In this environment, only low-cost investment projects will be approved so, in the meantime, the industry is pursuing as many cost cutting initiatives as it can. But in some countries, this impetus is being hindered by governments that target spending as a source of tax revenue.
The main indirect taxes are value added tax, import duty and withholding tax on sub-contractor services. Such ‘stealth’ taxes are highly regressive and have a significant influence on the competitiveness of a country for upstream investment. With the potential to add over 50% to the cost base in some cases, they could deter investors from drilling wells or taking FID.
Governments that want oil companies to continue investing need to play their part. Those that provide exemption from indirect taxes, or administer efficient refund systems, will have a competitive edge. Those that insist on retaining such taxes need to consider the negative impact they could have on future investments, especially exploration.
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Insight | Mar 2016
Indirect taxes: hindering investment at low prices
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