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Thursday, 6 September 2018

Oil, finance ministries agree on tax treatment of oil, gas, and mining properties

Oil and gas companies to pay real estate tax taxes based on field development costs: The ministries of oil and finance reached an agreement on Tuesday on the guidelines for the tax treatment of properties in oil, gas, and mining, according to a cabinet statement. For the oil and gas sector, a field’s cost of development will be used as a base to calculate its real estate taxes.

The real estate tax for mines, quarries, and salt lakes will be assessed based on the annual value of royalties that miners pay the government. The move means to bring real estate tax regulations in line with the 2008 real estate tax law, which stipulates that guidelines are set for the tax assessment of industrial and commercial properties in fields including tourism and oil and gas.

Background: We had previously heard that the real estate tax rate for oil and gas companies, which pay the highest corporate tax rate in the country, was set at 10% of a taxable base as defined by the Finance Ministry. That taxable base was set by a formula that factors in the book value of the field’s land and facilities, the period of time since the development of the field, and the average inflation rate over the past 10 years. The agreement is one step in the broad overhaul of the real estate tax formula led by the Finance Ministry, which is expected to affect businesses and private landowners alike. This new formula would set “clear and simplified” guidelines for the tax assessment of properties such as hotels, ports, and airports. The Tourism Ministry had come to a similar agreement last week on the tax treatment of hotels, which will be calculated based on a property’s nominal investment value.

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