Oil tax regime: Getting less for more

No reasonable explanation has been provided by Government with respect to the delay in formalising a new oil tax regime which would bring the country vastly enhanced revenues at a time when prices for international crude have soared to beyond US$50 a barrel to reach an all time high. When, in 1983 the then PNM  Government wished to stimulate land production in the wake of declining oil prices, which had seen petroleum slip to US$29 a barrrel, it reduced the Supplemental Petroleum Tax (SPT) for land production from a high of 35 percent to 15 per cent almost in the proverbial twinkling of an eye. 

This meant that the country which had already lost some $500 million of the revenue it had been estimated it would have earned from oil, was then set to lose an additional $160 million. But the change was efffected, and quickly, in the interest of encouraging the oil companies to engage in added land production in an effort to provide desperately needed added revenue in light of declining international demand for crude and consequent sliding oil prices. In 1988, with oil prices at a 14-year low of less than US$9 a barrel the NAR administration had acted with despatch at the instance of both the IMF and the World Bank.  It further revised the oil tax regime when the World Bank indicated it was “not appropriate for promoting new exploration and production activities.”

The converse holds true today, what with international oil majors already operating here expanding production, and the price of crude, overheated by increasing demand in China, industrial unrest in the oil industry in Nigeria and hurricane damage to facilities in Mexico, rising by an added 66 percent more than it was 20 years ago. We would have thought that in the same way Government had been prompted in 1983 to reduce the Supplemental Petroleum Tax to encourage further drilling on land and gain additional revenue, it would have moved with not dissimilar speed now that crude was fetching extremely high prices in the international market place. In turn, we are puzzled by the price, less than US$33 a barrel, which Government says is the average price for Trinidad and Tobago’s crude, and the estimated billions in revenues it expects to gain from oil during the 2004/2005 financial year.

Particularly, as in 1983, even with the price decline in OPEC marker crude to US$29 a barrel and a drop in demand the then PNM Government earned $3 billion in revenues. In addition, the Trinidad and Tobago  exchange rate to the United States dollar was less than half of what it is today. Meanwhile, production of crude in 1983 had slumped to 58,344,396 barrels from a record 83,777,503 barrels five years earlier. Government should appreciate that the need to speed up the revision of the oil tax regime and so allow for the pumping of additional billions of dollars into the Revenue Stabilisation Fund is greater today with the decrease in the volume of TT crude in the ground than existed in 1983.  Interestingly, the oil tax regime which was once described as complex as well as having been revised “in a fragmented manner” is far more simplified today.