Government gives ground on petroleum tax

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The Independent Online
THE GOVERNMENT has made two concessions - on petroleum revenue taxation and to the unit trust industry.

It has offered limited transitional relief on PRT to companies that stood to lose from its last Budget proposals. Stephen Dorrell, Financial Secretary to the Treasury, said yesterday that transitional relief with a limit of pounds 10m per company would be allowed up to the end of next year.

The Chancellor had announced the abolition of PRT for new fields and its reduction from 75 to 50 per cent on existing fields. This was welcomed by larger companies with substantial on-stream production but was fiercely criticised by smaller groups. They said the accompanying abolition of tax relief on exploration would reduce drilling activity by 40 per cent and result in up to 50,000 job losses.

John Watts, the Conservative MP who chairs the Treasury and Civil Service Committee, tabled an amendment demanding that the reductions in PRT be phased in over three years and that the tax relief available should be increased from pounds 200m to pounds 500m.

Most likely to benefit from the change are small British independent companies, for whom the pounds 10m could be a life-saver, according to one industry expert. But a spokesman for Amerada Hess, the US oil company that has been one of original measure's most vociferous critics, said the alteration 'doesn't in any way address our concerns that there will be a precipitate fall-off in activity with serious implications for jobs in the service sector'.

The other change will correct an anomaly created by advance corporation tax alterations in this year's Budget, which meant that life insurance companies were liable to a higher rate of tax on income from unit trusts than on direct holdings in shares. This means that up to pounds 30bn of funds should not now leave unit trusts.

The unit trust industry has also won a long-standing battle over its inability to pay unit trust income gross to non-residents. Legislation is to be included in the autumn Finance Bill to allow gross payment by UK funds.

There is also to be a consultative document before the end of the year on the launch of open-ended investment companies. These would operate in a similar way to unit trusts but without the restrictions of trust law.