Tax increases have the Trinidad and Tobago private sector very concerned. In addition to the increased rate of corporation tax, both domestic and international private sector investors are concerned about the re-emergence of property tax, announced by the Minister of Finance for the 2016-17 national budget.
As with some of the other changes to tax, there is still some uncertainty about the details of the property tax and how it will function.
EnergyNow spoke with Gregory Hannays, Partner, Tax Services, EY (formerly Ernst & Young) to get some clarity on the property tax, and what might be its impact on the energy sector.
According to Hannays, “A huge issue in the past is that there was very little discussion, if any, pertaining to the implementation of property taxes in the energy sector, and there has been scant discussion on the matter since. The property tax regime is a bit unclear now and taxpayers are very dissatisfied with the information available to them in trying to compute the property tax payable on their land and/or building.”
Hannays said there was a lot of discord concerning the tax rates and the methodology used in the calculation of the old Lands and Buildings taxes under the Lands and Buildings Taxes Act. The passage of the new Property Tax Act in 2009 was intended to overcome the previous inequitable and archaic calculations and collection of Lands and Buildings taxes.
The new Property Tax Act, which was assented to on December 31st 2009, repealed the old Lands and Buildings Tax, but this new property tax was subsequently revoked by the People’s Partnership government, whose election campaign had promised to “axe the tax”.
The old Lands and Buildings Tax provided for varying rates of tax for land and for buildings. The tax rate was firstly dependent on the area of the landholding, and secondly, on the taxable value of any building on that land. The annual taxable value of buildings under the old Act was calculated based on the present capital value of the building and on machinery and plant within the building. Any plant or machinery not contained within a building was not taxed.
The 2009 Property Tax Act included a definition of “industrial land” and “land” borrowed from the Valuation of Land Act, but which was not present in the Lands and Buildings Taxes Act. This change would have had significant implications for the energy sector.
Hannays explained that the under the 2009 Property Tax definitions, offshore and onshore installations such as rigs, platforms, subsea installations, wells, storage tanks and pipelines would have all fallen within the contemplation of “land”, and would have been subject to the property tax. He noted that the 2009 Property Tax Act and the Valuation of Land Act are both silent on the valuation methodology for these structures in determining the amount of property tax payable.
Despite the overarching definition of “land”, the 2009 Property Tax Act did not fully consider the implications for the energy sector and how plant and equipment for the industry would be valued and taxed. In his budget speech, the Minister of Finance did state that there would be amendments to the current legislation; however, nothing further has been provided on the amendments being considered, or whether a specific provision would be created for the energy sector.
Hannays indicated that the introduction of property taxes to the energy sector would have far-reaching consequences, as the total tax collected will undoubtedly be significant. The government has been clear that the proceeds of property tax will be an important source of overall revenue.
He went on to say that all players on the field will have an added cost to factor into their budgets, which may prove to be quite difficult given the current economic situation. The introduction of the property tax may have quite a negative impact on small companies within the sector, as they may not be able to afford the tax in addition to their current costs.
If the tax imposed is too high, it will also discourage new investments into marginal projects that may have been viable in the absence of the tax. This is clearly an area where significant dialogue between government and the private sector is needed.