Ecuador Lawmakers Pass 60% Tax on Petroleum Company Profits
Foreign oil companies operating in Ecuador will have to pay a 60 percent tax on "extraordinary profits," according a tax proposal passed this week by the Ecuadorian Congress.
The proposal could generate up to $500 million in extra revenues. Ecuador had foregone $731 million between 2003 and 2005 in lost revenue from higher oil prices, said Diego Borja, economy minister.
"Profit margins for foreign companies have been very great and a clause in favor of the state could lead to economic equilibrium between the foreign companies and the state," he said. "This [is] not in violation of any law or any article of the constitution."
President Alfredo Palacio has 10 days to ratify or veto the legislation.
The tax could damage Ecuador's reputation among international oil companies. No new international investors have signed exploration or production contracts with the country since 1996 (Hal Weitzman, Financial Times [subscription required], March 30).
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