In addition non tax forms of rent collection like

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that are specific to the oil industry. In addition, non-tax forms of rent collection (like surface fees, bonuses and production sharing) are typically used. Special provisions are often included in petroleum fiscal regimes to modify the timing or magnitude of the revenue appropriations. These provisions are normally intended as incentives designed to attract investors, or to accommodate unique attributes of a petro- leum asset, or to influence the choices of the investors toward specific public policy goals. The most commonly used special provisions include: 11 Accelerated capital cost allowances Depletion allowances Assets are depreciated in many ways over their expected life (useful life of equipment, economic life of the reservoir). The methods used in the industry are: (a) straight-line (equal annual deductions); (b) declin- ing balance (straight-line depreciation calculated for the remaining value of the asset each year); (c) double declining balance (doubles straight-line depreciation for the remaining value the asset each year); (d) sum of year digits (based on an inverted scale that is the ratio of the number of digits in a given year divided by the total of all years digits); and (e) unit of production (the capital cost of equipment, after deduc- tion of the accumulated depreciation and of the salvage value, is mul- tiplied by the ratio between the total production in a year and the recoverable reserves remaining at the beginning of the tax year). The depletion allowance is the deduction from gross income allowed to investors in exhaustible commodities (such as minerals, oil, or gas) for the depletion of the deposits. The theory behind the allowance is that an incentive is necessary to stimulate investment in this high-risk industry: as the reservoir depletes, the company will need to under- take more exploration to find new reservoirs. The depletion allowance
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12 World Bank Working Paper Interest deduction rules Loss carry forward Investment credits Tax holidays Stability provisions is meant to subsidize further exploration. Since the industry is a global one, it is quite likely that the depletion allowance may be used to sub- sidize exploration in competing countries. For this among other rea- sons, depletion allowances are granted/have been granted by only a few countries: Barbados, Canada, Pakistan and the USA. The Filipino Participation Incentive Allowance—FPIA - is similar to a depletion allowance. Project financing is quite common for large projects or for small oil companies. Normally interests on loans are deductible from taxable income and qualify for cost recovery. Inter-company interests may also be cost recoverable and tax deductible, if calculated on an arms-length basis. This refers to the ability of a company to “carry forward” losses from one year to offset tax liability in future years. When limitations apply the loss can be carried forward for a set number of years (normally 5 to 7) after which the benefit expires. In most cases, unlimited loss carry forward is granted.
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  • Winter '14
  • Bijay K Behra
  • host government, fiscal systems, world bank working

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