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60-66 taxation system may be revised

Growth in oil prices makes the government review taxation novelties previously agreed on the interdepartmental level. According to the latest information, changes may be introduced to the taxation system conditionally called “60-66” that stipulates decrease in the oil export duties from 65% to 60% and unification of duties on oil products at the level of 66% of the oil duties (the current duties on light oil products are 67% of the oil duties rate and 46.7% on dark oil products). According to the government’s plans voiced earlier by deputy finance minister Sergey Shatalov, introduction of the 60-66 system was planned for June 2011.

Now the taxation regime is to be delayed or it will be replaced by other procedures. For instance, it could be the 55-80 system; information leaks about it have been published in the press already. The ideology of the 55-80 scheme is quiet clear – to make oil companies export more oil and fewer refined products.

The government’s motivation is understandable. Firstly, it expects oil producers to finally invest more resources in production projects amid decline in the export duties on crude, the most painful tax for them. Secondly, refineries are anticipated to reduce production of low quality fuel oil for exports. Thirdly, decline in exports of oil products may bring domestic petrol prices lower and decrease the acuteness of the fuel deficit, which is especially important on the eve of the federal elections. However, this scheme does not provide an answer to a small but strategically important question – what will happen to the Russian processing segment in a few years, if all recent taxation novelties only reduce incentives for companies to increase exports of processed products, not crude?

By Stanistav Mitrakhovich, NESF leading expert

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