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The Russian energy and finance ministries agreed with oil companies to start cutting the export duty on crude gradually, to bring it from the current 30 percent to zero over the next six years, government sources told Reuters.
The duty will be cut by 5 percent annually over the period, as part of a wider tax reform that seeks to replace the export duties and mineral resources extraction taxes with a single tax based on the profits that oil companies in Russia make.
Currently, the oil export duty is tied to oil prices, and calculations for May saw it 6 percent higher than in April, at US$118.5 per ton of oil, based on a price of US$65.80 per barrel.
The idea of phasing out the export duties is not new. Last year, Finance Minister Anton Siluanov said the end of the duty will come no earlier than 2022-2025. Now, the six-year phase-out plan will see it gone by 2023. This compares to earlier and much more ambitious plans to have it scrapped by 2020.
The oil industry in Russia is backing the tax reform, which will make it easier for the government to collect taxes from the companies directly instead of calculating export duties. For the oil companies, it would be simpler, too, and a direct profit-based tax would encourage higher production as it would be more directly linked to exploration costs and risks, Reuters reported back in March 2017.
The tax overhaul is also connected to plans announced by central bank governor Elvira Nabiullina in 2016 to reduce the federal budget’s reliance on the exports of mineral resources. The plan was announced at the height of the oil price crisis. At the time, Nabiullina admitted this will not be an easy or smooth process, but it could contribute to the country’s economic growth.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.