Tax On Russian Oil Sector Likely To Rise By $3.5 billion

by Tatiana Smolenska, Tax-News.com, Moscow

10 February 2004

The tax burden on Russia’s oil firms is likely to rise in the near term after two government ministries agreed to a rise in taxation on the sector last week.

The tax hike is not likely to be as high as first feared after it was reported that the Finance Ministry and the Economic Development and Trade Ministry agreed to an increase roughly the equivalent of $3.5 billion per year.

However, the two departments have yet to receive the approval of the Energy Ministry, which has been pushing for a larger tax hike of around $6 billion a year, according to reports.

It has been suggested that the $3.5 billion in extra revenues will be made up from a $2 billion hike in export duties, which will be raised when the price of the benchmark Urals blend is over $20 a barrel.

A more controversial change though, may see export duties rise dramatically when the price rises over $25 per barrel. This could mean producers paying duties of $31.03 per ton, plus 70% of the difference between $25 and the actual market price.

Additional changes have been suggested to the mineral extraction tax, which could result in the levy rising to 560.6 rubles ($20) per ton from the current rate of 347 rubles.

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