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

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:

Introduction 3
Chapter 1. STATE VISION OF TAX SYSTEM IN NEW ECONOMIC CONDITIONS 5
Chapter 2. FIRST RESULTS OF THE TAX MANEUVER 16
Chapter 3. TAX ON FINANCIAL RESULT: NEW PHILOSOPHY OF TAXATION OR ANOTHER MECHANISM OF PREFERENCES? 33
Chapter 4. MECHANISM OF TAX PREFERENCES: MAIN INSTRUMENT OF PROTECTION 46
Chapter 5. FIRST RESULTS OF THE NEW TAX SYSTEM IN THE GAS SECTOR 54
FURTHER DEVELOPMENTS 61
Date of release: September 14, 2015

If you are interested to obtain please contact » Elena Kim

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Arctic: Soviet-type Gigantomania or Breakthrough Project?
State regulation of the oil and gas sector in 2018, prospects for 2019
Gazprom on Path to New Reality
Looking for Best Tax Treatment of Oil and Gas: Fiscal Experiments Continued
The subject of taxation became the absolute hit of 2018. The government once again decided to rewrite the rules of the game. President Putin’s new inauguration decree served as the main pretext. It turned out that about 8 trillion roubles extra was necessary for the new national projects announced. The Cabinet did not take long to decide where the funds should be taken. The result was acceleration of the so-called tax manoeuvre started as far back as 1 January 2015. It suggested shifting the tax burden to the wellhead: the effect on the state budget of gradual abandonment of the export duty will be more than compensated for by quicker growth in mineral resources extraction tax (MRET). The laws on tax reform have already gone through the parliament and will take effect as of next year. This means nothing good for companies.

All reports for: 2015 , 14 , 13 , 12 , 11 , 10 , 09 , 08 , 07

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