Russian Government Tightens Tax Screws On Energy Sector

by Tatiana Smolenska, Tax-News.com, Moscow

21 November 2003

Less than one month after Mikhail Khodorkovsky, the former chief executive of Russian oil giant Yukos, was jailed on charges of tax evasion, the Putin government has announced its intention to close tax loopholes used by the energy sector, and increase its share of revenues from the country’s vast mineral wealth.

In an attempt to reassert its authority over the oil barons, the government has requested that parliament shut down three domestic tax havens that analysts estimate deprive the state of between $1 billion and $2 billion a year in revenues. Whilst this manoeuvre was already scheduled to take place midway through next year, it is now being brought forward to January 2004.

In a double blow for the oil moguls, the government has also directed parliament to remove the cap on oil export duties paid by energy firms, a policy that had significantly contributed to the sector’s profitability. This has already been approved by lawmakers.

Although analysts say the government’s ‘get tough’ policy is primarily directed towards the likes of Yukos, which paid an effective tax rate of 13% last year, according to Merrill Lynch, it is also likely to hit international firms with a large stake in the Russian energy sector such as BP, which has invested $7.7 billion in a joint venture with a Russian firm known as TNK-BP.

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