Governments Increase Fiscal Focus on Oil and Gas Sector

by CFO Innovation Asia Staff, 15 June 2012

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Accounting and Regulations Tax

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Ernst & Young oil and gas industry tax

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Tax revenues from oil and gas companies continue to provide a significant proportion of income for states around the world, according to the latest Ernst & Young Oil & Gas Tax Guide.

The report also confirms that many governments are working on ways to make oil and gas tax regimes more attractive to investors.

“Over the past 18 months, many countries have significantly changed their tax regimes, which has not only impacted companies but also provided incentives for much-needed investors," says Alexey Kondrashov, Global Oil & Gas Tax Leader at Ernst & Young.

"Specifically, these changes have influenced government taxes, such as royalties and petroleum taxes as well as general taxes including income tax rates and other general fiscal terms.”

New frontier countries in which hydrocarbon reserves have just been discovered, such as several African nations, Cyprus and Israel, are working towards designing their national legal and tax legislation for the oil and gas industry. This is as a result of both unconventional and conventional oil and gas attracting greater government attention which is focused on incentivizing the development of such reserves.

Shale gas development continues to be a top priority, particularly in North America, China and in certain European countries. For example, Poland is working on its tax regime for shale gas; although development is still in its early stages.

Countries with a presence in the Arctic compete for attracting investments into cost-intensive offshore and onshore projects and may revise their tax legislation.

Russia which has the largest potential Arctic oil and gas reserves is already in the process of elaborating on a new attractive tax regime for Arctic offshore projects. Kondrashov concludes that despite major economic woes, high oil and gas prices - are focusing governments’ on maximizing efficient production of oil and gas to improve state budgets while securing a fair return for the extraction of the nation’s natural resources.

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