Putin instructs govt to submit by March 1 proposals to clarify methodology for determining prices for oil, petroleum products for taxation

MOSCOW. Jan 27 (Interfax) - The Russian government must submit by March 1 proposals to clarify the methodology for determining the price of oil and petroleum products used to tax companies in the industry, and the corresponding instruction from President Vladimir Putin has been published on the Kremlin's website following the government meeting on January 11.

There are plans to update the methodology in order minimize the negative effects on federal budget revenues, taking into account the specifics of forming indicative oil prices amid the sanctions restrictions.

Prime Minister Mikhail Mishustin has been appointed as the party responsible for fulfilling the presidential order.

As reported, the Finance Ministry plans to evaluate in the first quarter the possibility of using the St. Petersburg International Mercantile Exchange (SPIMEX) index and/or prices for Russian Urals oil, as calculated by the Argus agency based on free on board (FOB), when calculating taxes and duties.

CIF-based Urals prices on are currently registered in the tax legislation. Following the European Union implementing an embargo on imports of Russian oil as of December 5, 2022, Argus has altered its approach to calculating oil prices. CIF prices at European ports in the Mediterranean and at Rotterdam, as determined and based on the results of trading, were previously posted; however, Argus currently publishes the prices at Russian ports, meaning that FOB and CIF prices are now calculated to account for the cost of transportation to European ports and for insurance services.

Deputy Finance Minister Alexei Sazanov noted that using FOB prices when calculating rates would lead to a drop in budget revenues totaling one trillion rubles; therefore, it would be necessary to amend the legislation in order to use FOB, particularly the formula for calculating the mineral extraction tax (MET).