Ic­ing on the cake

New oil and gas tax law com­pletes sec­tor’s fis­cal regime

Executive Magazine - - Contents -

18

It came at the last minute. For two years, the Min­istry of Fi­nance and the Le­banese Petroleum Ad­min­is­tra­tion (LPA) have been draft­ing a tax law fo­cused specif­i­cally on the oil and gas in­dus­try. In late Septem­ber, Par­lia­ment ap­proved it just in time for the law to po­ten­tially gov­ern the first oil and gas ex­plo­ration and pro­duc­tion con­tracts the state hopes to sign dur­ing or be­fore Spring 2018 (with bids due Oc­to­ber 12).

Con­tract sig­na­ture is not a given, but with the pas­sage of the tax law, Le­banon’s oil and gas fis­cal regime is fi­nally com­plete. The new law is tai­lored for the oil and gas in­dus­try and im­poses higher tax rates on oil and gas com­pa­nies than it does on other cor­po­ra­tions reg­is­tered or op­er­at­ing in the coun­try. Cor­po­rate in­come tax, for ex­am­ple, is set at 20 per­cent in the oil and gas tax law, as op­posed to the 15 per­cent cor­po­rate in­come tax im­posed by ex­ist­ing leg­is­la­tion (even higher than the ap­proved but an­nulled hike to 17 per­cent).

The oil and gas tax law was ini­tially slated for par­lia­men­tary de­bate in Au­gust, but lack of quo­rum scut­tled the dis­cus­sion. In early Septem­ber, par­tially be­cause the law had not yet been passed, the LPA rec­om­mended post­pon­ing the dead­line for sub­mit­ting bids in the coun­try’s first off­shore oil and gas li­cens­ing round from Septem­ber 15 to Oc­to­ber 12 (a new dead­line of­fi­cials in­sist will not change—see story page 16). Model con­tracts oil and gas com­pa­nies will use to bid in­clude a so­called sta­bi­liza­tion clause, which pro­tects com­pa­nies from tax in­creases that come af­ter con­tract sig­na­ture. Sta­bi­liza­tion clauses are com­mon in the oil and gas in­dus­try as a way to hedge tax in­crease risk given that oil and gas ex­plo­ration and pro­duc­tion con­tracts typ­i­cally run 30 years or more in du­ra­tion. By pass­ing the new oil and gas tax law be­fore sign­ing con­tracts, the state will in­crease its tax rev­enue un­der any con­tract, or con­tracts, signed as a re­sult of the first li­cens­ing round.

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