Russia not planning major tax hike

The Associated Press

The Russian government doesn’t plan on substantially increasing the overall tax burden on oil companies but may shift its focus to taxing profits made from high oil prices, Prime Minister Mikhail Kasyanov said Jan. 16.

“We need to look at how the tax system works, especially in regards to different price parameters,” Kasyanov said, while addressing recently elected deputies to the State Duma, Russia’s lower house of parliament, during their first session.

Russia President Vladimir Putin has called for higher taxes on Russian energy companies in a bid to help develop other sectors of the economy. Russia’s young, aggressive oil giants have put the nation in a neck-and-neck race with Saudi Arabia to be the world’s No. 1 crude exporter. Oil accounts for more than 50 percent of Russian export revenues, while the industry pumps in 40 percent of federal budget revenues.

But resentment is growing that the government is getting shortchanged by crafty oil giants that use tax loopholes such as offshore tax havens to reduce their tax burden, lining their shareholders’ pockets instead of state coffers. The government has recently begun shutting down some of those loopholes. Putin has said that the additional revenue from higher oil taxes could be used to help boost other sectors of the Russian economy, which remains overly dependent on the export of natural resources.

Kasyanov told lawmakers in Moscow that the government may target profits made at an oil price of US$25 a barrel, although he didn’t specify whether he was referring to the Urals or Brent price. He also said the government may create a tax system that would give breaks to oil fields where extraction is difficult, a move to encourage new developments in the sector. Kasyanov noted, however, that Russian oil companies face taxes comparable to their peers in other countries. Analysts have said that the Russian government is trying to use increased taxes as a way to gain more control over the influential, privatized oil companies.