International Organization
Countries revise oil, gas taxes to draw investments: EY
- Clear fiscal policy and competitive tax regime needed to maintain investment and interest in oil and gas projects

Oil producing countries are making oil and gas tax regimes more competitive and attractive to draw more investments, Ernst & Young (EY) said on Wednesday.

Countries rich in oil "are reconsidering how they tax the oil and gas industry in the ongoing oil price volatility," EY said.

Under a concession, an oil and gas company is granted exclusive rights to explore and produce in designated areas and owns all oil and gas production. Additionally, the oil and gas companies typically pay royalties and corporate income tax to governments.

In an effort to pull in more exploration and production investments, some governments moved quicker than others and have benefitted from revising their tax regimes, according to EY.

EY exemplifies tax revision in Mexico. The Mexican government recently addressed feedback from companies bidding for oil and gas blocks as part of their ongoing energy reform and made modifications to the fiscal and economic terms of license and production sharing contracts to enhance attractiveness, EY said.

Moreover, Saudi Arabia issued a law "to reduce the corporate income tax rate from 85 percent to 50 percent for upstream oil and hydrocarbon producing companies, which could set a new benchmark for attracting foreign investors that, for many countries, may not be easy to meet," EY said.

Major resource-rich countries in the Middle East and Asia-Pacific are pursuing a similar agenda, according to EY.

"Forward-thinking governments review and revise their regimes continually, but with the sustained lower price environment, along with other basin challenges, governments are looking to quicken regime change," EY said.

Lower oil and gas prices mean unconventional and difficult-to-recover projects as well as many conventional oil and gas projects have become marginal.

"Keeping projects economically viable will require some countries to impose new incentives or make adjustments to existing regimes," EY suggested.

EY underlined that a balance is needed to create the right conditions for the industry to provide incentives for fossil fuel projects.

"Tax-take remains one of the top considerations for oil and gas investors. Maintaining investment and interest in oil and gas projects in any country requires a clear fiscal policy and a tax regime that provides competitive returns to investors," said Alexey Kondrashov, EY oil and gas tax leader.

By Zeynep Beyza Kilic

Anadolu Agency



02 Aug,2017