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Russia Seeks Additional $1.9 Billion In Taxes From Oil & Gas

Russia’s finance ministry is looking to raise as much as US$1.93 billion (143 billion Russia rubles) in taxes from the oil industry over the next two years, as the oil price crash has shrunk Russia’s key revenue stream—oil.

According to a document on a Russian government website, cited by Reuters, the finance ministry is looking to receive more tax proceeds by amending the tax code and the recently implemented profit-based tax.

The government and the Russian oil industry are heading for a dispute over the proposed tax amendments, Russian business daily Kommersant reported on Monday, citing sources familiar with the matter. According to Kommersant’s sources, the proposal – if passed – would negatively affect mostly Gazprom Neft, the oil division of gas giant Gazprom, and Rosneft, the biggest oil producer in Russia.

The profit-based tax, introduced as an experiment last year, has led to the Russian budget not receiving US$2.9 billion (213 billion rubles), according to the sources.

The Russian companies, however, strongly disagree that they should repay that sum under a new tax amendment, and the issue could be escalated to President Vladimir Putin, Kommersant reported.  

The possible changes to the tax code would be harmful to the fundamentals of Russia’s oil industry, Reuters quoted VTB Capital as saying in a note.

Currently, Russia’s economy is suffering the consequences of the oil price crash it helped create with the temporary rift with its OPEC+ partner Saudi Arabia in March. The Russian ruble crashed, and Russia’s oil income shrank as a result of the plunge in oil prices.  

The oil price crash, along with the coronavirus-driven global recession, will result in Russia’s economy shrinking this year by 6 percent, or by the most in 11 years, the World Bank said in its latest economic report on Russia earlier this month.

Russia is said to be considering whether to adopt a kind of state oil hedging program, similar to Mexico’s oil hedge, to protect government revenues from oil price crashes in the future.  

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh Salameh on August 04 2020 said:
    What is a sum of $1.9 bn for the world’s fifth largest economy at $4.39 trillion based on purchasing power parity (PPP)? If the author is insinuating that Russia’s economy is so dependent on the oil revenue that $1.9 bn in taxes make a difference, then it is a deliberate misinformation and inaccuracies as usual motivated by political bias. So let us separate the wheat from the chaff.

    While all oil-producing nations have felt the destructive impact of low oil prices triggered by the COVID-19 pandemic, Russia has emerged as the least affected among all major oil producers including Saudi Arabia and the United States.

    Moreover, it wasn’t Russia who started the oil price war that exacerbated the collapse of oil prices. It was Saudi Arabia.

    And while Russia’s GDP may have shrunk by 6%, it still fared better than the US GDP which crashed by 32.9% annually in the second quarter of 2020, Germany’s by 10% and China’s by 6%.

    Furthermore, the role oil plays in the US and Saudi economies is far bigger than the Russia’s. While the US oil and gas industry contributes 10% to the United States’ GDP compared with 30% for Russia and 50% for Saudi Arabia, the role oil plays in the US economy through the petrodollar is far more dominant than in the economies of Russia and Saudi Arabia.

    The petrodollar underpins the United States’ financial system and economy. It provides at least three immediate benefits to the United States. It increases global demand for US dollars. It also increases global demand for US debt securities and it gives the United States the ability to buy oil with a currency it can print at will. In geopolitical terms, the petrodollar lends vast economic and political power to the United States.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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