitive at any price point, Kondrashov noted.
In March of this year, the U.K. introduced tax breaks for oil companies, dropping the Petroleum Revenue Tax (PRT) —effective retroactively as of 1 January 2016--and the profit tax (supplementary charge) was cut to 10 percent—again with implementation backdated to the beginning of this year. These measures reduced the headline rate paid by oil companies to 40 percent, for both new and mature fields, down from 50 percent and 67.5 percent, respectively.
Russia, the world’s biggest oil producer, is also considering sweeping changes to its oil tax structure to transform it to a profit-based model.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.