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Search for New Taxation of Russian Oil and Gas Industry

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:

Introduction 3
Chapter 1. First Results and Prospects of Taxation Restart 4
Chapter 2. Search for Way Out of Taxation Deadlock 21
Chapter 3. Continuing Practice of Tax Preferences Vs. New Taxation Philosophy 32
Chapter 4. Taxation of Oil Products 44
Prospects of Developments 50
Date of release: September 9, 2013

If you are interested to obtain please contact » Elena Kim

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

New OPEC+ Deal and Future of Oil Business in Russia
Gazprom on the background of external and internal challenges
Regulation of Oil and Gas Sector in 2019 and Prospects for 2020
Fiscal Policy on Oil and Gas Sector: Revised as Often as Wikipedia
The tax system in the oil and gas sector continues to undergo radical changes. The beginning of 2019 saw the introduction of a new tax regime: additional income tax. That experiment was supposed to start migration of the oil industry to an innovative principle of taxation: on profit, not revenue. It seemed that a new main road was found. In the same year, however, the Finance Ministry launched an overt offensive against AIT. The fear of loss of government revenue now is more powerful than the threat of causing oil production to collapse in the medium term because of a tax system that does not stimulate investment. The Finance Ministry would strongly prefer to speed up the tax manoeuvre completion that earns the state budget additional money. Oil and gas companies respond to this with individual lobbying, attempting to wangle special treatment for their projects.
Ukrainian Gas Hub: Climax at Hand
The “zero hour” comes in less than a month: the contracts for gas transit through Ukraine and for supplying Russian gas to the country terminate at 10 am on 1 January. Meanwhile, Gazprom and Naftogaz are very far from looking for a mutually acceptable solution. The entire European gas business is watching intently the negotiations between Russia and Ukraine. Everyone is waiting for a new “gas war”: the January 2009 events proved to be a serious test both to European consumers and to Gazprom as a supplier. Is there still a chance of agreement? If there is not, will Gazprom cope with its obligations to deliver gas to Europe? Is Russia bluffing as it assures that the new infrastructure and gas in underground storage facilities will enable it to get by without Ukrainian transit even as soon as this winter? What will happen to Ukraine itself at the beginning of 2020?

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

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