UK’s Chancellor of the Exchequer George Osborne has presented his Budget 2016 to the UK parliament in which it has been revealed that the oil and gas industry will be aided by tax cuts worth £1 billion.
In his budget statement he said that the government believed in making the most of the UK’s oil and gas resources and the industry which supports thousands of jobs.
Osborne said: “ The Oil and Gas sector employs hundreds of thousands of people in Scotland and across our country. In my Budget a year ago, I made major reductions to their taxes. But the oil price has continued to fall. So we need to act now for the long term. I am today cutting in half the Supplementary Charge on oil and gas from 20% to 10%. And I’m effectively abolishing Petroleum Revenue Tax too. Backing this key Scottish industry and supporting jobs right across Britain. Both of these major tax cuts will be backdated so they are effective from the 1st of January this year, and my HF the Exchequer Secretary will work with the industry to give them our full support.”
According to Osborne’s budget, the government will:
According to the statement in the Budget 2016, the government expects that “this radical package” will ensure the UK has one of the most competitive tax regimes for oil and gas in the world, supporting jobs and investment and “safeguarding the future of this vital national asset.”
While the government feels the package is a radical one, not everybody agrees.
Derek Leith , EY Head of Oil & Gas Tax feels the measures announced fall short for the oil and gas industry.
He said: “Today’s announcement of a 10% cut in corporate taxes, and the effective abolition of Petroleum Revenue Tax for the UK oil and gas sector will fall short of industry expectations. Since 2011 there has been a compelling case to lower the tax burden to recognise the maturity of the basin, the high cost base, and the falling production efficiency of older assets which support vital offshore infrastructure.
“The case for a significant change to the oil and gas regime has been exacerbated by the collapse in the oil price. Decisive action by the government was required to send a strong signal to investors.
“Today’s changes, while welcome, are a missed opportunity to be more radical and abolish supplementary charge completely which would have simplified the regime by sweeping away the complexity of investment allowance and its interaction with decommissioning losses.”
Leith added: “The industry will be very relieved that the proposed restriction on trading losses will not apply to oil and gas companies, and appreciative of the announcement clarifying tax relief on retained decommissioning activities.”