VICTORIA -- The British Columbia government has climbed down from its proposed goal of a seven per cent income tax on the province's liquefied natural gas industry, and instead cut the rate in half to 3.5 per cent for the next two decades.
Finance Minister Mike De Jong said Bill 6, the Liquefied Natural Gas Income Tax Act, reflects the plan he announced in February's budget, but changing world-market conditions and increasing construction costs prompted the government to reduce the preliminary tax rate it announced nine months ago.
"Here we are in October with a comprehensive legislative package that will ensure everyone, the public, the shareholders of British Columbia, and the proponents themselves know what the rules of the game are going to be with respect to the LNG income tax," he said in announcing the tax on Tuesday.
The new tax starts in 2017 at a rate of 1.5 per cent and rises to 3.5 per cent, with another increase to five per cent in 2037, once the industry plants roots in the province, he said.
De Jong said the tax also includes a corporate income-tax credit available to LNG companies that establish permanent bases in B.C. The credit, an attempt to attract new corporate income-tax revenue to B.C., could drop to eight per cent from 11 per cent for LNG companies, he said.
Last February, de Jong said the preliminary version of the LNG income tax would be 1.5 per cent at the start of production, and the second tier would rise to seven per cent once plants were running and capital costs were deducted. But he also indicated seven per cent was at the top of the tax range.
Industry groups and individual LNG companies said seven per cent was too high, considering the other taxes and royalties companies already pay, but they all carried on with their development plans.
De Jong said the reduced rate of 3.5 per cent is a result of dropping LNG prices and an attempt by the government to introduce a tax more attractive to investors.
He mentioned possible changes in demand for LNG, including a massive deal China recently made with Russia, as one of the primary reasons behind the reduced rate.
De Jong also suggested some of the Liberal government's May 2013 election promises to eliminate the provincial debt and the creation of a $100-billion Prosperity Fund may take longer to achieve.
"The market has changed," said de Jong. "We set some objectives. We set some targets. If it takes an extra 10 or 15 years to pay down to the extent we'd like, or eliminate our debt, I'll take that. That's in my view, worth pursuing."
He said one mid-sized LNG plant will pay about $800 million in taxes annually under the rules, an amount equivalent to the taxes B.C.'s entire forest industry pays in one year. De Jong said one plant, producing 12-million tonnes of LNG annually, will pay taxes of $8 to $9 billion over 10 years.
A resource industry spokesman said the tax announcement provides the certainty LNG companies need to make final investment decisions.
"We've been waiting for certainty on the question," said Resource Works spokesman Stewart Muir. "That's what we got today."
LNG Canada, a group of companies including Shell that's planning an operation near Kitimat, called the tax rules an important step forward in a statement.
"We are pleased to have certainty on a final BC LNG tax framework and consider it an important input to our decision-making process," said the statement.
Environment Minister Mary Polak introduced emissions-control legislation Monday that forces LNG companies to meet benchmarks that she says are the most stringent in the world.
