Mr. Speaker, permit me to say a few words on Trinidad
and Tobago's role in the CSME and more generally, about
our support for and commitment to regional integration.
As Honourable Members are aware, Trinidad and Tobago is
the largest market in CARICOM, and we are responsible
one way or the other for about 80 percent of the trade
that takes place in the CARICOM arena. CARICOM represents
Trinidad and Tobago's second largest export market behind
the USA. In 2004, Trinidad and Tobago's exports to CARICOM
amounted to US$1 billion while imports were valued at
US$94 million, resulting in a trade surplus of US$916
million. The trade surplus vis-à-vis CARICOM has
averaged over US$700 million in the period 1999-2004.
What this means, Mr. Speaker, is that thousands of jobs
of our citizens - in manufacturing, in financial services,
in shipping and trading and in various other services
- depend on the maintenance of satisfactory levels of
economic activity in CARICOM.
It is for this reason that it is critical that we provide
whatever assistance we can to our CARICOM neighbours.
Last year in the face of rising oil prices, the Government
established a petroleum fund to provide assistance of
TT$300 million (US$48 million) to CARICOM countries. This
assistance was to be directed to poverty alleviation and
disaster recovery efforts.
For the coming fiscal year, the Government will maintain
the Petroleum Fund at the same level - TT$300 million
(or the equivalent of US$48 million). This Fund, will
be administered by the CARICOM Secretariat and a Committee
of CARICOM Prime Ministers. Disbursements and accounting
arrangements will be handled by the Central Bank of Trinidad
and Tobago.Major Initiatives bearing on the 2005-2006
Energy and Tax Reform
Mr. Speaker, I now turn to the fiscal measures which are
included in the 2005-2006 Budget.
In the Budget presentation of October 2004, I indicated
the Government's intention to review and revise the energy
sector fiscal regime. The review was seen as appropriate
given that the last significant modification to the petroleum
fiscal legislation was in 1992. The 1992 legislation was
instrumental in fuelling the tremendous growth in the
energy sector over the last 15 years. While I will do
nothing to interrupt this successful track record, the
structural changes in the global energy market and the
growth of the local gas industry dictate that a review
is timely and appropriate.
Recognising that these changes could not be undertaken
lightly, we took the prudent step to engage in a deep
enquiry which involved extensive research using world-class
energy taxation consultants and wide ranging consultation
with all the stakeholders. As I said in my last Budget,
the issues involved in energy taxation are very complex
and out of an abundance of caution, my government sought
to take the time necessary to arrive at a solution that
provides government with a fair share of returns accruing
to the energy sector while maintaining incentives for
continued investment in the industry.
I am pleased to report that over the course of the last
year, the government has had fruitful discussions with
the industry and arrived at a position that I believe
is equitable and fair under the current circumstances.
The comprehensive review has led the government to make
amendments to the fiscal regime with the following objectives:
* Continue to provide incentives for further exploration
and development activity through accelerated capital allowances
* Create an appropriate balance in allocation of future
gas sales between LNG and gas sold to the local downstream
* Assurance that all contracts along the LNG value chain
should be based on Fair Market Value principles;
* Review the relevance of the continuation of any concessions
provided to facilitate the development of the LNG industry;
* Provide incentives to stimulate oil production.
Mr. Speaker, in July 2005, an amendment to the Finance
Bill 2005 was enacted that included measures to reform
the system of taxation of income from oil production.
This, and the reform of taxation regime for income from
gas production are major initiatives which will increase
significantly the revenue that the people of Trinidad
and Tobago will receive from their energy wealth.
I would like to acknowledge publicly the tremendous work
done by the Energy Tax Committee, chaired by Prof. Kenneth
Julien, which laboured long and hard to bring this very
important exercise to a successful conclusion. The new
tax regime has a number of highly technical aspects that
I would not seek to outline at this time. I would, however,
review some of the salient features as follows.
Mr. Speaker, income from oil production is taxed through
a Petroleum Profits Tax (PPT), a Supplementary Profits
Tax (SPT) and the Unemployment Levy. The PPT yields about
60 percent of the tax and the SPT about 30 percent.
Under the old regime, the tax base for the SPT was determined
after deducting capital allowances which invariably included
expenses in respect of both oil and gas exploration and
development. Under the new regime, SPT would be computed
on gross crude oil income with no allowances except for
the royalty allowance, but at slightly lower rates.
To compensate for the increase in the taxable base, the
rate of tax has been lowered. The rate reduction is somewhat
larger at oil prices below US$21 per barrel than at higher
oil prices. The trigger price at which SPT becomes payable
has also been increased slightly.
Moreover, under the new regime, SPT payments are now based
on a weighted average price of crude calculated quarterly
instead of annually. Previously, SPT was assessed annually
but paid on a quarterly basis. This often reduced the
Government's cash-flow pending end-of-year adjustments.
The major advantages of the new regime are (i) it is simple
to administer and would provide a more predictable, stable
and transparent revenue flow (ii) as oil prices increase,
the Government will realize a greater share of the additional
revenues than previously and (iii) a company's increase/decrease
in exploration and development expenditure will not affect
the SPT take.
As regards the Petroleum Profits Tax (PPT), the amendments
to the existing regime involve:
(i) the removal of the first year allowance for both tangible
and intangible expenditure and the postponement of annual
allowances to year two or until commencement of commercial
products or whichever is earlier.
(ii) the shift to quarterly tax payments calculated on
a current year basis;
(iii) non-deferral of capital allowances and allowing
decommissioning and abandonment costs only when they are
(iv) limiting deductible management charges to 2 percent
As part of the discussions with the industry, the government
sought to ensure that the levels of taxation were equitable
across all the industry players. In that regard, as part
of our fiscal reform process, we asked the largest energy
company, BP Trinidad and Tobago to consider accelerating
the onset of a 10 percent gas royalty - currently due
to commence from 2017. I am happy to announce that my
government has secured agreement with the company to a
volume equivalent to 10 percent of gas sold for LNG. This
royalty will be implemented in a phased manner beginning
in 2005 and be fully effective by 2008. The company currently
sells some gas through NGC at preferential prices for
use for power generation. This value is recognized by
the government as equivalent to a similar royalty on gas
sold to local industry through NGC.