Russian Finance Ministry suggests introducing new scale of export duties on oil

The Russian finance ministry suggests introducing a new scale of export duties on oil and adjusting the formula of the severance tax.

Relevant amendments to the law on the customs tariff and to the Tax Code were submitted Friday to the government as part of the package of bills on the tax reform.

Sergei Shatalov, the first deputy finance minister, earlier told journalists that the suggested approach envisages increasing tax withdrawals from the industry with high oil prices and reducing [tax withdrawals] with low oil prices.

With the price for oil at $15 per barrel now, export duty is not levied; with the price at $15-$25 per barrel, the duty is up to 35% from the difference between the actual price for oil and $15 per barrel; with the price at $25 per barrel, the duty is a sum no more than $25.53 plus 40% from the difference between the actual oil price and $25 per barrel.

The finance ministry suggests introducing into the scale an additional interval of prices from $20 to $25 per barrel and set in this interval an export duty at 45%, and if the oil price is more than $25 per barrel, to increase the duty to 65%.

In the severance tax formula, the ministry suggests increasing the basic rate of the tax from 347 to 400 rubles per metric ton of oil.

The dollar exchange rate set during the calculation of the severance tax formula at 31.5 rubles is planned to be reduced to 29 rubles.

As a result, the tax rates were to increase with inflation growth. However, with the ruble rate strengthening in 2003, the volume of tax withdrawal went down by 12% instead of increasing by 20% as forecasted.

Besides, the ministry suggests that the threshold of oil cost, from which taxation starts, be increased from $8 to $9 per barrel during the severance tax calculation.

It is supposed that the main tax withdrawals will be made not at the expense of severance tax but at the expense of export duties, on which some two thirds of additional tax burden with high oil prices will fall.

The finance ministry believes this approach to be justified, because severance tax increase may lead to the growth of domestic prices for oil, while duty increase applies only to exported oil, Mr. Shatalov stressed.

In his words, the implementation of measures suggested will give the budget additional revenues (due to severance tax and export duties) worth $900 million with the oil price at $24 per barrel, and worth $2 billion with the oil price at $27 per barrel.

Mr. Shatalov said the new severance tax is expected to be introduced from 2005, while new export duties may be introduced "even from the middle of this year."