Russia to cut export duties on oil

The Russian Finance Ministry plans to cut export duties on oil and light oil products even further starting in 2018-2019, the tax department director of the Ministry of Finance, Ilya Trunin said.

"Export duties should be an emergency response, not part of the tax system," Trunin said. According to him, 2025 is the deadline for abolition of duty. Trunin noted that this could happen faster. 

 

As the director of the Center for Studies of World Energy Markets at the RAS Institute of Energy Research, Vyacheslav Kulagin, said in an interview with Vestnik Kavkaza, the practice of export duty is quite unique and is generally not used abroad. If we do not reduce export duties, it may happen that Russian oil will be moved into neighboring countries without paying duties and exported from there. In this case, income will not go to the Russian budget. Naturally, this is not very attractive for the country. That is why there is a policy of sharply decreasing export duties. But this is offset by higher taxes on mining," the expert said.

 

"This will not affect production volumes, and will increase prices in the domestic market, because our prices are traditionally considered as a netback from external markets. Therefore, prices in Russia will grow," the analyst said.

 

Regarding the external factors contributing to the gradual reduction of duties, the expert drew attention to the integration process. "If we want to create a common market, then it should have common conditions," Kulagin said. However, he expressed the opinion that the probability that the state abandons the policy of zero tariffs is not so high. "Within the framework of the WTO, duties can traditionally be reduced, but not increased. Accordingly, if Russia is committed to lower taxes, there can't be an increase. You can keep the existing duties for a while. Export duties are a little outdated. Especially in the context of integration processes, where we will have free trade, some common space. We will need a few different mechanisms of taxation," the expert concluded.

 

A senior analyst of 'Uralsib Capital', Alexei Kokin, said that reduction of export duties on oil and light oil products will lead to higher prices. "The price of diesel and heating oil will gradually increase, but probably not of the price of gasoline, because gasoline market is not directly linked to export sales. As for the entire industry, it all depends on how the other main oil industry tax - a tax on mineral extraction tax (MET) will change. An oil refining will incur a great risk, as the profits from the processing depends on the ratio of oil duties and taxes on the petroleum products. If these fees will simply reset to zero, our refining will go bankrupt. It is natural that in 2025 The Ministry of Finance is planning a significant modernization of all of these derivatives," he said.The expert drew attention to the fact that the duties are set by the government at their discretion, but not above the level required by law.According to him, there is also the likelihood that the government will abandon the policy of zero tariffs, or may even increase them.

A senior analyst of 'Uralsib Capital', Alexei Kokin, said that reduction of export duties on oil and light oil products will lead to higher prices. "The price of diesel and heating oil will gradually increase, but probably not the price of gasoline, because the gasoline market is not directly linked to export sales. As for the entire industry, it all depends on how the other main oil industry tax – a tax on mineral extraction tax (MET) – will change. Oil refining will incur great risk, as the profits from the processing depend on the ratio of oil duties and taxes on the petroleum products. If these fees will simply reset to zero, our refining will go bankrupt. It is natural that in 2025 The Ministry of Finance is planning a significant modernization of all of these derivatives," he said.

The expert drew attention to the fact that the duties are set by the government at their discretion, but not above the level required by law.

According to him, there is also the likelihood that the government will abandon the policy of zero tariffs, or may even increase them.