Tax code revisions impact Russia's oil sector

In recent years, the emphasis on taxation of the oil sector has gradually shifted from exports to production. New revisions of the tax code, signed by president Putin on August 3, will end export tariffs on crude oil and oil products altogether during the next six years. At the same time, the mineral extraction tax on crude oil production will be raised incrementally. The revisions to the tax code are designed to basically have neutral impact on oil tax revenue streams to the federal budget.

The increases in the mineral extraction tax will raise the domestic price of crude oil. To compensate for the resulting losses on profitability of domestic refineries, the excise tax on petroleum products will also be adjusted. A share of excise tax revenues will go to supporting domestic refiners after the transition period. The level of support to refiners will depend on e.g. refinery location and the refinery's product range. Refiners are also promised favourable excise tax treatment if they are affected by Western sanctions. Numerous uncertainties surround the actual implementation of the revised approach to excise taxes.

Russia will continue to sell crude oil to Belarussian refineries at domestic prices, but due to the replacement of export tariffs with the higher mineral extraction tax, the price Belarussian refiners pay will be higher. Eliminating such structural boons may have been one of the goals of the tax reform.