Search for New Taxation of Russian Oil and Gas Industry

The taxation issue is becoming a key one for development of the Russian oil and gas industry. The reason is simple – significant investments in new and rather complicated regions are required.

It is necessary to raise the oil recovery index and to work efficiently at brownfields. Moreover, there are more speculations about development of unconventional oil. All these projects are impossible without tax incentives.

At the same time, our companies operate on the global market, and they are beginning to compare returns on investments in the domestic market and abroad. Moreover, the state is encouraging Russian concerns to go abroad viewing this as expansion of its geopolitical influence. But in this case the problem of increase in investments in Russian projects can be solved only by introducing competitive taxation in Russia. And this is where problems emerge.

The most interesting thing is that the state claims it is allegedly ready to amend the taxation system. But in reality only taxation preferences and exceptions are employed. Executive authorities do not support the idea of changing the philosophy of taxation, e.g. taxing profits of companies, not revenues, although the sector needs a fundamentally new approach, rather than preferences.

The problem is that direct taxes and customs duties on oil and gas companies account for half of the federal budget revenues.

Executive authorities are afraid of risking under such circumstances. Moreover, the system of preferences blends very well with the psychology of functionaries. Clear-cut and common rules of the game decrease the administrative weight of the bureaucracy, while granting special preferences, on the contrary, increases this weight.

Possible taxation novelties in the oil and gas sector are the central topic of this report.

Key topics of the report:

• Views of main players on taxation novelties

  • Positions of oil and gas companies and relative ministries
  • Putin’s opinion as the supreme arbiter; difficulty of selecting between the current budget interests and strategic tasks in the fuel and energy sector

• The first results of application of the 60-66 system: insufficient changes

• The fate of oil production tax and export duties

  • Latest proposals by the finance ministry on altering tax rates, consequences of their application

• Struggle for preferences

  • Main procedures of taxation exceptions for oil and gas companies

• New system of taxing production of hard-to-recover oil: correct direction but questionable way

• New formula of gas production tax:

  • New complexity without economic logic
  • What does it carry for Gazprom and independent gas producers?

• Prospects of developments

  • Political possibilities and restrictions of transfer to a new taxation system

Contents of the report: