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Fiscal Innovations: from Tax Manoeuvre to New Experiments

Fiscal Innovations: from Tax Manoeuvre to New Experiments

The oil industry has insisted that the taxation system should be changed for a long time now. So far, however, every innovation seems to add more problems. For instance, this concerns the tax manoeuvre. There is no intention to carry it through.

The promise to cancel the export duty seems to be a prospect of too distant a future. Besides, there seems to be no way the government can think of how to help oil refining, the main victim of the tax manoeuvre.

Thus the tax manoeuvre becomes not only long-drawn-out, but increasingly complicated. Meanwhile, there is already a new fiscal system on the horizon.

This year the industry has finally approached a change of the philosophy of taxation on the oil sector: from taxing revenue to taxing profits. Additional income tax (AIT) parameters have already been defined. It will be an experiment so far though.

And there is every chance that it will be a slow one. It is especially so because companies, realising the extremely slow speed of transition to taxing profits, have clearly changed their tactics. While they fought for AIT earlier, now they defend fiscal incentives. The Finance Ministry would like to sacrifice the latter and trade them for AIT. However, even the Finance Ministry’s strong bastions sometimes cannot withstand lobbying attacks mounted by oil companies, which is clearly exemplified by the affair with a new incentive for Samotlor, one of the 2017 hits.

The report elaborates on the following issues:

  • The fate of the tax manoeuvre

    • Originally, it consisted in gradual reduction of the export duty on oil to zero along with simultaneous growth in MRET. However, neither the draft state budget nor other official documents show any signs of a zero rate of the export duty for the next three years.
    • How is the tax manoeuvre actually being carried out?
    • what adjustments have been made to it?
    • In what form and within what time frame can it be completed?
  • Oil refining as the main victim of the tax manoeuvre

    • Expecting more trouble: the prospects for refining after the export duty on oil is reduced to zero
    • Salvation options: “negative” excises and good old individual benefits
  • Dividends of state-controlled companies

    • The fight for payment of 50% of profit as a method for collecting additional money for the state budget
    • Who has won in the fight between the Finance Ministry and the state corporations?
  • The system of incentives

    • It is the industry’s main “lifesaver” in the period of low oil prices, the agreement with OPEC, and a budget deficit
    • What specific incentives oil companies get
    • How the amount of incentives has changed in recent years
    • The fight for incentives for fields with a high water cut: the Samotlorskoye case ”
    • The bureaucratic results of the “fight for Samotlor
  • Additional income tax: what is it after all?

    • Although the law on AIT has not been tabled in the Duma to date, the parameters of the experiment with the new tax are already known. The idea to tax profits underwent significant changes while it was discussed.
    • Why was financial performance tax not approved?
    • What are the main differences between the two tax treatments?
    • How will AIT work?
  • The Russian budget and levies on oil and gas companies

    • The financial performance of vertically-integrated oil companies in the first half of 2017
    • The dynamics of tax revenue collected from the companies in the sector
    • The winners and the losers
    • The new design of federal budget rules
    • The dynamics of the share of taxes in the costs of Russian companies
  • A medium-term forecast of developments

    • What taxes are oil and gas companies to expect in 2018-2020?

Contents of the report:

INTRODUCTION 3
Chapter 1. RUSSIAN BUDGET AND LEVIES ON OIL & GAS COMPANIES 4
Chapter 2. OIL AND GAS COMPANIES IN MIRROR OF ‘TAX MANOEUVRE’ 14
Chapter 3. A MILLSTONE ROUND THE NECK: HOW MUCH OIL & GAS INCENTIVES COST FEDERAL BUDGET 24
Chapter 4. AIT: FIGHT FOR OR AGAINST INCENTIVES? 40
4.1 Transformation of the financial performance tax concept 40
4.2 A bird in the hand: the fight for incentives for fields with a high water cut 45
4.3 Bolivar can carry double 50
Chapter 5. UNAVOIDABLE SACRIFICES TO TAXATION 53
A MEDIUM-TERM FORECAST OF DEVELOPMENTS 60
Date of release: December 4, 2017

If you are interested to obtain please contact » Elena Kim

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Analytical series “The Fuel and Energy Complex of Russia”:

New government structure and FES: Reformatting the state system administrating the sector
Global Oil Market: What Prices Should One Expect?
Sanctions Against Russian Oil and Gas: Coil Tightening
American Shale: Life in Trump Era
State regulation of the oil and gas sector in 2017, prospects for 2018

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

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