Russia » Economics

Tax on oil stocks?

Russia’s Ministry for economic development (MED) came up with modifications to the current taxation laws, according to which the oil companies would have to hand all their profits over to the state budget. This is how MED wants companies to get rid of “excessive” stocks of oil. The modifications were ready in February 2002, but “at the top level it was decided not to touch oil guys”, commented in Finance Ministry to the “Vedomosti” newspaper.

The modification project wants to substitute tax for oil extraction with a tax on “right to extract oil”. The new tax is to be calculated per ton of “approved oil stock in a certain area, provided to the taxpayer for use according to the current legislations”. The authors claim: “Periods of technological idleness of an oil well of a Russian oil companies varies from 17 days a year per a well (YUKOS) to 117 days (TNK), and even more, what is much above the worldwide level of 3-5 days a year.”
“Now the taxation is based upon the oil extracted, so if a licensed company doesn’t extract anything, it doesn’t owe anything”, says the chief of taxation policy department of Russian Finance Ministry.

“A right to extract is a company’s real active, which influences its market cost. When the state licenses a company, it gives up own property and has to receive an equivalent pay for that. License pays are nothing”
On the last week Vladimir Putin complained publicly that oil lobby in Parliament stopped the government’s initiatives to rise taxes on oil companies, and as a result the 2004 budget would fall short of about $3bln.In Finance Ministry they say that this was understood as “you need to find a way to get money” and then they “remembered the idea with stock taxes”

According to the proposed legislation, the tax is to be 340 rubles per one ton of oil stock, and to be corrected to match the world oil prices fluctations and dollar exchange rate. This means “LukOil” would pay $24bln, YUKOS - $21bln, TNK - $12.9bln, “SurgutNefteGaz” – $10.3bln, “SibNeft” - $7.1bln. This is roughly one and a half – two times their profits reported in 2002.

One of the legislation’s authors says the great value of the tax isn’t finalized yet. “All depends on how much we want to gather. It can be 5 rubles per ton, or even less”, adds official.

An analyst from “Prospekt” information company Dmitry Tsaregorodtsev thinks that “should this idea be realized, the oil industry would be damaged”. Vladislav Metnev of “Trust” bank says that stock tax introduction would mean nationalization of the oil industry.

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