Canadian oil and gas producers happy to see the end of the Obama era are quickly coming to the realization that the imminent Trump presidency could be even more challenging if he moves forward with the adoption of a border adjustment tax.
While other Canadian sectors have been vocal in condemning the proposal, “no sector … will be more affected than petroleum,” according to Colorado-based energy expert Philip Verleger, who has been studying the recommended U.S. tax code changes since last summer.
Verleger, principal of consultancy PKVerleger LLC, believes Canadian exporters of oil and oil products are in for a nasty surprise. “Bluntly speaking, for oil the law’s passage is pure mercantilism. Exporters from Mexico, Canada, and the rest of the world could be shut out,” Verleger writes this week in a report to clients. “As Woody Allen would say, ‘Sorry, suckers’.”
The border tax proposal is part of a tax reform spearheaded by Paul Ryan, speaker of the House of Representatives, and Kevin Brady, chairman of the House Ways and Means Committee. Under the proposal, businesses that rely on imported inputs would lose the ability to deduct their costs in computing their taxable income.
The reform would effectively increase the cost of imported goods by 25 per cent, push up the price of oil produced in the U.S. and of U.S. petroleum products, and depress the price of imported oil, Verleger said in a paper for The Brattle Group, a U.S. consultancy.
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