Page 73 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.71, # 1, 2014, pp. 53-79

facility to have a market value of $ 100 million, it would not be hard to find a 15% tax deduction

for any QET amount. If 100% funded by QET, the 15% tax deduction on a $100 million project

would equal to $15 million, making 22% of $66 million royalty revenue assumed above on

average. A 22% hypothetical change in royalty revenue could have a substantial impact on

budgeting decisions during any period QETs funded.

Use of QETs during times with high risen crude prices would not have a sensitive impact on

government`s budget planning. This is because increased crude prices would offset tax gains of the

Approval Holders. However, it would be beneficial if the government ruled out a new law against the

use of QETs during low crude prices. If we consider the fact that Supported Infrastructure

Organizations in Alberta (SIOs) are funded by the provincial budget then the importance of putting

limitation on QETs during times with low oil prices would avoid possible financial distress.

3.3. Tax impact of QETS

Generally, amounts paid and accrued for reclamation obligations before actual reclamation

expenditures incurred are not tax deductible for income tax purposes. Although statutory

regulations puts constraints on tax deductibility of the allowed costs for tax purposes it is

allowed to deduct both, current and estimated future reclamations costs for financial reporting

purposes under current financial reporting standards. To offset this mismatch, qualifying

environmental trusts paid by taxpayers are allowed as tax deductible. Moreover, the QET given

to the trust can earn income during a year. Such income made on QET is taxed first. However,

that same after-tax income is taxed for the second time at a corporate tax rate (15% in 2012) in

the year it is removed from the QET resulting in an element of double taxation. Also, when the

QET is withdrawn by the Approval Holder the taxable income is increased by the exact QET

73