Palin unveils plan to replace questioned oil tax

ANCHORAGE, Alaska, Sept 4 (Reuters) - Alaska's scandal-tainted oil-tax system should be replaced by one that combines elements of the state's old, simple oil-production tax and modern investment incentives, Gov. Sarah Palin said on Tuesday.

She was unveiling the new tax plan that she wants lawmakers to adopt in a special session starting next month, Palin called the session because she said the state's new Petroleum Profits Tax (PPT), approved in 2006 by the legislature at the urging of then Gov. Frank Murkowski, is flawed and clouded by suspicion.

Palin's proposal includes a variable tax rate that is higher than that approved last year, and opportunities for investment credits are narrower. But she said the result would be better for both the citizens and for new investment.

"We're not anti-oil. We want to make sure that the golden goose is fed and not killed," the Republican governor said at a news conference. "At the same time, we want to continue to remind Alaskans who owns the resource, and that is Alaskans, that we deserve a fair return for our non-renewable resource."

Oil revenues, including royalties, taxes and fees, make up about 85 percent of the state's general government revenues.

The PPT, which replaced a simpler levy on gross production, is now a subject of a wide-ranging federal criminal probe into political corruption. Two former oil executives have confessed to bribing state lawmakers for industry-favorable votes on the matter; the trial of two of them is set to start on Wednesday.

Aside from the corruption scandal, Palin said last year's oil-tax rewrite must be replaced because it has failed to bring in the predicted revenues or new investment.

Her proposal combines a 10 percent tax rate on gross production at Alaska's huge legacy fields, Prudhoe Bay and Kuparuk, with a 25 percent tax on net profits, which would increase as oil prices rise, and targeted investment credits.

Doug Suttles, president of BP Plc's (BP.L: Quote, Profile, Research, Stock Buzz) BP Exploration (Alaska) Inc, defended the current system.