Tax Collection from Oil Exceed Industry Profit

July 29, 2010 Taxation in USA

Saipem 7000The oil and gas industry is facing heavy criticism from the media, the public, and subsequently US Government politicians, under the assumption that the sector is under-taxed and action has to be taken to correct the situation. However, tax revenues arising from the sector in recent years have eclipsed the profits made by the entire oil extraction and exploration industry.

The US oil and gas industry is a veritable “cash cow” for the Government, having resulted in almost USD 2 trillion in tax revenues since 1981. The figure was released on June 28th, in a new report published by the Tax Foundation, an independent body monitoring fiscal federal policy in the US. The new report, which used data from the Energy Information Administration, shows that in 23 of the last 27 years the US Government tax revenues arising from the oil industry were higher than cumulative sector’s profit in the corresponding years.

Throughout the 27 surveyed years in the report, collection of excise tax alone on oil products reached USD 1.1 trillion. Corporate Income Tax paid during the same time reached a cumulative amount of USD 388 billion. Severance taxes, property taxes and the short-lived Windfall Profits Tax scheme garnered an approximate USD 472 billion for the Government. All told, net Government collections exceed overall industry profits by almost 40 percent, with a total collection of USD 1.954 trillion. Further, between 1981 and 2008 oil and gas exploration and extraction companies paid an additional USD 683 billion in income taxes to foreign Governments.

In the face of the recent losses and damages caused by the BP oil spill disaster and the exuberant tax breaks received by the oil sector, it is understandable that politicians are reverently calling for reconsideration of the tax treatment of the oil industry. However, care must be taken that any action taken will not upset the balance which has made the oil sector one of the US’s biggest tax payers for 28 years. Scott Hodge, President of the Tax Foundation, added that the Government is “addicted” to the levels of oil tax profits it currently derives, and if attempts are made to change tax treatment of the oil and gas industry companies then politicians should be honest about the exorbitant tax profits collected from oil activities.

Photo by L.C.Nøttaasen