Norway FinMin rejects oil industry tax-cut demand

Norway's finance minister rejected Wednesday the oil and gas industry's calls for a big tax cut on new activity on the Norwegian shelf, saying that the government aimed to boost activity by other means.

Norway's finance minister rejected Wednesday the oil and gas industry's calls for a big tax cut on new activity on the Norwegian shelf, saying that the government aimed to boost activity by other means.

The industry has lobbied long and hard for a substantial tax cut, saying that smaller discoveries offshore Norway will not be developed if new projects are not given a break from the current 78 percent tax on profits.

"Tax measures cannot solve the main challenges on the Norwegian continental shelf," Finance Minister Per-Kristian Foss said in a speech to a professional association.

Norway, where oil drilling began in the 1960s, is the world's third-biggest oil exporter, pumping about 3 million barrels per day. But production from existing oilfields is beginning to tail off, though gas output is still growing.

Foss said the government would help make tail-end production from mature fields more economical, but did not elaborate on the measures and stopped short of pledging a tax cut.

His remarks came ahead of the centre-right coalition government's revised 2004 budget proposal and a policy paper on petroleum activities on May 11.

Norway's top-selling newspaper Verdens Gang said earlier Wednesday that the government's budget plan would bring the industry tax relief of about a half a billion crowns ($74.34 million) -- far below the industry's own aims.

Foss said that cost reductions and technological innovation were crucial to increase profitability of petroleum activities.

Oil and gas firms pay a 50 percent "special tax" on profits on top of Norway's basic 28 percent corporate tax. They pay lower effective rates after large deductions on investment.

 

INDUSTRY WANTS DOUBLE-DIGIT CUT

The industry has demanded a tax cut on new activity to promote exploration and development of small discoveries that it says would be unprofitable at current tax rates. Its demands do not apply to income from existing fields.

It has not specified its tax-cut demand, but the head of the Oil Industry Association, or OLF, said recently that at least a double-digit cut was needed.

In a report by the KON-KRAFT working group, the industry suggested that a cut in the special tax to 25 percent would result in increased activity boosting tax revenues.

"It is difficult to accept KON-KRAFT's claims that a lower oil tax is the right answer. It would mainly transfer value to the companies from the state in projects with high profitability that would have been started any way," Foss said.

Foss, a Conservative, said he would like to see more small and medium-sized companies drilling for oil and gas off the coast of Norway.