The taxation of mineral deposits in Poland should go hand in hand with accelerated depreciation or tax credit on expenditures incurred. That a new tax regime will be introduced for the extraction of shale gas and other minerals appears to be a foregone conclusion.
Not only was this implied by Prime Minister Donald Tusk’s Sejm address, but the opposition has also come up with a bill to that effect. Moreover, firms involved in shale gas exploration are working on their own proposals. Minister of Finance Jacek Rostowski reckons that copper and silver tax revenues will add up to some PLN 2 bn a year. He also announced that the government was going to address the taxation of other deposits, notably shale gas and coal. “We have reviewed, together with Ernst & Young experts, the existing regulations and we have identified gaps to be filled in regulations on the taxation of mineral deposits. Potential profits from shale [gas]] should augment the budget to the largest possible extent”.
Mateusz Pociask, a partner in Ernst & Young, explains that the existing regulations offer no such possibilities. Whatever system is proposed, a number of issues should be borne in mind. Firstly, points out Mateusz Pociask, the system should balance the fiscal aspect and the interests of the extracting companies. If too steep level of taxation, arbitrarily adopted , cuts significantly into the profitability of extraction projects, this could produce results extremely disadvantageous to the sector and, in consequence, delay significantly the entire exploration process and budget receipts from shale.
The extractive sector is one of the most risk-leaden industries. The return on an investment that “hit pay dirt” can be very significant indeed, but the probability of striking attractive, economically viable deposits is relatively low, points out Mateusz Pociask. The [Ernst & Young] expert adds that, with outlays running into tens – or, in many cases, hundreds – of million dollars the business risk involved is very high. This is particularly true of shale gas, the reserves of with and the viability of their exploitation in Poland are still under studies; it is a matter of several years at best before production from these deposits could start. Add to this the necessity of using sophisticated and costly technology, and it is obvious that it would be unrealistic to expect a profit performance on a par with that achieved in some countries from conventional deposits. “Poland would not be the first country to see an excessive appetite for tax revenues trigger a decline in investment and the stalling of development in the extractive sector”, warns Mateusz Pociask. (...)
Source: Dziennik Gazeta Prawna B, 2011-11-24, p. 1, by Ewa Matszewska