Russian Minister Advocates Gas And Oil Tax Reform

by Tatiana Smolenska, Tax-News.com, Moscow

01 October 2003

Speaking at an investment conference earlier this week, Russia's Economic Development and Trade Minister, German Gref advocated reform of the existing flat rate of tax levied on the oil and gas sector.

In its place, Gref proposed the introduction of a differentiated royalty tax on the industry to level out the playing field between firms in the sector. Under the current regime, the minister explained "flat rate gives some businesses a very low profit margin, while other companies are generating excess profits."

It has been estimated that the differentiated royalty tax system would raise an additional $1.5 billion to $2 billion in revenues for the government, although Gref has claimed that if the new rates were set correctly it would improve the efficiency of the nation's oil and gas production.

At present, the base rate of royalty tax on oil and gas condensate is 340 rubles ($3.67) per metric ton, but this is set to increase to 350 rubles from January 2004. In addition, the 30% excise tax on natural gas is to be eliminated and a production tax is to be introduced at a rate of 107 rubles per 1,000 cubic meters.

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