Proposed tax law might spell disaster for Polish shale

Polish parliament
Source: DollarPhotoClub

If the current legislative proposals come into force, energy companies drilling for shale in Poland will have to pay up to seven separate types of tax, and the total amount of taxes and fees may exceed the level of 60 per cent.

This does not present the companies with any incentives to accelerate the pace of the exploration work and the start of production.

What is more, experts believe that the new tax will come into force much too early.

“The proposal to delay the shale exploration tax until 2020 can hardly be construed as an incentive, since not many companies will begin production before this date”, a shale gas expert Grzegorz Kus said in an interview with the Polish daily “Rzeczpospolita”.

He also believes that the anticipated tax deductions from exploration activities are not only insufficient, but also too complex and would force the companies to keep additional records, increasing bureaucracy.

“At the moment, businesses in Poland cannot have any confidence that – despite the Government’s assurances – the total level of taxation in respect to oil and gas will not exceed 40 per cent. The current proposed legislation lacks any provisions that would ensure the exploration companies do not incur additional taxes at a later date,” says Patryk Figiel of the law firm Linklaters.

According to current assessments, the total of all the imposed taxes and charges is likely to amount to around 60 per cent of the profits or more.

The lack of clear rules and regulations delimiting the overall level of payable tax may have a very detrimental effect on the perception of Poland as an attractive destination for shale gas exploration, Mr Kus added.

In his opinion, it would be beneficial to introduce a valorisation clause that would allow for the changes in the value of money over time. Such solutions already exist in several countries with a more mature tax system.

According to the President of the Institute for Energy Studies, taxes on mineral extraction should be dependent on the quality of the deposits and their location. The geological conditions and characteristics of deposits can vary greatly, which would strongly affect the cost of extraction and therefore the overall attractiveness of the investment.

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