IEP experts participated in Parliamentary hearings on the oil sector taxation issues

On 13 March, Yuri Bobylev, Head of the Mineral sector economics department, and Elena Velikova, senior researcher of the Center for Macroeconomics and finance, participated in Parliamentary hearings held at the Budget and taxes Committee of the State Duma on the topic 'Taxation of the oil industry'.

Principal issue of these hearings was the discussion feasible replacement of the mineral replacement tax with tax on financial results (TFR) regarding new pilot projects within corresponding draft law of the Khanty-Mansiisk autonomous district.

The issue of Russia's introduction of Excess-Profit Tax (EPT as a form of TFR) has been discussed for some time. As far back as 1997, the idea of introduction of EPT was drafted in the form of a special chapter within the draft of the second part of the RF Tax Code. As was previously described in the Gaidar Institute experts' publication1, EPT reflected a real economic efficiency of a given project, directly gives weight to geological and geographic conditions of hydrocarbons extraction, stimulates investments in the new oilfields development. In other words, transition to this type of taxation represents a positive way for improving oil sector taxation.
According to the data released at Parliamentary hearings by the RF Ministry of Energy, as of today 12 out of 30 projects have been selected as pilot ones. Both Ministry of Energy and the Khanty-Mansiisk autonomous district acknowledge that the draft law requires further analysis:

- order and conditions of TFR introduction;
- the selection criteria for pilot projects;
- the ratios and usage procedure for uplift (rates and timeline), change in the system of revenue and expenditure accounting.

Sergey Shatalov, deputy Minister of Finance, in addition to issues related to the more complicated administration of this tax and potential level of the budget tax revenues, took note of the fact that introduction of TFR would affect the entire budget system. The mineral replacement tax totally goes to the federal budget and TFR envisages sharing between the federal and regional budgets.

It is planned that the draft law should be reviewed in the reading during this session.

1 Taxation of the mineral sector of the economy. Yu.N. Bobylev, M.Yu. Turuntseva. Moscow, Gaidar Institute, 2010. – 200 pp. (Research papers. Gaidar Institute for economic Policy; № 140Р).