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Looking for Best Tax Treatment of Oil and Gas: Fiscal Experiments Continued

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.

Having lost the drafting stage when the texts of the bills were formed, the companies now try get at least some compensation. The Finance Ministry suggests that the law on additional income tax (AIT) should be viewed as such. It would seem the industry has long since dreamt of it.

It is a taxation system innovative for Russia that would make it possible to switch from taxing revenue to taxing profits. Oil companies fought for that for years. Today, however, they do not seem to be happy, not hurrying to switch to the new taxation system, but demanding that good old privileges should be kept.

In the new report we consider in detail the following questions:

  • Four years with the tax manoeuvre – the first results

    • What has the new tax treatment resulted in for the state budget and companies?
    • Preliminary financial results of 2018
  • Acceleration of the tax manoeuvre

    • What are the implications for the industry?
  • Excise refunds as an attempt to sugar the pill for the main victim, the oil refining sector

    • Will new mechanisms be able to prevent growth in petrol prices on the domestic market or should direct government regulation be expected?
    • Schemes of compensation to oil companies for the acceleration of the tax manoeuvre – the words and the deeds
  • AIT – why do companies not want to endorse the experiment?

    • A comparison of AIT with incentives
    • How the law on AIT will be amended
  • The fate of hard-to-recover reserves – will the new taxation system help start their development?

  • What new amendments are to be expected in the near future?

    • The government promises stability of the new tax treatment, but active rewriting of fiscal rules is under way even now
    • What novelties should the industry expect?

Contents of the report:

Chapter 1. Debate on Tax Manoeuvre Completion: Finance Ministry Watching over Government Revenue 5
Chapter 2. Deceptive Export Incentives for Oil Industry 19
Chapter 3. Price of Tax Manoeuvre Completion: What Will Save Russian Oil Refining? 27
3.1 Transitional Procedure for Calculating MRET on Oil 27
3.2 Change of Mechanism for Calculating Excise on Petroleum Products 32
Chapter 4. AIT: Dream Not Yet Come True 45
Forecast of Developments 55
Date of release: December 19, 2018

If you are interested to obtain please contact » Elena Kim

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

Hydrogen Agenda in Russia during Economic War with West
Russian Oil Exports: from Covid-induced Demand Collapse to Sanctions War
State regulation of the oil and gas sector in 2021, 2022 outlook
Gazprom on Pricing Crest. Current Situation in European Gas Market
Oil Tax Policy: Squeezing Last or Chance to Restart Industry?

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

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