The British Columbian (B.C.) government’s initiative to introduce a two-tiered liquefied natural gas (LNG) income tax has been met with skepticism. Last week’s budget revealed that a 1.5% tax would be introduced as legislation this autumn, while a second tier tax of 7% could be implemented once plants are operational and after capital costs have been recovered.
LNG players with investments in Canada said that the tax could impact competition on a global scale. David Williams, a spokesman for Shell Canada, which, together with PetroChina, Korea Gas and Mitsubishi, has proposed the construction of a US$ 12 billion LNG plant at Kitimat, said that global competition was a prerequisite of building a LNG industry in B.C.
“We appreciate the government’s commitment to flexibility on the two-tiered piece,” Williams said. “It’s clear that the rate has to be globally competitive. We’re concerned that the top end of that range in the second tier will not achieve that level of global competitiveness.”
Other companies warned that on top of additional taxes, such as carbon tax, this would LNG industry would be further impacted. Greg Kist, president of Pacific Northwest LNG, said: “What we have an issue with, and a challenge with, is the fact that there are so many different taxes. So now the LNG tax is another tax on top of that.” The tax basket, he said, was very large.
Companies also expressed the need for clarity around the tax before making final investments decisions by the end of 2014.
But government sources defended this position. Minister for Natural Gas Rich Coleman said that clarity around the tax would become available during the year as companies look to make final investment decisions. He said that companies were informed of “where we are headed.”
Edited from various sources by Ted Monroe
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