UK Legislators Approves Energy Profits Levy, a Windfall Tax on Oil and Gas Producers

By IndraStra Global News Team

Cover Image Attribute: Beryl Alpha (59°32′47″N 01°32′14″E) - Exxon Mobile Oil Platform in the UK Sector of the North Sea. Production of oil started in 1976, and the field is still producing oil and gas (2022) / Source: Wikimedia Commons

On Monday (July 11, 2022), British lawmakers approved  the Energy Profits Levy  a windfall tax of 25 percent on oil and gas producers in the British North Sea. According to the HM Treasury, this tax will raise 5 billion pounds ($5.95 billion) in the first year and will be used to assist people with difficulty paying their ever-increasing energy costs. After the pandemic lockdowns were lifted and the conflict between Russia and Ukraine began, the Energy Profits Levy will go after profits made by a jump in the price of oil and gas. This comes at a time when the energy demand is increasing.

However, to become law, the tax bill must still pass through the upper legislative chamber known as the House of Lords. The Lords can seek to change a measure, although they rarely attempt to block it entirely.

The oil and gas industry currently pays a 40% tax on revenues from oil and gas production in the United Kingdom and the UK Continental Shelf (UKCS). This includes a 30% ring-fence company tax and a 10% extra charge. Presently, the petroleum revenue tax (PRT) rate is nil.

The Energy Profits Levy is an additional 25 percent tax on oil and gas profits in the United Kingdom on top of the current 40 percent headline tax rate, bringing the total rate of tax on earnings to 65 percent. 

Companies would not be allowed to deduct any earlier losses or expenses related to decommissioning from their taxable profits. Restricting relief in this manner has been done on the part of the government with the intention of "appropriately taxing the enormous profits" that the sector is making currently. An Investment Allowance with a rate of 80 percent will be applied, and it will be made accessible to businesses at the time of investment.

HM Treasury also produced a technical note that elaborated on how the Energy Profits Levy will be implemented in practice. This verifies that the Energy Profits Levy is "temporary" and "will be phased out when oil and gas prices return to their historical norms." The legislation establishing the new fee will include a provision to repeal the tax on December 31, 2025.

On the other hand, environmentalists and lawmakers opposed to the measure have voiced their disapproval of the plan's incentive structure, which they say does not provide any tax breaks for renewable energy installations.

NOTE: The British government has committed to achieving carbon neutrality by 2050. In addition, it hosted the COP26 climate meeting last year, which urged nations to eliminate inefficient fossil fuel subsidies. At the same summit, it rejected calls to join other oil- and gas-producing states in their efforts to limit new hydrocarbon exploration.

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IndraStra Global: UK Legislators Approves Energy Profits Levy, a Windfall Tax on Oil and Gas Producers
UK Legislators Approves Energy Profits Levy, a Windfall Tax on Oil and Gas Producers
By IndraStra Global News Team
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