The B.C. Liberal government plans to impose a two-tiered income tax on liquefied natural gas (LNG) 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 the provincial budget on Feb. 18. 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 6. Producers also pay royalties on natural gas at the wellhead, and British Columbia’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.”
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. 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 on Feb. 19, 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.”
