Russia's Finance Ministry proposes raising profit tax for Transneft to 40%, along with other changes
MOSCOW. Nov 18 (Interfax) - Russia's Finance Ministry has submitted new proposals to the government to change taxation of the oil and gas industry, a source familiar with the proposals told Interfax.
One of the proposals that will soon be submitted to the State Duma is to raise the profit tax for natural monopolies that transport oil and oil products through the system of trunk pipelines, meaning Transneft , to 40%.
The ministry also proposes to update the calculation of Urals crude prices for taxation; reduce the mineral extraction tax (MET) to zero for production of hard-to-recover gas on the Yamal Peninsula; and measures to support oil refining.
The proposals will be packaged as amendments to the government bill to amend the Tax Code that the State Duma passed in the first reading on November 12, which currently only includes revisions concerning taxation of tobacco.
Transneft is currently subject to the general profit tax rate of 20%, which is set to go up to 25% for all Russian companies as of January 1, 2025 under federal legislation passed this year.
The proposed new method for calculating the Urals price for tax purposes would factor in the price of ESPO crude exported through the Kozmino port in the Far East. The price of this premium Russian crude is not currently used for calculating taxes. Under the proposed method, the Urals price for taxes would include the average daily price of the oil at the Primorsk and Novorossiysk ports in the tax period that has ended multiplied by 0.78 and the average price of ESPO crude in Kozmino multiplied by 0.22. The price will be calculated as the average of three FOB prices (Primorsk, Novorossiys and Kozmino), where the weight of the arithmetic average of the first two will amount to 0.78 and the weight of the third will be 0.22.
The ministry also proposes to suspend the MET tax deduction for production of gas condensate sent for processing with separation of natural gas liquids (a product of associated petroleum gas and gas condensate processing) for five years starting in 2025. At the same time, it plans to set a zero MET rate for ten years starting January 1, 2028 for production of hard-to-recover gas and gas condensate from Achimov and Jurassic pay zones on the Yamal Peninsula.
The ministry also proposes to extend the application of the investment markup on the "reverse" excise on oil for companies that invest more than 100 billion rubles in oil refining facilities, which is now set to expire on January 1, 2031, by two years until January 1, 2033. In addition, the period for fulfilment (amendment) of agreements to develop petrochemical production facilities would be extended by one year.
Government support in the form of the investment markup (a multiplier of 1.3 in the reverse excise formula) goes to refineries that sign investment agreements with the Energy Ministry to launch new deep refining units. There are a total of 21 agreements for the launch of 50 units at a combined cost of more than 1 trillion rubles.
In the package of materials concerning support for oil refining, the ministry proposes revising the dampening mechanism that is used to stabilize fuel prices, meaning the reduction of the damper to zero for each type of motor fuel. At present, the damper subsidy payments drop to zero if exchange prices for at least one type of fuel, either gasoline or diesel, exceed the indicative price level.
The damper is paid out of Russia's budget as a subsidy to oil companies in order to hold down domestic fuel prices when there is a high export netback. But if wholesale fuel prices within Russia increase too much and deviate from the conditional prices for gasoline and diesel set in the Tax Code by more than 10% and 20%, respectively, on average for the month, the damper is not paid for that month.