Transfer to Surplus Income Tax in Oil and Gas Sector in Russia

Introduction of new tax- tax on additional (surplus) income – for the enterprises of oil and gas sector in Russia has been planned for more than 10 years. However the date for transfer is postponed again and again.

According to the Main Directions of Tax Policy in the Russian Federation for 2010 and for the planning period of 2011 and 2012 it is supposed that the development of approaches and necessary normative legislative base to introduce the tax on surplus income for oil production from 2011-2012 and to start its application at new oil fields. According to RF Minister of Finance A. L. Kudrin the transfer for the new tax is planned no sooner than in 2012.

The tax on additional (surplus) income is applied in the USA, the UK, Norway and Kazakhstan (since 2009). This is a fair instrument of collection of the natural rent since its amount depends on the economic results of a company of oil and gas sector, and there are many more factors than just mining and geological and geographical characteristics of the oil fields that are reflected in the economic results of the company – for instance, the extent of the field development, situation at the market and so on.  However, as it is well-known, the administration of new tax is more difficult than that of current taxes and, for instance, the severance tax.

Therefore, taking into account the specific nature of the tax (tax rate depends on the economic results of company’s operation) and difficulties connected with administration the losses from the budget are possible, which in the environment of the global economic crisis is highly undesirable. 

Within the problems of new tax administration it should be mentioned that even in the countries mentioned above there are problems when defining the taxation base for the tax – defining the boundaries of the oil field, prices etc, despite the fact that there are no difficulties in accounting for the oil fields themselves. Thus, in the UK the procedure for definition of prices for oil taxation purposes (nomination scheme) is constantly changed, improved, becoming more and more complicated.

Velikova E.E. – Senior Research Fellow, Department of Tax Policy