Russia Seeks $2 Billion Gain With Oil Extraction Tax Increase
Russia’s Finance Ministry is seeking to raise $2 billion by raising taxes on crude output as the world’s largest oil-producing nation seeks to boost budget revenue, according to a plan presented to government officials.
A higher mineral extraction tax rate will be partly offset by a decrease in export duties, according to the document. The budget’s gain is based on an average oil price of $100 a barrel.
Russia is fighting to balance the budget after President Vladimir Putin pledged to boost social spending in his campaign for a third term in the Kremlin and as the country prepares to host the 2014 Winter Olympics and 2018 soccer World Cup. The economic outlook has dimmed after gross domestic product expanded an annual 2.1 percent in the last three months of 2012 from a year earlier, the slowest rate since a 2009 contraction.
“Calculations have been made and they’re now being discussed with oil industry representatives,” Svetlana Nikitina, an aide to the finance minister, said by phone today, confirming the proposed numbers.
The ministry is recommending an 8 percent increase in the base oil extraction tax rate to 508 rubles ($16) from 470 rubles. In a concession to domestic producers, which ship about half their crude abroad, the rate used to calculate the oil export tax may be cut by 2 percentage points from the current 60 percent, while the duty on straight-run gasoline may be lowered to 80 percent of the crude oil tax from 90 percent, according to the document.
The oil taxes may be changed starting as early as next year, Ilya Trunin, head of the Finance Ministry’s tax department, said April 29 in Moscow.
Producers including state-controlled OAO Rosneft and OAO Lukoil (LKOH), Russia’s two biggest oil companies, have lobbied for tax cuts and holidays to encourage exploration and development of increasingly remote areas to maintain crude output at a post-Soviet high of more than 10 million barrels a day as traditional West Siberian fields age.
The changes will have “no consequences” for oil producers or refiners, according to the document. The lower oil export duty will “almost fully compensate” producers for the higher mineral extraction levy, while refiners will gain from an increase in domestic gasoline prices, spurred by the lower export duty on the motor fuel, according to the document.
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