Economist: proposals on the taxation of oil industry insolvent

Economist: proposals on the taxation of oil industry insolvent


The oil and gas industry provides more than 40% of Federal budget revenues, the level of withdrawals from it significantly exceeds the level of taxation of other sectors of the economy, is reminiscent of Alexander Nekipelov, in response to the proposal of the Minister of Finance Anton Siluanov on the approaches of the authorities in the taxation industry.

MOSCOW, 12 Oct. The real picture of the functioning of the oil industry and its relationship with the budget differs from the vision of the Ministry of Finance, writes former Vice-President of the RAS, economist Alexander Nekipelov , in response to an article by the head of the Ministry Anton Siluanov in the newspaper “Vedomosti”.

The Minister of Finance had previously offered its rationale approaches to the taxation of the oil industry the article titled “to buy or not to buy”.

“Dear Minister wants to “dot the i”, i.e. assumes the last word to leave behind. Meanwhile, all the real picture of the functioning of the oil industry and its relationship with the budget behind the scenes, and the reader might get the impression that the oil industry and oil companies are trying to withdraw funds from the state budget. The reality is exactly the opposite,” — said Alexander Nekipelov.

He notes that the oil and gas industry provides more than 40% of Federal revenues, and the level of withdrawal of funds from the oil industry fold higher than the level of taxation of other sectors of the Russian economy. Similar seizures have also almost non-existent and the rest of the world — this level of the Russian NC is second only to the indicators of Saudi Saudi Aramco.

“The Minister says that “the benefit of oil companies from changing the deduction in roubles only on the severance tax on oil will make about 500 billion roubles, which practically accounts for the increase of the EBITDA of Russian oil companies,” economist examines the reasoning of the Finance Minister. “However, in letters and studies, which were prepared by oil companies and available to the Ministry, it is shown that any income from the devaluation is not in sight. And it is unclear why the Ministry of Finance operates with the nominal performance, which is not confirmed in the reporting documents of the companies”, — continues Alexander Nekipelov.

Academician proposes public reporting for the first half of 2015, the six largest Russian oil companies — “Rosneft”, “LUKOIL”, “Gazprom Neft”, “Tatneft”, “Bashneft” and “Surgutneftegaz”, which account for over 85% of oil production in Russia. According to reports, the net income before interest, taxes, depreciation and amortization (EBITDA) grew by 8% (113 billion), for the period and increased production volumes — 5%. Thus, writes Nekipelov, from 8% growth of EBITDA 5% associated with the production and provided at the expense of investment (the volume of which has increased by 20% or 144 billion rubles for the reporting period) and the remaining 3% are associated with the refining depth increase due to commissioning of new installations under the modernisation programme.

“The second point on which the Ministry of Finance closes his eyes, is a planned increase in the met base rate, already included in the legislation”, — adds the economist. The oilers have stated that increased over the period from 2014 to 2016 ruble revenues from exports were actually eaten by the rising cost of Russian oil for processing after increasing the severance tax part of the tax maneuver.

According to Alexander Nekipelov, the proposal to withdraw the profits of devaluation insolvent because the revenue from the rate changes at specific industries to be seized in world practice it is extremely rare because of the profit from exchange rate difference shall be withdrawn through an income tax. As for the oil industry, says the economist, about half of extracted oil is consumed within the country, and this means that “extra income” of oil companies from oil export is almost equalized with an additional expense when purchasing the oil for recycling. The industry operates according to the laws of market economy — its revenues and costs are determined by prices in the market and therefore the suggestion that the oil companies do not buy oil, and is used for processing the oil that we have extracted ourselves, is untenable.

“The most interesting portion of the article devoted to the analysis of “the macroeconomic impact of the investment growth”, especially as it is preceded by the sentence “think outside the box one of the oil and gas industry.” Surprised by the concern of the Ministry of Finance the increase in investments in oil companies. That is, if the industry in conditions of economic recession and double dip in oil prices managed to keep and even to increase investment, what is bad?” — wonders the economist.

Disagree, Alexander Nekipelov and with the approval of the Minister of Finance that “the source of funds to increase investment programs” became “growth deficit”. According to the economist, actually the budget was the largest recipient of devaluation profits, because it manages to make up with a small deficit due to the “enormous depreciation of the Russian currency”.

“As he wants us to believe Mr Siluanov, “the representatives of the oil companies the nod to gross rates of investment and production” and do not pay attention to transaction costs. Moreover, according to the Minister, “operating costs of Russian companies are actively growing”. Where the Finance Ministry has such information, can only guess,” writes academician of the Russian Academy of Sciences. According to official statements, the level of transaction costs Russian oil companies is much lower than most foreign competitors — $2.8 per barrel in “Rosneft” (the first half of 2015) against $8 the Norwegian Statoil and $17 at Chevron.

Surprised economist and the approval of the Minister of Finance that the costs of the oil companies “financed” by increasing interest rates in the economy. Nekipelov considers that an increase in the costs is just not funded, and dramatically deepen.

Broken and the fragile balance of income, investment and production in the industry in the next three years, investment in oil industry will shrink by 2 trillion, and oil production will fall to 100 million tonnes, which creates the conditions for long-term trend of industrial decline.