By Tom Fletcher and Cameron Orr
The B.C. government plans to impose a two-tiered income tax on liquefied natural gas exports, with rebates in early years until investors recover the capital cost of building LNG processing plants.
Finance Minister Mike de Jong presented the framework for LNG income tax with last Tuesday’s provincial budget. It describes an income tax rate of up to 1.5 per cent on net revenue in the first three years of LNG production, with a second tier rate of up to seven per cent applicable after five years.
Income tax paid in the first three years would be applied as a rebate to higher rates in year four and five, so the top rate wouldn’t take full effect until year six. Producers also pay royalties on natural gas at the wellhead, and B.C.’s carbon tax would apply to gas burned in processing and refrigeration of LNG.
De Jong said the final income tax rates will be set when the government introduces legislation this fall. That is when international companies are expected to begin making final investment decisions.
The budget includes government revenue and expense forecasts out to 2017, with no tax revenue projected from LNG until later. De Jong said the government is sticking to its “lofty” goal of having three export plants operating by 2020.
In his response to the budget, NDP finance critic Mike Farnworth said the government has missed its original target to have the LNG tax regime in place by the end of 2013. He zeroed in on Premier Christy Clark’s promise to have at least one LNG pipeline and plant in operation at Kitimat by 2015, and her campaign pledge to retire B.C.’s growing debt.
“Judging from today’s lack of LNG revenue, the premier’s promise to magically wipe away $70 billion worth of debts in 15 years is surely a fantasy,” Farnworth said.
Natural Gas Development Minister Rich Coleman denied the suggestion that the tax structure is behind schedule.
He said he met with officials from Shell and other proponents last week, and they are “comfortable” with the progress to date.
“The opposition wouldn’t know LNG if it came up and bit them,” Coleman said. “They’re totally uninformed. They don’t support the process, they don’t support LNG, they never have.”
In a speech to the B.C. Chamber of Commerce in Vancouver Wednesday, Clark said not all of the 10 LNG plants currently proposed will proceed, but even one would be a significant source of revenue.
Asked by reporters if the budget means no LNG revenues by 2017, Clark said it is still possible.
“We don’t want to book money that we don’t have yet,” Clark said.
Meanwhile Skeena MLA Robin Austin, the NDP’s critic for natural gas development, said there are issues with the budget as presented.
“This tax is after expenses. So in other words the companies will bring in their revenue and after all their expenses that’s what their taxes are going to be paid out on. Which is, you know, challenging in the sense that these companies are multi-nationals and they can decide what are expenses or not expenses,” he said. “They can transfer costs from one jurisdiction to another.”
He said this “very late” LNG tax system also doesn’t address the bigger picture of LNG development.
“They haven’t mentioned anything to do with the other costs. No mention of any extra carbon taxes...there’s no mention of water rates because of the extra use of water for fracking. I think the companies are looking at not just this new LNG tax but all the costs that are involved.”
Austin said he’s hopeful that the fall session will show the results of the real behind-the-scenes negotiations.
Skills training is another area the budget has lacked focus on, which Austin said goes against even the throne speech from the week prior.
“They cut the budget for post-secondary education and community colleges. So on the one hand the throne speech said ‘we’re going to emphasis skills training,’ the following week the budget actually cuts the budget for that.”
He said he fears that any new project that comes on will rely heavily on foreign workers which doesn’t help the local economies.