A model shows the proposed liquified natural gas liquification plant and marine terminal, June 26, 2014 in Kitimat, B.C. There's a report that the players behind major liquefied natural gas projects in British Columbia are lobbying Ottawa for tax relief. THE CANADIAN PRESS/Robin RowlandRobin Rowland/The Canadian Press
The federal government should not distort tax policies and legislation, in order to favour a particular group of companies in a specific industry, whether or not it happens to be true that it would promote the country's economic interests as well as those of the companies.
In particular, it gravely undermines the income-tax system if the rules on asset-depreciation rates are twisted to promote this or that industry or group of companies.
B.C. LNG Developers Alliance is a recently formed group of corporations interested in investing in Canadian liquefied natural gas. As far as that goes, that's fine. But they have written to the House of Commons finance committee, asking that LNG exporting businesses be reclassified as manufacturing rather than distribution. The depreciation period for manufacturing is seven years; for distribution, it's 27 years. Faster writeoffs can be very profitable.
Similarly, the Canadian Association of Petroleum Producers have said that the tax classification will be crucial. The LNG Developers Alliance, for its part, said, "Achieving the right classification for capital cost allowance ... would mark a critical step toward ensuring our industry can compete in a globally competitive market."
At least these associations are saying these things in public, not underhandedly. And they may even have a valid argument that LNG facilities amount to manufacturing because, in the words of CAPP, they "process and treat natural gas to effect a physical and chemical change."
But concepts such as "manufacturing" and "distributing" should not be treated as meaningless, arbitrary utterances that can be wielded randomly in the hope that a company will be successful in a globally competitive market. The letter from four executives at the alliance sought to impress the chairman of the finance committee with the need to take "the necessary measures to realize this opportunity, including competitive fiscal treatment so that these projects can globally for markets and capital."
That's not what a neutral tax system is about. Keep it simple and clear – and aim for common rules for all businesses.