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Russian oil companies currently generate a lot of cash, so they will be able to shoulder a cumulative US$14.75 billion (1 trillion Russian rubles) in extra taxes under the oil tax reform that Moscow will be implementing over the next six years, the head of the tax department at Russia’s finance ministry, Alexei Sazanov, told Reuters in an interview published on Monday.
Last month, Russia’s President Vladimir Putin signed into law a bill that would phase out Russia’s crude oil export duty by 2024, which is expected to increase export netbacks for oil producers. Another oil-related law introduces the so-called ‘negative excise duty’, or excise refund for refiners, aimed at stimulating refinery upgrades and higher light oil product output.
At the beginning of June, Russia’s Finance and Energy Ministries said that they had agreed with the domestic oil companies to begin phasing out in 2019 crude oil export duties by 5 percentage points annually over the next six years, from 30 percent now to zero as of 2024.
To cushion the impact on refineries from the rise in crude oil prices and a disappearing indirect subsidy, the Russian government will be refunding refineries with the negative excise duty. Those refunds will be based on the amount of crude oil that the refineries process, the light products they supply to the Russian market, and the distance to the markets.
The exact levels of the negative excise duty as well as some other parts of the new tax reform are still subject to discussions and minor changes, Sazanov told Reuters.
According to the official, Russia’s oil industry expects to see US$29.5 billion (2 trillion rubles) in combined free cash flow this year, which are “huge figures.” The new tax regime is not expected to affect Russian oil production, which held steady at nearly post-Soviet highs in August at 11.21 million bpd, after a big boost in July from June after OPEC and its Russia-led non-OPEC partners agreed to ease the cuts to offset supply disruptions.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.