| Russian officials believe that it is no longer possible to raise taxes in the oil industry Officials and experts admitted that it is no longer possible to increase the tax burden on oil companies. “The maximum level of taxation in the oil industry has been reached,” Andrei Klepach, director of the macroeconomic forecasting department of the Ministry of Economic Development, said yesterday at the conference “The Impact of the Tax System on the Prospects of the Russian Oil Industry.” He noted that with oil prices above $25 per barrel, companies give approximately 90% of their income to the state. But the government does not intend to make their fate easier. Similar views are held by the head of the Expert Directorate of the President of Russia, Arkady Dvorkovich, according to whom “there is no place to raise taxes in the oil industry, and there are no plans to reduce them yet.” However, officials believe that if the tax collection system is not changed, companies will stop investing in the development of new fields. As a result, in a few years, production growth will be only 1-2% per year and the project to build an oil pipeline from Eastern Siberia to the Pacific coast will be impossible to implement.
Officials were alarmed by the decline in the ratio of investments to profits received by oil workers: in 2003 it was 100%, now it is 60%. As Mr. Dvorkovich noted, the existing tax system “raises questions about the investment attractiveness of the industry.” And Mr. Klepach called for taxation to be changed “so that income is directed to the development of new fields, and not exported abroad.” “Taxation of the oil sector must be considered from the point of view of not only increasing budget revenues, but also increasing incentives for subsoil use,” Mr. Dvorkovich echoed him.
Currently, industry revenues are withdrawn for the benefit of the budget using two main mechanisms: export duty and mineral extraction tax (MET), the size of which depends on world oil prices. On the one hand, taxes received from mining companies into the stabilization fund “play an important role in sterilizing the money supply,” but on the other hand, linking the mineral extraction tax to world prices leads to an increase in domestic prices for petroleum products, says Mr. Dvorkovich. As a result, high taxes have an “ambiguous” impact on inflation. Mr. Klepach believes that the mineral extraction tax needs to be preserved, but “to move away from linkage with world oil prices.” True, he clarified that this is his personal opinion, and not the position of the ministry. However, Minister of Industry and Energy Viktor Khristenko agrees with this opinion, who last week said that gasoline will rise in price until the production tax depends on world market conditions and the necessary changes are made to legislation.
The topic of differentiating the mineral extraction tax, which is now calculated on a single scale and is beneficial to companies operating in “young” fields with low costs, has been discussed for many years. However, a new principle for collecting this tax, designed to stimulate the development of “complex” deposits, has not been formulated.
The director of the Department of Tax and Customs Tariff Policy of the Ministry of Finance, Mikhail Motorin, recently proposed calculating taxes based not on the volume of oil produced and its price, but depending on the size of the costs of developing a particular field and the income received from it. However, this scheme can only be implemented by abandoning transfer pricing.
Mr. Dvorkovich is confident that taxes should not be imposed on production, but on the profit that the company receives. “If we do not move to taxation of profits, we will not be able to avoid disincentivizing the development of new fields,” he said, while agreeing with the concerns of the Ministry of Finance. Although “such a system may make oil companies more efficient, it conflicts with government interests because it is difficult to tax profits.” Therefore, “there is no answer to this question yet.”
If officials do not resolve the issues of tax incentives, the development of the resources of Eastern Siberia, which are still in the unallocated fund, will become a serious problem. According to the president of the Energy Policy Institute, Vladimir Milov, the rate of production growth in five years may drop to 1-2% per year, as companies postpone serious investments due to the instability of the tax system and the lack of a consensus in the government on taxation of the oil sector. In addition, no decision has yet been made on the construction of an oil pipeline from Eastern Siberia to the Pacific coast. The government cannot make up its mind, since it is not sure that investments in the region will be sufficient to ensure the production of at least 56 million tons of raw materials per year (the project is profitable with a pipeline capacity of at least 80 million tons per year, of which 24 million tons are planned deliver from Western Siberia). According to Mr. Dvorkovich, a decision on the feasibility of building the eastern “pipe” will be made before December 15. Denis REBROV |
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