Managing Director
Moscow Financial Forum participants discussed perspectives of elaboration the future oil and gas taxation optimal parameters during the profile panel discussion in 23 September.
VYGON Consulting Managing Director Grigory Vygon moderated the session, which was attended by the Director of the Department of tax and customs policy of the Ministry of Finance Alexey Sazanov, Head of Effective Tax Policy Project in the Centre for Strategic Research Fund Sergei Shatalov, Senior Deputy CEO of PJSC Gazprom Neft Vadim Yakovlev, General Director of JSC Zarubezhneft Sergey Kudryashov, Executive Chairman of the Board of Directors in AO Ruspetro Aleksander Chistyakov, Deputy Chairman of «Shell» Russia Igor Ignatyev.
The current tax system is highly unstable, while its fundamental reform is extremely complicated due to the numerous benefits, said Grigory Vygon at his welcome speech. At the same time oil and gas industry is the main federal budget revenue source, thus any tax system changes can have serious consequences.
Since 2015 the oil “tax maneuver” is in effect, which means the gradual export duties reduction and compensating increase of mineral extraction tax (MET). Besides, the Russian Ministry of Finance proposal to introduce profit-based tax (NDD) on hydrocarbon extraction both for greenfields and brownfields, as well as lifting methodology on export duty exemptions.
The first question on merits and demerits of the effective tax system the moderator addressed to Sergei Shatalov, under his guidance the tax reform was conducted over the past 20 years. Today, according to a respected economist, we have a very extensive, varied system of exemptions on various grounds - oil quality, geographic location of the field (i.e. hard-to-recover reserves in East Siberia, Yakutia and offshore reserves). “It turns out that taxation system of oil industry is operated manually, which results in lack of transparency, so it is hard to manage corruption risks”, - admitted Shatalov. Today the major concern at his point is to switch from manual control to the reasonable tax system, which would consider specific features of individual license areas and fields, like NDD does.
Senior Deputy CEO of PJSC Gazprom Neft Vadim Yakovlev in his speech mentioned a high share of industry taxes (MET and export duty) as the key challenge of the current tax system. According to Yakovlev, "a huge part of reserves, which has been profitable until fiscal withdrawal after imputed tax appear to be beyond profitability". Under his estimates, around 5 bln tones reserves are not currently involved into exploitation. “The only system solution is transition to NDD, which is easier to administrate", - said Vladimir Yakovlev.
"Shell" representative Igor Ignatiev noted that in terms of market price volatility, complexity of projects and growing capital expenditures the competition between the countries increases, which is disregarded in Russia. “Over the last 20 years 400 amendments have been introduced to the federal law since the second part of tax code has been implemented, more than 200 of them concerned MET. The rules are constantly changing, however both the Government and the Russian Ministry of Finance do not make a point to uphold its promises. I.Ignatiev states that the key tax system features should be stability and adherence to obligations.
A.Sazanov confirmed the concept of the Ministry of Finance to abandon export duty for oil and products. “In our view, it is a final step to solve the problem of poor quality refineries and to highlight the customs subsidy, which we transfer to our EAEU partners”, - he pointed out. Responding to Grigory Vygon’s question on chances to run NDD in 2018, Sazanov finalized: “Additional argument for transition to NDD is the involvement of more preferential reserves into exploitation. The shift to NDD is inevitable, because by that time the budget will have nothing to lose in terms of various exemptions and tricky companies, which will find the way to shelter from the current base rates”.