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Oils – suggestion to introduce excess profit tax for projects with export duty reliefs


Kommersant reports that, according to the Ministry of Finance, it has been suggested introducing an excess profit tax (EPT) for projects with export duty reliefs. At the same time, the potential introduction of the proposed tax changes might be delayed, the paper says.

Our initial calculation, based on the 2014 numbers, suggests that in the case of EPT (with oil operating income being subject to the tax), the tax rate for some average brownfields might not be lower than the current MET rate. Therefore, introducing EPT would not be beneficial for the Russian oil industry, we think. As such, we would see any potential delay in introducing EPT as positive for the Russian oil sector.

In September, the Ministry of Energy suggested two approaches to excess profit tax for the sector. First, an excess profit tax (EPT) with oil operating income (which is to have the potential to be reduced by capex) being subject to the tax. Second, a tax on financial results (TFR), with oil revenues decreased by an ‘uplift’ (current opex, DD&A, prior year losses and a capex rebate for the previous four years), which cannot exceed 10% of revenues. The rate for both taxes was suggested by MinEnergo at 60%.

Dmitry Loukashov (CFA), Ekaterina Rodina, Kirill Komarov
VTB Capital analyst


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