The Analytical Center has held a round table entitled “Assessing the effectiveness of tax exemptions in the oil and gas sector” during which experts talked about the current results of the assessment and the advisability of revising the mechanisms of tax exemptions. Participants in the round table included representatives of federal executive authorities, oil and NG companies, expert organizations and the academic community.
“Reports confirm the high profitability of the natural resources sector and its ability to pay higher taxes. However, compared with foreign companies, Russian companies already have a heavy tax burden,” said Mikhail Smirnov, lead researcher at the Financial Research Institute. According to him, the overall tax burden on oil companies is not critical yet. However, the effectiveness of the current tax system is already showing signs of diminishing effectiveness both for the treasury and for the sector. “As for the so-called non-tax payments, they already make up a very large portion of the total taxes and duties and there is a risk they may turn into a tool for expropriating rent,” the expert believes. Mr. Smirnov thinks that integrated sector development programs are required that would include measures to encourage businesses both through taxes and in other ways, as well as measures to support related sectors that oil and gas companies rely upon.
Anton Rubtsov, Business Development Director of VYGON Consulting, believes that when taxes are tough and they are charged on gross figures, a system of tax exemptions is a must. And it will only be effective if it results in positive changes in investment decisions, the expert explained. “The transition to the Additional Revenue Tax for the entire sector should involve a Natural Resource Extraction Tax holiday for green fields, exemptions for brown fields and incentives for technological development,” Mr. Rubtsov said. The expert also believes that assessment of the effectiveness of such exemptions must be based on an analysis of their impact on the profitable deposits and budget revenue, because if the volumes entitled to exemptions increase, there is a risk the exemptions will have to be revised to increase the current budget revenue. “To have a system of assessing exemptions that everyone will be happy with, we need to use state expert examination procedures and a national audit of natural resources,” Mr. Rubtsov is sure.
During the event the experts also noted that some NG and oil projects could not be implemented without tax relief, so whatever happens, it is vital to find a mutually acceptable solution that takes into account the interests of both the state and investors.