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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”:

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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