Like the rest of society, the oil sector has been hit by the coronavirus crisis. Investment postponements are threatened, along with job losses. The whole industry has therefore proposed amendments to the petroleum tax regime which will make it more profitable to invest now rather than to wait.
Direct expensing
The most purposeful action which can be taken to sustain the level of investment, and thereby safeguard delivery chains and prevent a further slowdown in the Norwegian economy, is direct expensing of capital spending.
This means that the whole cost of investment, including uplift, can be deducted from tax by the companies in the year when the spending takes place.
That would replace the current system, where an investment must be depreciated on a straight-line basis over six years and the uplift is tax-deductible over four years.
In other words, this is not a question of tax relief but a change in accrual. It is also temporary, and does not affect the petroleum tax regime as such.
Need it now
This solution would offer many advantages for society, and is exactly what is needed in the coronavirus crisis.
First, it will save many jobs in the Norwegian supplier sector by encouraging increased activity in the oil and gas industry.
Second, capital spending will provide resources which Norway will benefit from. The climate risk committee found that the tax system presents a risk of socioeconomically profitable oil and gas developments failing to proceed.
Finally, this measure will allow Norway to retain expertise and technology on the NCS and help the supplier industry to survive a difficult period.
It will ensure the future of both offshore and maritime industries on the NCS, which is crucial for developing future renewable energy sources such as offshore wind power.
Read the proposal here.
Read our Q&A here.
