More Oil Tax Cuts For Russia By 2010, Aide Says

by Tatiana Smolenskaya, Tax-News.com, Moscow

24 September 2008

The Russian government has stepped up the debate over tax on oil this week with a senior Kremlin aide suggesting that more tax cuts for the oil sector will be introduced by 2010.

Arkady Dvorkovich, an economic aide to President Dmitry Medvedev, made the announcement this week following a meeting which took place late last week between President Medvedev and Finance Minister Alexei Kudrin, whereby the two parties agreed to put off a decision on VAT cuts until next year, while plans are drawn up to provide additional tax relief for the oil sector from 2010.

It is believed that the government will likely favour a reduction in the oil export duty over a cut in the mineral extraction tax, as this will allow oil firms to increase their stocks by saving billions of rubles on production costs.

Oil production in Russia began to fall noticeably in the early months of this year, and although the government has already implemented a string of new measures regarding oil deposits this year to help boost investment, claims from oil companies that more needed to be done have prompted this further package of amendments.

Earlier in the year, Russia's Deputy Energy Minister, Stanislav Svetlitsky, announced that the country's Energy Ministry plans to increase the numbers of offshore oil deposits eligible for exemption from royalty tax payments in 2009.

As well as expanding the number of offshore oil deposits on the list, Svetlitsky has also drawn up proposals to increase the current USD15 tax threshold on exemption by USD10 to USD25 per barrel.

Oil companies have responded positively to the new proposals, with some estimating savings in 2009 of more than USD5bn, although they have also been quick to point out that even more will need to be done to sustain output.

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