Debate on oil taxation continues in Russia

The finance ministry has prepared a proposal that calls for shifting the emphasis from taxing production and exports to taxing oil company profits. The approach has long been recommended to Russia as it would encourage greater investment in production than the current tax model. The finance ministry estimates that the tax model would lead to a slight reduction in oil company tax burden and lower budget revenues. Changes in oil taxation have been under discussion all year, but no decisions are expected before autumn at the earliest.

The previous overhaul of oil taxation took place at the end of 2014, when it was decided to gradually shift the tax emphasis from exports to production. High export duties on crude oil were considered to result in artificially low crude prices for domestic and Belarussian oil refiners (export duties are not applied to trade within the Eurasian Economic Union). The government also decided to direct export duties more on less refined oil products in order to discourage their exports.   

Most Russian oil tax earnings come from the mineral extraction tax (MET) and export duties. The MET consists of a base rate on produced tonnage and multiplier factors derived from world market oil prices, the ruble-dollar exchange rate and certain factors related to production site characteristics. Crude oil export duties also include a base rate and a variable component that depends on the world market price of oil. Export duties on oil products are based on the crude oil export duty (this year they range from 40 % to 82 % of the crude oil export duty depending on the product). Under the 2014 tax revision, the government decided to gradually raise the MET and lower most export duties. This year’s planned reduction in the crude oil export duty was abandoned, however, due to lower-than-anticipated budget revenues.

Oil companies, of course, also pay general taxes like profit tax and excise taxes. It has been estimated that as much as 90 % of oil company profits go to taxes. The collapse in oil prices, however, has reduced the relative contribution of oil & gas revenues to the federal budget. In the first five months of this year, they accounted for 36 % of budget revenues. In 2014, oil & gas still provided over half of revenues.   

Some tax rates on Russian crude oil and oil products