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Russia Announces Four-Year Delay In Scrapping Oil Export Duty

Putin

Russian Finance Minister Anton Siluanov announced a four-year delay in the abolishment of oil export duties on Monday.

The new timeline means that Moscow will scrap the taxes on oil and refined goods incrementally between 2022-2025 in a “tax maneuver” that will also increase the mineral extraction tax simultaneously. The previous timeline estimated that taxes would end between the years 2018 and 2020.

"We think that oil export duty could be scrapped in full between 2022-2025," Siluanov told a group of reporters at an event organized by the Russian Union of Industrialists and Entrepreneurs. "We are holding discussions with oil firms and the Energy Ministry and I am sure a relevant decision will be made."

The minister revealed no details about the scale of the MET hikes, though he commented that the net effect of the changes on the bottom lines of Russian oil and gas companies would be “neutral.”

The plans have been built on analyses by Moscow’s bureaucracy that taxing the country’s businesses at home is more efficient than chasing them for the import taxes they owe. Oil and gas companies also approve this move, because a direct tax on profits encourages production while reflecting costs and risk factors, Reuters reported.

Related: Falling Oil Prices Could Upend The OPEC Deal

Russia is also considering upping its value-added tax to coincide with a drop in social security payments. Siluanov said the move would cause a spiral of activity that would lead to a two percent rise in inflation of the ruble’s value.

Russia recently approved its 2017 budget, which envisages a deficit of 3.2 percent of GDP – a figure comparable to the United States’ 2.6 percent estimated for 2017. According to some analysts, however, such as Mauldin Economics’ Jacob Shapiro, this 3.2 percent is enough to make life difficult for Moscow over the next 12 months, which is why the Kremlin should hope for higher oil prices spurred by global production cuts negotiated by OPEC.

By Zainab Calcuttawala for Oilprice.com

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