Over the past few weeks, we've heard a great deal about the proposed income tax on the oil industry, how much it's supposedly going to hurt BNE, and kills that goose that lays those precious golden eggs. But will it really? Well that's arguable, and from the small mathematical projection we've made based on available figures, it looks better for the oil company than it does for Belize.
Jules Vasquez Reporting,
When he introduced legislation for the oil industry in the National Assembly one June 12th of this year, this is what the Prime Minister had to say.
Rt. Hon. Said Musa,
[June 12th] "The present bill exempts the companies engaged in petroleum operations from business tax and imposes an income tax rate of 40% of the chargeable income. This would bring the petroleum legislation in Belize in line with that of other oil producing countries. Taken together, it is estimated that Belize will receive as much as 50% of revenues from the oil companies."
But what does 50% of the revenues mean? Does that mean a 50% take of the gross or the net? With a oil field valid at $700 million, the difference is equal to hundreds of millions of dollars. It is a difference in meaning and money that the Prime Minister was aware of, so we must assume that he intended to be specifically vague.
Revenue, by definition, means "all the income produced by a particular source." And income means, "the amount of money...received...from the sale of goods." So we take it mean gross and this explanation given by petroleum consultant Dr. Ram shows that the 40% income tax is far from achieving that.
Dr. Ram,
"So for one year, at the present rate of 2,800 barrels per day production, there will be a total production of about one million barrels valued at $70 million. Out of this the government will get $13.57 million at the rate of 25%. Since it is a 50/50 split, according to the company, the contractor will also get more or less the same amount, that is $13.57 million. The remaining is the cost. How much? $42.86 million. In other words to get a profit of $27.14 million, the cost will be $42.86 million. In this oil business, that is over 60% of the value of crude oil produced."
To go back over those figures,
- The gross for one year is $70 million.
- The cost is $42.86 million and the total profit that remains is $27.1 million
- 40% on that yields $10.85 million
- A 7.5% production share, assuming that the figure is on the gross, yields $5.2 million.
- Government's 10% equity, assuming it has no financing cost, earns it another $2.7 million
- And the royalty of 1.5% making, again, a favorable assumption that it is on the gross, yields another $1.05 million.
Add it all up and you get $19.87 million, which is 28% of the gross of $70 million, meaning that at the present formula, Belize is getting just over one quarter of the take from oil profits, a far ways off from the half or 50% take that's been so heavily discussed.
Looking at the picture at the front page of this week's Belize Times where the then acting Prime Minister and the principals of Belize Natural Energy and their bankers are all sitting at a table in a cozy photo opportunity, it is clear that the 40% income tax may not be such a big deal after all. But then is this 28% take a big deal for Belizeans?
Those figures are based on what was provided by Belize Natural Energy which, as Dr. Ram noted, show very high costs. And that's the next stage, government's petroleum accountant from Trinidad and BNE will have to argue over what those costs are stated to be by the oil company and what they are. If the costs come down, government's take goes up a great deal. So far, off US$19.6 million in earnings off oil sold, government's take has been US$300,000.
