New tax regime for the oil industry will be launched in 2018
Photo: TASS/Viktor Drachev
The Ministry of Finance and the Ministry of energy after two years of intense discussion, reached agreement on the introduction of a tax on extra income (TEI) in the oil sector, which will affect both old and new fields. The Finance Ministry has already begun drafting a bill. It is planned that the new tax will appear in 2018. According to the plans of the Ministry of Finance changes will increase the number of developed fields. Although the new scheme and reforming the taxation of the entire industry, the risk of a shortfall of taxes due to the possible above oil companies remain high, experts fear.
The basis of the new taxes by the idea of Finance taxation free cash flow. Winning the government is actually the Ministry’s position, as the risks for the budget is now high, confirmed the “news” close to the discussion of the source. That agreement, said the representative of the Ministry of energy.
— Yes, we can say that the main parameters agreed, — said the interlocutor of “Izvestia”.
New tax regime for the industry will be launched in January 2018, involves the Ministry of Finance. In its submission, the Department indicates that the reform will increase the investment attractiveness of new projects, whose development is unprofitable, or due to significant development costs and to encourage greater oil recovery efficiency and rational use of the subsoil.
More than two years, the Ministry of Finance and the Ministry of energy arguing about the new scheme of taxation of the oil industry. The Finance Ministry insisted on the introduction of PDM for all fields, and the energy Ministry proposed a tax on financial result (NFR). The idea of the Ministry of Finance this gradual elimination of export duties and tax on extraction of mineral resources in favor of the new income tax for all projects, which will be paid only after reaching their payback. Alternatively, the energy Ministry proposed the NFR, which would exempt the company from severance tax and is levied only on the profit from the sale of oil. The concept of energy was more favorable brown fields, but has created more risk for falling budget revenues.
Severance tax is levied all the revenues of oil companies regardless of their cost. This scheme created problems for the development of a number of fields that require significant investment. Now actually it does not matter how much money companies invest in exploration: the mineral extraction tax should be paid from the volume of production, regardless of the resulting profit or not, explaining the problem BGP Litigation lawyer Natalia Yurchenkova. This sharp decline in international oil prices (from $110 to $45 per barrel) is forcing oil companies to develop only highly profitable deposits and reduce the rate of production growth.
Although the Ministry of Finance, and specifies that the law “should not adversely affect the revenues of the budget system,” experts see risks of tax shortfalls.
— We can assume that the first time application of the new scheme, the budget revenues may decline. But later — as field development and increase production revenues should increase due to the additional volume of material mined. It is formed due to the preferential tax conditions, — said the chief analyst of the Bank Natalia Vasilyuk.
For oil companies, the tax burden is already large enough, any change one way or another bears the risks, and at the moment, in conditions of unstable economic situation, in particular, said chief analyst at Promsvyazbank Ekaterina Krylova.
Also negative is the fact that in recent years, there is no stability in relation to taxation, making it difficult for companies forming strategic plans for a long period. By increasing the fiscal burden it is obvious that companies will cut investment. However, most likely, it will relate to the refining, not mining, she said.
From the point of view of the industry transition to NDM — positive news and it will contribute to the development of new deposits, says the analyst of Raiffeisenbank Andrey Polischuk. However, he notes that the first transition stage, where the PDM will be used in conjunction with the met, but later deposits will be taken to a new tax. However, he admits there is a risk that companies will overstate the estimated investment to reduce their tax base.
The country switched to the conventional PDM, faced with the problem of preinvasive and underreporting of income — the so-called gold plating, supports Natalia Yurchenkova.
— There is a risk of overstatement of expenditure by oil companies, it was a major concern of the Ministry of Finance. But the Finance Department can compare the cost of similar projects with other companies in order to avoid this situation, — says Andrey Polishchuk.
According to him, if two fields are next, and the investment in the costs twice, it already looks suspicious.