Under the amendments to the Law on Tax on Petroleum and Natural Gas Resources, drafted by the Environment Ministry, shale gas production would not be taxed in the first three years, but not longer than until the start of 2020, and then be subject to a 15-percent tax rate.
However, the new regime will have to be scrutinized by the country's Competition Council first.
Šarūnas Keserauskas, chairman of the competition authority, called on the Cabinet to postpone adopting the amendments because the Ministry of Economy had concerns that the proposal to apply a zero tax rate for three years might be regarded as government aid.
"This issue was not coordinated with us in advance. My proposal is to give us more time to answer this question. Otherwise, there is a risk that this might be regarded by the European Commission as state aid," he said during the government's meeting.
The Cabinet backed a compromise proposal from Butkevičius, which is to improve the amendments if the Competition Council makes any recommendations.
It is also proposed that 90 percent of the tax proceeds should go into the central government's budget and the remaining 10 percent to the local governments of locations where shale gas is extracted.
Butkevičius said that in the future, the local governments could receive 20-30 percent of revenue from the tax.
Under the amendments, conventional oil would be subject to a 12-percent base tax rate.
Land oil and natural gas resources are now taxed at rates ranging from 2 percent to 20 percent and underwater resources are taxed at rates of up to 16 percent.
If the amendments are passed by the Seimas, the new legislation will come into force on 1 January 2015. The Environment Ministry would announce a new shale gas exploration tender shortly afterwards.
The US energy company Chevron in October 2013 withdrew its bid for a shale gas exploration license in Lithuania, citing changes in the fiscal, legislative and regulatory climate as the reason. It is expected that a new tender will be launched as soon as the government and the parliament approve a new legislative package.
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