While operator companies in the upstream oil sector received welcome news in the national budget statement that their tax burden was likely to be reduced, energy services companies were shocked to learn that their corporation tax rate would jump from 25% to 30% for all taxable profits over TT$1 million.
This was not a change that many of the companies had expected. Blair Ferguson, Executive Director of the Kenson Group said that when he first heard the announcement he thought it was a mistake in the Minister of Finance’s presentation. While the tax on individuals earning over TT$1 million would affect a relatively small number of individuals, his view is that the new higher rate of 30% would be applicable to most companies operating in Trinidad and Tobago. In his view, if there was to be a new “super tax” it should only be levied on the most profitable companies, with a much higher thresholding being set. He believes the new rate of corporation tax will negatively impact even small companies, with small numbers of employees.
Ferguson is especially concerned about the impact on energy service companies, who have already been very adversely hit by the significant reductions in their selling prices in the current cost-cutting environment. Energy service companies typically face difficulties in raising external financing as banks see them as high risk, given the “feast and famine” nature of the energy sector. This means that local energy service companies are typically dependent upon internal sources of funds to finance their growth. These retained earnings for future growth are now going to taxed at a higher rate.
Roger Packer, Managing Director of one of Trinidad and Tobago’s biggest and most successful oilfield services companies, Tucker Energy Services, also expressed his concerns about the impact of the new higher corporation tax rate. In Packer’s opinion the new higher corporation tax rate will make the country less attractive to investors, at a time when we should be doing everything possible to attract direct foreign investment into the country.
Echoing the sentiments of many in the business community, Packer opined that the new higher corporation tax rate would penalise those companies who were already comply with the tax laws. In his view, the focus should instead be on those individuals and companies who currently simply evade tax.