Depreciation
The second cost to the project which is considered as a deductible from the gross profit
for tax purposes is the depreciation of the plant value. This is calculated over the plant
life as the plant capital cost divided by the plant life. The term plant life is the
predicted life of the facility before it has to be dismantled and sold for scrap. Usually,
this is set at 20 years and indeed all specifications relating to engineering and design of
the facilities will carry this requirement. All material and design criteria such as
corrosion allowances associated with the plant should meet this plant life parameter.
Ad Valorem Tax
This is the fixed tax levied in most countries payable to local municipal, provincial,
or state authorities to cover property tax, municipal service costs, etc.
Taxable Income
Taxable income is revenue less operating cost, depreciation, and Ad Valorem Tax.
This of course is simply put as in most countries, states, or provinces there will
probably be certain local tax relief principles and tax credits that will affect the final
taxable income figure. The company’s financial specialist will be in the position to
apply these where necessary.
Tax
This is quite simply the tax rate applied to the “taxable income” figure. This will
vary from location to location but will be taken as one rate over the economic life of
the project for the purpose of a process study, unless there are legislative changes
already in place.
Profit After Tax
This is the gross profit less the tax calculated in the previous item.
Net Cash Flow
This item is calculated for each year of the project’s economic life. It commences
with year zero with the net investment shown as a negative net cash flow item. Then
for each successive year until the end of the last year of the economic life, the net
cash flow is calculated as the sum of profit after tax plus the depreciation.
732
D.S.J. Jones and P.R. Pujado ´
The second cost to the project which is considered as a deductible from the gross profit
for tax purposes is the depreciation of the plant value. This is calculated over the plant
life as the plant capital cost divided by the plant life. The term plant life is the
predicted life of the facility before it has to be dismantled and sold for scrap. Usually,
this is set at 20 years and indeed all specifications relating to engineering and design of
the facilities will carry this requirement. All material and design criteria such as
corrosion allowances associated with the plant should meet this plant life parameter.
Ad Valorem Tax
This is the fixed tax levied in most countries payable to local municipal, provincial,
or state authorities to cover property tax, municipal service costs, etc.
Taxable Income
Taxable income is revenue less operating cost, depreciation, and Ad Valorem Tax.
This of course is simply put as in most countries, states, or provinces there will
probably be certain local tax relief principles and tax credits that will affect the final
taxable income figure. The company’s financial specialist will be in the position to
apply these where necessary.
Tax
This is quite simply the tax rate applied to the “taxable income” figure. This will
vary from location to location but will be taken as one rate over the economic life of
the project for the purpose of a process study, unless there are legislative changes
already in place.
Profit After Tax
This is the gross profit less the tax calculated in the previous item.
Net Cash Flow
This item is calculated for each year of the project’s economic life. It commences
with year zero with the net investment shown as a negative net cash flow item. Then
for each successive year until the end of the last year of the economic life, the net
cash flow is calculated as the sum of profit after tax plus the depreciation.
732
D.S.J. Jones and P.R. Pujado ´