Russia’s government has taken an important step towards reforming the
taxation regime governing the oil industry. On July 5, members of the
State Duma, the lower house of the country’s parliament, voted in the
third and final reading to approve a bill imposing a tax on the profits
earned by crude oil producers. The new profit tax will replace the
current regime, known as the mineral extraction tax (MET), which targets
production.
Legislators began debating the measure earlier this year and approved it
in the first reading in April. They will now send the bill to the upper
house, the Federation Council, for another vote. Once it secures
approval there, it will be sent to President Vladimir Putin for
signature.
The Russian Energy Ministry has hailed the results of the third round of
voting. In a statement dated July 5, it said that the switch to a
profit tax “would take a more correct and rational approach to subsoil
development, increase the profitability of subsoil use, ensure inflows
of investment in the development of mature and unconventional deposits
and promote the use of enhanced recovery methods.”
This echoes the line of reasoning that Russian oil companies have
followed when lobbying for a profit tax. Oil operators have long argued
that the government’s decision to tax production and not income
discourages investment in development operations.
The new rule is due to take effect on January 1, 2019. It will levy a
50% tax on excess profits – that is, sales revenue minus export tariffs,
production and transportation costs and reduced MET payments.
Initially, the rule will apply only to a limited number of fields –
specifically, to 35 sites in Western Siberia that have been assigned to
Rosneft, Lukoil, Surgutneftegaz, Gazprom Neft and other domestic oil
operators. According to Russia’s Finance Ministry, these fields are set
to yield about 22 million tpy (440,000 bpd) of crude in the first few
years after the new tax regime takes hold. This will be equivalent to
about 4% of the country’s total oil output.
Source : Strategic Research Institute, SteelGuru
