Tax maneuver: fiscal policy in the oil and gas sector, prospects of changes

Taxation is one of the key problems in the sector. Oil companies have long been struggling for changes in the fiscal philosophy. They suggest that the “Kudrin scissors” that took away incomes of oil companies by taxing their revenues should be replaced with taxation of profits. And it is indeed a big difference.

The sector long ago turned into the main supplier of the money to the state budget; however, the outstanding question is about prospects of the sector. Oil production has reached its peak and its possible decline is becoming more and more plausible, unfortunately. And it will lead to serious problems in the budget sphere.

There is little time left for reforms. However, the finance ministry is defending its stance. Instead of changes in the fiscal approach the sector encountered a tax maneuver that somewhat altered the rules of the game but absolutely did not amend the approach towards fiscal regulations in the oil industry. Very soon it turned out that the maneuver was not achieving the intended results.

However, this summer oil producers secured a tactical victory over the finance ministry. It was decided to carry out an experiment at a number of projects by taxing their financial results. The question is how long this trial will last? How long will it take to spread the novelties widely, and will they manage to put an end to growing negative tendencies?

The report elaborates on the following issues:

• Tax maneuver and its consequences

  • Initial outcomes of its application
  • Low world oil prices and their influence on the situation

• Influence of the maneuver on the balance of production and exports of oil and oil products

  • Consequences for main players in the sector: winners and losers

• Positions of main players towards fiscal procedures

  • Opinions of companies and the energy and finance ministries
  • Putin as supreme arbiter – evolution of the president’s view on taxation in the oil industry

• Experiment with taxation of financial results

  • The essence of the decisions made, selection of projects and expected outcomes

• Other possible ways of transformation of the taxation system in the oil and gas sector

• Taxation in the gas sector, latest tendencies

• System of preferences and exceptions

  • Review of special taxation procedures for oil projects
  • Tax preferences as typically Russian administrative way to solve problems
• Medium-term forecast of developments

Contents of the report: