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The details of BC's new LNG tax plan will have massive impact on the shape of the province's economy.

British Columbia has vastly scaled back its expectations for its anticipated liquefied natural gas riches, in sharp contrast to the political high hopes for the province's fledgling LNG industry during last year's election campaign.

Blaming declining global prices for LNG and rising construction costs, the B.C. Liberal government introduced legislation on Tuesday that slashes its proposed rate for an LNG income tax, and adds tax incentives for LNG companies, meaning the province is now banking on a smaller flow of revenue.

"The opportunity remains, but the design and the tax structure needs to take into account changing circumstances in the market and potential for return," Finance Minister Mike de Jong said on Tuesday. "It's not quite as lucrative as it once was."

During the election campaign in the spring of 2013, the B.C. Liberals touted a plan to retire the provincial debt with a "prosperity fund" that would begin collecting revenue from LNG by 2017. The campaign platform stated that the fund would reap as much as $100-billion over 30 years.

But the Finance Minister is now vague about whether there would be such a lucrative fund at all.

"We set out some objectives, firstly debt reduction and secondly the allocation of proceeds from the creation of a new industry to a fund that would be available for a range of activities," Mr. de Jong said. "I prefer to think of the revenue stream to government in the overall sense."

An official later clarified that revenue from natural gas royalties and LNG income tax will still be devoted to the prosperity fund.

LNG proponents criticized February's provincial budget, which proposed a tax rate of up to 7 per cent on LNG companies' net income once the terminals recover the capital costs of what are expected to be multibillion-dollar plants.

The initial income tax rate will stay at 1.5 per cent as originally envisaged, but the second tier will be 3.5 per cent instead of going as high as 7 per cent. As an added incentive to spur LNG ventures, the B.C. government has introduced a new provincial natural gas tax credit that will in turn shave corporate income tax rates to as low as 8 per cent from the current 11 per cent.

The B.C. government is optimistic that many of the 18 LNG proposals so far will become reality, but industry experts say only three or four have a strong chance of being built.

Energy analysts warn that British Columbia could miss out on the global LNG export party because projects in other jurisdictions have a head start, including Australia, Qatar, Nigeria and the United States.

Longer term, Mr. de Jong said the LNG income tax rate will rise to 5 per cent, effective in 2037.

No LNG projects have been built yet in British Columbia, although the province said its taxation scheme will begin on Jan. 1, 2017.

The provincial government is hoping to secure five LNG facilities. Under the tax that was proposed last February, a mid-sized LNG facility was expected to pay about $1.5-billion over the first decade in operation. After consultation with the industry – featuring public threats from a leading proponent to walk away – the new tax is expected to bring in $800-million over 10 years.

However, when other taxes, such as the provincial sales tax, royalties and corporate income taxes are included, that same plant is expected to contribute $8.1-billion in revenue over 10 years.

Andrew Weaver, a Green Party member of the B.C. legislature, called Tuesday's tax bill a sellout. "The government is cutting taxes to the bare bone in a last-ditch effort to land their hypothetical LNG industry," he said.

But the Shell-led LNG Canada joint venture welcomed the new details, saying they provide balance. "There is a lot of competition in the global LNG marketplace, and we know that the B.C. government recognizes this," LNG Canada said. "There is much more work to do prior to a final investment decision for LNG Canada."

David Keane, president of the B.C. LNG Alliance, also welcomed the government's changes. "LNG proponents appreciate the government revisiting its original tax structure," he said in a statement.

Geoff Morrison, a spokesman for the Canadian Association of Petroleum Producers, said he expects the LNG industry will embrace the revision of the tax regime. "Clearly, the government has recognized the issue of competitiveness globally. That's a reality for us," he said.