Nov 19, 2022 News
– while Guyana not implementing windfall tax although oil companies pay no taxes
Kaieteur News – Just four months after it introduced a windfall tax on crude oil in their country – the Government of India on Wednesday announced that it will be further taxing domestically produced crude, amid the sudden spike in crude oil prices that have led to ‘big-profits.’
A windfall tax is a one-off tax imposed by a Government on a company, specifically targeting those that benefit from something they were not responsible for. In this instance, the ongoing Russia-Ukraine war has sent oil prices soaring and triggering a cost of living crisis in many countries.
Amid the war, oil and gas companies have been seeing record-shattering profits and as such, many Governments have introduced a windfall tax on the big profits.
According to reports, on July 1, 2022, the Indian Government introduced the windfall tax on crude oil. However, the Government on Wednesday announced that it has decided to move up the windfall tax on crude oil from the current from 9,500 rupees (US$116.49) per tonne, to 10,200 Indian rupees (US$125.22) per tonne.
Like India, the energy profits levy have been introduced in several other countries like the United Kingdom (UK), Australia, and Mongolia.
Kaieteur News recently reported that British Finance Minister, Jeremy Hunt on Thursday announced that the Government is increasing the windfall tax on oil and gas operators from the current 25 percent which was announced in May of 2022 to 35 percent.
The British Government’s move to raise the tax on the big profits being made by oil majors is to alleviate the cost-of-living crisis and balance their economy. Hunt said, “I have no objection to windfall taxes if they are genuinely about windfall profits caused by unexpected increases in energy crisis.” He then disclosed that the energy profits levy will increase from 25 percent to 35 percent. He added that the increase will take effect from January 1, 2023 and last until March 2028.
While countries are hiking the windfall tax on the oil majors, other countries like Norway and Czech Republic are also clamping down on them and have signaled their intentions to raise US-billions through a windfall tax on the companies. Also, earlier this month, President of the United States of America, Joe Biden threatened to increase the tax on the oil majors ‘outrageous’ profits.
Importantly, the additional tax being imposed on oil and gas companies who are ‘war-profiteering’ comes at a time when American oil giant, ExxonMobil subsidiary and its associates are enjoying tax-free profits in Guyana.
In fact, President Irfaan Ali is adamant that Guyana is new to the oil business and as such he was reported in the media as stating that Guyana will not be implementing a windfall tax on the oil companies nor will Exxon and its affiliates be subjected to the new terms his administration announced for future oil blocks.
This publication had reported that Guyana has found itself in a conundrum where it is foregoing more than it earns. Exxon’s affiliate Esso Exploration and Production Guyana Ltd (EEPGL), is the operator of the country’s richest oil block (Stabroek Block) and continues to enjoy tax-free earnings owing to the Production Sharing Agreement (PSA) Guyana signed onto with the oil major.
According to the 2016 PSA, Guyana has agreed to, under the taxation provisions, to pay ExxonMobil’s share of Corporation and Income Tax. As such, it would mean, that Guyana foregoes each year, billions of US dollars. On top of this, documentation to this effect is then provided to the US based company allowing it to not have to pay any taxes in its home country for its earnings overseas.
Guyana’s Stabroek Block is 6.6 million acres (26,800 square kilometers) and has approximately 11 billion proven barrels of oil. EEPGL holds 45 percent interest in the Block. Hess Guyana Exploration Ltd. holds 30 percent interest, and CNOOC Petroleum Guyana Limited holds 25 percent interest. For the third-quarter of 2022, Exxon announced that its overall earnings was a record-shattering US$19.7 billion – whereas Hess reported that it earned a net income of US$515 million and CNOOC recording US$5.1 billion.
In January 2022, Kaieteur News Publisher, Glenn Lall, approached the High Court to challenge the Government of Guyana’s (GOG) decision to grant massive tax waivers to the oil companies and their affiliates. Earlier this month, Lall’s lawyer filed final submissions in the case and oral arguments into the case will be conducted on December 12, 2022 and February 22, 2023 was set for the ruling. The KN’s Publisher’s court case seeks to overturn the expansive tax provisions granted to the oil companies as part of the PSA for oil drilling exploration in the Stabroek Block. Among the grounds, Lall argues that Articles 15.4 and 15.5 of the petroleum agreement requiring the Minister responsible for Petroleum to pay taxes for and on behalf of the ERPGL, and the Commissioner General to issue certificates to that effect is therefore a violation of the Petroleum Act.
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