202

Views

U.K. Government Proposes Tax Relief for Oil and Gas

Rig
File image

By MarEx 2016-03-16 21:32:42

U.K. Chancellor of the Exchequer George Osborne presented the government's budget to Parliament on Wednesday, and it includes major tax relief for the nation’s struggling oil and gas industry. The tax support is worth roughly $1.4 billion, including effectively abolishing the Petroleum Revenue Tax (a tax on profits from oil fields approved before 1993) and cutting the supplementary charge on oil and gas extraction.

The petroleum revenue tax will be effectively removed, by permanently reducing the rate from 35% to 0% with effect retroactive to the first of January. The supplementary charge will also be reduced from 20% to 10% with effect from 1 January 2016.

“We welcome these measures as they will build on the industry’s achievements in improving efficiency in the face of low oil prices, boosting the sector’s competitiveness and helping to restore investor confidence, said Deirdre Michie, Oil & Gas UK’s chief executive. “We will continue to work with the Treasury to complete its ‘Driving Investment’ plan to ensure that the fiscal regime reflects the business needs of a maturing basin and signals to global investors that the UK is truly open for business.”

In addition to tax relief, the government will provide a further $28 million of funding for another round of seismic surveys in 2016-17, and will take measures to encourage investment in infrastructure maintained for the benefit of third parties like the oil and gas industry.

The proposal would also ensure that companies will be entitled to tax relief on decommissioning costs, so long as they retain decommissioning liabilities for an asset after a sale. 

Beyond oil and gas-specific provisions, the measure contains a broad range of tax relief and incentive measures for businesses and entrepreneurs, including cuts to capital gains tax rates.

U.K. oil and gas executives and industry groups have been calling for tax relief for the beleaguered sector for some time. A combination of declining output at aging North Sea fields – down by more than half from the levels seen in the early 2000s – and low oil prices has resulted in the loss of some 65,000 jobs in U.K. oil and gas since the start of the decline.