Romania has the highest effective tax rate specific to natural gas production in Europe, shows a study by Gabriel Biriș, a business lawyer specialized in taxation. The results of the analysis were presented at a press conference organized by the Petroleum and Gas Employers Federation – FPPG.
The rate was calculated as a percentage of the Upstream revenues from natural gas. This was almost triple compared to the arithmetic average of the rates in the other states included in the analysis – 19.4%, compared to 7.0% in 2017, respectively 25.3%, compared to 7.6% in 2018. Even more relevant is the increasing accelerated trend of the effective taxation rate specific to natural gas production registered in Romania, in recent years.
A similar study, presented by Deloitte in April 2018, showed that the average effective rate of royalties and other similar taxes for oil and gas production was in Romania at 13.9% in 2017, compared to 17.4% in 2016, 16.9% in 2015 and 15% in 2014. In 2017, the decrease was mainly determined by the elimination of the special construction tax, from January 1, 2017.
The analysis carried out by Gabriel Biriș shows that in 2018, the total taxes and royalties related to the Upstream sector of natural gas increased significantly, by 41% compared to the revenues realized in 2017. At the same time, the revenues recorded from the Upstream activity of natural gas have increased by merely 8% compared to 2017. The analyst emphasizes that the specific taxation had a “disproportionate evolution compared to the income actually registered from this activity”. This trend occurs in the context where the Romanian domestic gas production steadily decreases.
The study also shows that “the tax system in Romania is one that effectively discourages future offshore investments”; Under current legislative conditions, the offshore tax regime generates a total government take of approximately 90% of the profits generated by a standard offshore natural gas project.
According to Gabriel Biriș, the main characteristics of the natural gas sector in Romania are:
- Frequent changes in legislation and regulations
- Significant distortions introduced by the basis of calculation for royalties and other tax obligations specific to the sector
- The high specific effective taxation rate, compared to other jurisdictions with which Romania competes in attracting investors
The expert proposes that the authorities, in consultation with companies in the upstream sector of natural gas, eliminate the mentioned distortions, and then move on to a fair sizing of the fiscal burden. These should ensure reasonable benefits for both the state and citizens, as well as for companies in the sector.