Russian Heavy Oil Export Tax Reduced

by Tatiana Smolenska, Tax-News.com, Moscow

29 August 2001

Last week, Russian Prime Minister Mikhail Kasyanov signed a resolution reducing the rate of export tax on oil produced from heavy (bituminous) raw materials by one third to 23.4 euros a tonne.

It might have seemed that the rates of export taxes on fuel should go up along with the growth of world oil prices, and that is indeed what happens with ordinary (light) oil. However, large Russian reserves of asphaltic bitumen oil mean that heavy oil accounts for about 25 per cent of all the oil being extracted. But Russian refineries are not well adapted to processing heavy oil cost-effectively, so that its export is encouraged, and accounts for about one third of all Russian oil exports.

Western demand for bituminous oil peaks in September/October, so in order to maintain demand for it through the winter, it's necessary to reduce the export tax, especially if oil prices have been rising. It is a kind of inverse tax mechanism that is functioning here: the higher the world oil prices, the lower the export taxes.

The tax rate on the "heavy" fuel has remained unchanged for about six months, although over that period of time oil prices have risen by over 15 per cent. It's estimated that the treasury can gain an additional $200m to $250m by optimising the tax rate in this way.

As in previous years, the new rate of export tax also applies to the seven CIS countries that are not members of the "duty-free five" (Russia, Belarus, Kazakhstan, Kyrgyzstan, and Tajikistan). It is true, though, that these 'near-abroad' countries do not consume much Russian bituminous oil - just slightly over 10 per cent.

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