OTTAWA – When it comes to offering tax breaks to the energy industry, the federal government is most generous with the ethanol sector, according to a federal study published last week.
“It is clear that ethanol and other alternate transportation fuels enjoy a significant tax preference…” says a report on energy industry taxes compiled by the finance and natural resources departments. “It is important to ensure that the policy rationales for such a departure from equality of treatment … remain valid.”
Supporting new markets
Neil McIlveen, director of the natural resources department’s energy forecasting division, said government support for ethanol is based on such policy objectives as producing cleaner fuel and supporting new markets for grain farmers.
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“The point we were making is that the policy (of tax breaks) should be monitored to be sure those objectives still are being met,” he said in an interview.
The report is called The Level Playing Field and was prepared to compare federal tax treatment of various energy sectors.
“The playing field is not level,” it says. “It is most uneven in the cases of ethanol and energy-efficient investments.”
Ethanol producers benefit in several ways from favorable tax treatment.
Ottawa taxes manufacturing and processing income at a rate of 22.12 percent, seven percentage points below the general corporate rate. Many provinces offer similar breaks on provincial corporate taxes.
The biggest tax break comes from a federal decision to exempt ethanol and other renewable fuels from the 10- cents-per-litre federal excise tax on fuel. Most provinces also offer tax breaks or exemptions.
McIlveen said he did not know the value of the tax breaks, but they are substantial and offer the ethanol industry a marketplace advantage.
The report is not a comprehensive list of federal support for the ethanol industry, which receives federal encouragement beyond the tax incentives.
Agriculture, environment and natural resources departments invest several million dollars each year in ethanol research.
And beginning in 1999, Ottawa will provide a $70 million line of credit, administered by the Farm Credit Corporation, for companies interested in investing in ethanol manufacturing plants.
