Are tax breaks the boost factor for petrochemicals?

Singapore will offer tax breaks on income from liquefied natural gas and carbon emission transactions to encourage overseas companies to invest in the city state. Trade and Industry Minister Lim Hng Kiang said that the government will levy a special tax rate of 5 percent on LNG trading income. The concession will be made available to all Global Trader Program (GTP) companies for 10 years. The country, which is the biggest oil trading center in Asia, will also extend tax concessions to greenhouse gas emissions trading.

Tax rate for companies will be cut by 2 percent next year in a bid to attract more investments by international companies. Samuel Liew, Singapore based consultant at Chemical Market Associates said that the tax break will “provide more incentive for international trading companies to set up offices here.” Some offshore traders like Australia’s Woodside Petroleum have been offered rates as low as 5 percent.

The implementation of the tax break goes in line with the government’s plans to build a LNG terminal. “We see enormous potential in LNG trading,” said Lim at the Global Trader Summit 2007 in Singapore. The city state is “attracting emissions trading activities, as well as supporting industries such as carbon-related consultancies, verifiers and fund managers” in order to establish itself as Asia’s emissions trading hub.

Traders of petrochemicals will also pay a lower tax rate of between 5 and 10 percent, Lim said.

Will these tax breaks be sufficient to bring significant expansion to Singapore’s energy and chemicals cluster and catalyze the growth of LNG trading? Is this move likely to spurn a wave of competition among energy-dependent countries for foreign investors? Your views.