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Oils – idea of tax experiment in oil industry receives preliminary approval


Arkady Dvorkovich, the Deputy Prime Minister, has approved the idea of a tax on financial results for oil companies, Vedomosti reports. The list of 12 pilot projects that will participate in the experiment is to be selected from 35 submitted by oil companies, the newspaper reports. The possible criteria are small fields with low debits and no tax relief. The final decision is still to be discussed in a meeting with Prime Minister Dmitry Medvedev.

We have written on a number of occasions that the tax manoeuvre introduced on 1 January 2015 might have unpredictable consequences. Lower global prices for oil and oil products, along with the significant depreciation of the rouble, mean that its effect could well differ significantly from what was initially planned. Given the lack of details at this moment, it is difficult to calculate the exact effect on the industry and individual companies. We therefore see the news as neutral at this point.

Earlier in March, the ministries involved commented on double taxation risks, the potential inclusion of a financial result tax (TFR) within income tax, a possible increase of TFR from 60% to 75%, TFR distribution, and other questions related to the potential tax reform. Additionally, individual field gathering systems were to be installed at pilot projects, as suggested by the Ministry of Finance.

In September 2014, the Ministry of Energy suggested two approaches to the issue of excess profit tax for the sector. First, an EPT, with oil operating income (which would have the potential to be reduced by capex) being subject to the tax. Second, a 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 at 60%.

Dmitry Loukashov, Ekaterina Rodina, Alexander Donskoy, Kirill Komarov
VTB Capital analysts


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