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Russian Finance Ministry to coordinate oil taxation, reconsider budget

June 08, 2016, 15:11 UTC+3 MINSK

Despite growing oil prices, the budget will not face majot changes, says the finance minister, an agreement with the Energy Ministry is expected to be reached

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© Egor Aleev/TASS

MINSK, June 8. /TASS/. The Russian Finance Ministry will reconsider the budget in October, despite growing oil prices there will be no major changes, Finance Minister Anton Siluanov told journalists on Wednesday.

"It will be mostly technical updates, which occur during the execution of the budget. I do not think that we will seriously change the budget. We will see what the economy will be like, foreign assessment and will make a decision on expediency of changing the parameters. These changes are necessary for the full execution of the budget in the current year," the Minister said.

Siluanov earlier noted that the Finance Ministry prepared amendments to the 2016 budget and expected the government's decision on when to make these changes.

Russia’s 2016 federal budget is based on the oil price at $50 per barrel. The Finance Ministry stated its intention to make amendments to the current budget based on oil price of $40 per barrel.

The budget includes revenues of 13.738 trillion rubles (about $196 bln) and expenditures of 16.099 trillion rubles ($229.9 bln) with a budget deficit of 2.36 trillion rubles ($33.9 bln) or 3% of GDP.

Oil taxation

The Russian Finance Ministry expects to reach an agreement with the Energy Ministry on taxation in the oil industry before the end of 2016, Siluanov said.

"We are in talks, we have plans for the end of the year to reach some agreement on taxation of the oil industry," Siluanov said.

Sources familiar with the situation told TASS earlier that the Russian Finance and Energy Ministries are unlikely to agree on the new system of taxation in oil sector in 2016 - the switch to excess profit tax likely will not happen in 2017.

Reforms needed

The government is not satisfied with the existing tax regime, which consists of various taxes and does not account for the complexity of field development, as well as their profitability. This tax regime reduces the interest of companies in the development of new deposits.

So far the Ministry of Finance and the Ministry of Energy have failed to agree on the parameters of a new tax system for oil companies, the debate has been underway for two years.

The Energy Ministry and oil companies urge the government to start a large-scale reform of the taxation of oil sector already this year. This reform should be based on taxation of net income.

The main goal of the reform is to prevent the fall in production in traditional regions. That implies moving from taxes on revenues to taxes based on the profits raised from oil production activities. However, there are differences in stances of the Finance Ministry and the Energy Ministry.

The Finance Ministry wants to introduce the system based on the additional income tax. In this case a certain indicator of profitability is set for each oil field. Depending on real profitability of the given project the value of added income is set. Depending on this value the tax value is calculated.

The Energy Ministry finds that this approach will worsen the situation on the oil field which already have privileges from the government. That is why the Energy Ministry wants the new taxation system to be introduced only for the fields in Western Siberia which are currently being developed. As for the fields in Eastern Siberia they should be free to choose to stay with their current privileges or to switch to the new system.

The Finance Ministry wants the switch to the new taxation system to be obligatory for all oil projects.

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