De Jong says LNG Income Tax ensures fair returns for British Columbians, but NDP lashes out at government

Finance Minister Mike de Jong
Finance Minister Mike de Jong
Finance Minister Mike de Jong

 

A comprehensive and competitive income tax applicable to the LNG industry gives proponents the certainty they need to make investment decisions while ensuring British Columbians receive the revenues they deserve from this new industry, Finance Minister Michael de Jong said with the introduction of Bill 6, the Liquefied Natural Gas Income Tax Act in the B.C. legislature on Tuesday.

The LNG Income Tax framework reflects government’s announcement in February 2014 and government’s ongoing consultation with industry.

With this bill introduced in the legislature, LNG proponents will have a clear understanding of the tax framework and can begin to make final investment decisions. Currently, there are 18 potential LNG projects in British Columbia that have invested more than $7 billion to acquire natural gas assets in British Columbia. An additional $2 billion has been invested in preparation for construction of B.C. LNG infrastructure.

For British Columbians, the LNG Income Tax will help ensure that they receive a fair return on a publicly owned, non-renewable, natural resource.

The LNG Income Tax applies to the net income from liquefaction activities at LNG facilities in B.C. The tax rate on net income will be 3.5%, effective for taxation years beginning on or after Jan. 1, 2017. During the period when net operating losses and the capital investment are being deducted, a tax rate of 1.5% will apply and is creditable against the 3.5% tax.

In 2037, the LNG Income Tax rate will increase to 5%. This ensures that proponents have time to build a strong foundation in the communities in which they operate, before the full extent of the tax is applied. It also ensures guaranteed revenue flow for the next generation of British Columbians.

To encourage investment, the tax framework will see a new B.C. Corporate Income Tax Credit available to any LNG Income Taxpayer that has a permanent establishment in B.C. This credit will be calculated based on the natural gas acquired for an LNG facility. The credit will have the effect of reducing the provincial corporate income tax rate from 11% to as low as 8% for that company. This will help attract new corporate income tax revenue to B.C.

The Province’s tax framework was reviewed in February 2014 and is competitive with competing jurisdictions, including the United States and Australia. B.C.’s advantage is more than just a competitive tax rate – proponents will benefit from B.C.’s skilled workforce, geographical proximity to markets and large natural gas reserves, as well as the cool, northern climate.

In February 2014, the LNG Income Tax rate was announced to be up to 7%, based on 2013 economic assumptions and conditions. At that time, B.C. undertook to introduce the tax in October 2014. The new, reduced rate of 3.5% is the result of changes to the market since. The combination of declining LNG selling prices and increased construction costs has resulted in a lower rate that is more attractive to investors and more indicative of current market conditions.

Government has undertaken extensive discussions with LNG industry proponents over the past two years. Government has considered their input to better understand business models, cost structures and competitiveness issues in creating this new tax.

The Liquefied Natural Gas Income Tax Act is subject to the approval of the legislature.

Premier Christy Clark said: “This marks an important next step in attracting an LNG industry in British Columbia. Our competitive tax framework provides certainty and stability for proponents, long-term revenues for British Columbians, and encourages high-paying jobs that will come and be generated by the establishment of this new industry.”

De Jong said: “Developing a tax framework for a promising new industry has been a complex process. We believe this overall framework strikes the right balance between a competitive economic environment and a fair return to British Columbians.”

 

Quick Facts:

 

* Initial LNG Income Tax rate: 1.5% while capital investment is being deducted.

* Tax at the 1.5% rate is creditable against the higher tax rate.

* Tax rate on net income: 3.5%, once capital investment is deducted.

* Tax rate will increase to 5% in 2037.

* Tax years take effect on or after Jan. 1, 2017.

* Natural Gas Tax Credit for Corporate Income Tax can reduce the effective B.C. Corporate Income Tax rate to 8% (from current 11% rate).

* Government revenue forecasts will depend on proponents making their investment decisions.

 

 

BUT the NDP said that Clark had slashed British Columbians’ share of LNG revenue in half.

In the eight months since the B.C. Liberals tabled their position on what would be a fair share of LNG revenue for British Columbia citizens who own the resource, Clark has cut that share by at least half, said Bruce Ralston, New Democrat Spokesperson on LNG.

“It’s hard to take Christy Clark at her word when it comes to LNG. She knew what to say when she promised a fair share of LNG revenues to British Columbians. Then she turned around and did whatever she wanted,” said Ralston.

“The LNG tax legislation introduced today was written by industry and for industry. It cuts in half the LNG tax the premier said was fair in the February 2014 Budget. Moreover, the new corporate income tax credit and deductions for pre-construction costs will also cut into the public’s share that Christy Clark promised just eight months ago.

“We warned that Christy Clark’s outlandish political promises to eradicate the provincial debt and the sales tax essentially eliminated her government’s bargaining position with LNG proponents, and we are seeing that in spades in the tax regime the B.C. Liberals introduced,” said Ralston.

The BC Liberal government finally brought forward legislation to define the LNG tax regime on Tuesday, 18 months later than they promised. On Monday the government also introduced environmental legislation covering the industry, but New Democrat environment spokesperson Spencer Chandra Herbert says it doesn’t go far enough.

“An LNG industry in B.C. needs to protect our air, land and water, and that means honouring our climate change commitments to reducing greenhouse gas emissions,” said Chandra Herbert. “The B.C. Liberals’ legislation won’t achieve that. It fails to address upstream emissions from natural gas production, and gives liquefaction facilities enough loopholes to ensure they won’t meet our emissions targets.”

John Horgan and the B.C. New Democrats believe that, in order to move forward, LNG development must include express guarantees of jobs and training opportunities for British Columbians, a fair return for our resources, benefits for First Nations, and protection of our air, land and water, including living up to our climate change commitments.

“The B.C. Liberals are failing on all four conditions. They know what to say, but then they can’t deliver,” said Ralston.