Page 4 - FSUOGM Week 29 2019

FSUOGM COMMENTARY FSUOGM
Moscow bans new
oil tax breaks
The nance ministry is seeking to prevent further budget losses
RUSSIA
RUSSIA’S taxation system for oil and gas pro- duction has grown increasingly complex over the years, as Moscow has introduced more and more incentives to spur the development of chal- lenging projects.
Oil and gas elds in the Arctic, Eastern Sibe- ria and in various o shore regions pay lower rates of mineral extraction tax (MET) and export duty on what they produce, to varying degrees. e same support is applied to some brown eld sites in Western Siberia that contain large vol- umes of hard-to-recover oil.
Producers insist that these tax breaks are necessary because of higher recovery costs at di cult projects. eir arguments are usually supported by Russia’s energy ministry, which is keen to see output growth incentivised. e nance ministry, on the other hand, has o en opposed tax cuts, pointing to their impact on the state budget.
The finance ministry is now looking to bring tax breaks to a halt, with the department’s head Anton Siluanov several weeks ago asking
President Vladimir Putin to impose a mora- torium until 2024 on the award of any new tax breaks for the industry, Vedomosti reported this week, citing sources. Instead, Putin agreed to a ban lasting only until the end of this year, according to a decree published on the Kremlin’s website on July 22. Before then, the government must de ne a clear set of rules for tax breaks. It will achieve this by putting together an inven- tory of all domestic oil elds and their reserves by December 1, so that the e ect of current tax legislation on their cost-effectiveness can be assessed.
is attempt to standardise the system of s- cal incentives is laudable, as it will help operators more accurately predict the pro tability of cer- tain projects. It will also ensure a more level play- ing eld among producers. Too o en it is larger state companies that secure the most lucrative tax breaks, by leveraging their economic impor- tance to Russia and their lobbying power with the Kremlin.
On the other hand, the process of forming
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w w w . N E W S B A S E . c o m Week 29 24•July•2019