KEY POINTS:
The oil and gas industry today accused the Government of a "knee jerk reaction" after ministers announced a tax loophole was going to be closed.
Finance Minister Michael Cullen and Revenue Minister Peter Dunne said changes to the Income Tax Act were necessary to protect the revenue base.
Dr Cullen told reporters that if the changes were not made, losses could reach $20 billion over the next decade.
The New Zealand Petroleum Exploration and Production Association said the Government had singled out the industry for special treatment, leaving other sectors untouched and still able to offset international losses.
"If the Government is genuinely concerned about the erosion of the tax base, then all industries should be treated in a similar fashion," said association executive officer John Pfahlert.
"We certainly wouldn't describe the current law as a loophole."
Mr Pfahlert said the move was "a knee jerk reaction undertaken without industry consultation".
The ministers said that under current law, New Zealand oil miners could offset their expenditure in other countries against the revenue from their New Zealand operations.
"That means New Zealand might receive less income tax than expected on profits from oil production in New Zealand, which is particularly unacceptable when oil production revenue from New Zealand is at an all time high and predicted to grow," they said.
"To safeguard our taxing rights on our petroleum resources, the Government will amend the Income Tax Act to ensure that expenditure on petroleum mining operations undertaken through a foreign branch cannot be offset against petroleum mining income from New Zealand."
Last month the Government moved to plug another tax loophole, which involved stapled stock instruments such as those being offered in a foreign share bid for Auckland International Airport.
Mr Pfahlert said the change announced this morning was "lopsided and inequitable" in two respects:
* New Zealand would still tax the income of foreign branches; and
* Losses of foreign branches of those companies who were not in the petroleum mining industry would continue to be deductible.
He said any future consultation would be meaningless because it had already been announced that the changes would be effective from today.
- NZPA
