Russia approves profit-based oil tax for 2019

Russia approves profit-based oil tax for 2019
Russia’s government approved on Thursday a plan to introduce a profit-based tax on the oil industry, expected to come into force on January 1, 2019, later than previously thought.

Currently, the tax regime for the oil industry stipulates that oil companies pay the so-called mineral extraction tax (MET), which is calculated on the basis of the volumes of oil and gas extracted. The oil extraction tax is adjusted to reflect the fluctuations in global oil prices and the depletion and volume of oil reserves.

But Russian companies have been lobbying for taxation to be based on profits, arguing that this will boost oil production and better reflect costs for extraction.

The new tax regime is expected to be approved by Russia’s Parliament in the first quarter of 2018 and enter into force on January 1, 2019, the energy ministry said, without specifying how much the new tax rate would be.

The tax will concern four types of fields—new fields in Eastern Siberia and Western Siberia, some depleted fields in Western Siberia, and fields that benefit from lower export duties.

The tax will first apply only to some pilot projects developed by Russian oil companies, the energy ministry said.

Initially, Russia planned to be able to introduce the tax reform in 2018, but disagreements among various players and ministries have been stifling progress on the reform. Most industry analysts concur that Russia’s current oil taxation regime is inefficient, and stymies the development of new fields in Eastern Siberia and other largely untapped regions, as well as the enhancement of production from brownfield projects in Western Siberia.

Commenting on the plan approved today, Deputy Energy Minister Alexey Teksler said in the ministry’s statement that the tax overhaul was an important step to solving Russia’s problem with keeping production levels, including in mature fields in Western Siberia. The new tax regime takes into account both the interests of the industry and the budget, Teksler said.

This article was originally published on Oilprice.com