Page 65 - RusRPTDec20

due to the oil and gas sector taxation reform​, Vygon Consulting estimates inan​industryreport​.Asreportedby​bneIntelliNews,​ ​Russianlawmakershave approved a major overhaul of oil industry taxation​, aimed at extracting more budget revenues from the sector and simplifying the fiscal landscape. Producers have been stripped of breaks on mineral extraction tax (MET) and export duty under the reforms, and the government is encouraging them to transfer affected fields to a uniform excess profit tax (EPT) system instead. Vygon estimates that oil companies would lose about RUB1.15 trillion of cash flow as a result, with about RUB500bn of netbacks and tax breaks making a total loss of RUB650bn. The analysts warn that the federal budget would not automatically cash in all of the extra revenues, as clipped cash flows would revise the investment programmes downwards and eventually hurt output, synergies and spillovers to other industries. Vygon believes that fiscal guarantees for investment projects with 7- to 20-year horizon are necessary to soften the negative impact on the oil sector from the tax reform. The analysts remind that MET and export duties have been revised in Russia over 30 times in the period of 2002-2018, with the tax burden rising from 39% to 61% of the cost of a barrel in 2018.
6.1.3​ Budget dynamics - govt funding plans
How will MinFin cover the 2.4% GDP deficit planned for 2021? ​The primary source of financing is to be net debt issuance – but MinFin guides that next year net issuance will decline from RUB4.4 trillion in 2020 to RUB2.9 trillion in 2021 and then further to just RUB2.1 trillion in 2022 as the whole budget becomes aligned with the pre-COVID version of the Fiscal Rule. Does MinFin plan to issue externally in the coming years? Yes, MinFin’s plan almost shows plans to issue $3bn per year in the coming three years (even as MinFin claims to assume that the current external financial restrictions will persist), but we note that this is not a binding commitment – MinFin can and does choose depending on the perceived market conditions.
6.1.4​ Budget dynamics - regions
Russia’s regions could receive RUB130bn ($1.7bn) in 2021 in support from the government, up from the initially planned RUB30bn, ​Vedomosti ​daily reported on November 6 citing the comments of the Finance Minister Anton Siluanov on 2021-2023 federal budget.
bne IntelliNews​ has recently analysed the regional public finances risks.​ The analysts believe the federal budget risks increasing the ​discrepancy between the central and regional budgets, and pushing regional authorities deeper into debt​.
The 2021-2023 budget has already been criticized for possibly worsening the
65 ​RUSSIA Country Report​ December 2020 www.intellinews.com