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Russia Plans Biggest Oil Tax Overhaul in 20 Years

Russia Plans Biggest Oil Tax Overhaul in 20 YearsRussia Plans Biggest Oil Tax Overhaul in 20 Years

Russia is preparing the most radical shakeup of its oil-tax system since 1999. The changes will allow the nation’s producers to export crude and oil products duty-free. Starting next year, Russia will gradually lower export duties on crude and oil products until they are fully abolished in 2024. At the same time, it will raise oil-extraction taxes by the same amount, keeping the fiscal burden for producers and exporters steady, Bloomberg reported.

For refineries, the tax shift may be more painful as it raises the price of each barrel they process. To stem losses and prevent domestic fuel-price growth, the government will offer tax breaks to several types of refineries, including Siberian plants that are far from large ports, as well as facilities investing at least 60 billion rubles ($950 million) in upgrades between 2016 and 2024. The government will also offer relief to refineries where high-octane gasoline accounts for at least 10% of total output and to the refining subsidiaries of oil producers subject to international sanctions. That means basically all major Russian oil companies will receive tax breaks for their refineries.

The tax overhaul is Russia’s second attempt to remove export duties on crude and oil products, after an earlier effort in 1996. Just three years after the move, the government was forced to reinstate the levies as it scrabbled for funds after the 1998 financial crisis.

"The country is slated to increase oil production this year to 551 million tons (11.02 million barrels per day), a new 30-year high and up by around 3.5 million tons from previous expectations," Energy Minister Alexander Novak said on Wednesday.

He said Russia would further raise production to 555 million tons in 2019 after the Organization of Petroleum Exporting Countries and other oil producers led by Russia agreed last month to ease production curbs.

Last year, Russia’s oil production reached a new 30-year average annual high of 10.98 million bpd despite the country’s participation in an OPEC-led global supply reduction pact.

The deal on oil production cuts helped raise oil prices to almost $80 per barrel in May.

Oil prices edged higher for a second day on Wednesday with global benchmark Brent crude up 50 cents, or 0.7%, at $73.94 a barrel, after gaining 0.5% on Tuesday. US light crude was 5 cents higher at $68.57, having risen nearly 1% in the previous session.

 

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