Increasing the tax on the extraction of natural resources is going to have a stronger impact on the business of small oil companies

19 june 2017 | Rossiyskaya Gazeta

The tax burden on Russian oil companies is going to be increased after all despite the objections of the Ministry for Energy. Thus, the effective period of the higher rate of the natural resources extraction tax for oil production is going to be extended for another year, until year end 2020, to help cover some of the budget deficit.

Alexander Amiragyan
Alexander Amiragyan
Department for Fuel and Energy Sector

Experts estimate that in money terms the extra budget revenue won't be as significant as that received as a result of the deal with the OPEC, however, in all probability it is going to put significant downward pressure on oil production. The provision that extends the effective period of the increased natural resources extraction tax rate of 428 rubles per ton until 31st December, 2020 was proposed as part of a Finance Ministry bill.

"The Finance Ministry appreciates the fact that there is a need to boost tax revenue in 2020 by means of increasing the natural resources extraction tax and the proposal that the tax be increased in 2017 was dictated by the desire to make the future tax conditions for the companies clear as soon as possible," Analytical Center expert Alexander Amiragyan told a Rossiyskaya Gazeta correspondent.

It should be noted, however, that increasing the natural resources extraction tax is going to have a greater effect on the business of small oil companies that focus on the extraction and sale of crude oil, the expert believes. "They may cut back production but that it won't affect the national output much as their share is very small," Mr. Amiragyan said.

It should be reminded that in 2017 the extra natural resources extraction tax is 306 rubles per ton, in 2018 it will be 357 rubles per ton and in 2019 it will be 428 rubles per ton. It is estimated that the extra tax revenue from this increase in the tax rate will total half a trillion rubles over the three years.