Moscow to give a third of oil taxes to donor regions?

09:00, 11.06.2019

Russian State Duma has proposed to leave 30% of the revenue from on oil extraction tax to oil regions

The most important draft bill for the oil regions of the country offering to leave 30% of revenues from the oil extraction tax in the form of raw hydrocarbons in the budgets of the subjects has been brought in to the State Duma. Now severance tax revenue go in full to the federal treasury. For example, Khanty-Mansiysk Autonomous Okrug annually allocates this tax at over 1,2 trillion rubles, and Tatarstan — 358 billion over last year alone. However, industry experts, commenting on this initiative to Realnoe Vremya, called it “impassable” because it offers “a revolution in taxation, which no one would allow”.

30% of revenue from tax on oil production to regions

The draft bill on leaving 30% of the revenue from the tax on oil extraction and severance tax in the regional budgets has been prepared by deputy Mikhail Schapov. The document was published in the electronic database of the lower house of the parliament. Today, 100% of revenues from severance tax of the regional companies go to the federal budget in full.

“Increasing of own tax revenues of Russian subjects in the form of part of severance tax in the form of raw hydrocarbons will allow to increase the own income base of the regions where mineral deposits in the form of raw hydrocarbons are located and where they are extracted, and to decrease of the endowment character of the budget system of the Russian Federation in the part of the level of regions,” the explanatory note reports.

The document provides for amendments to the Budget code in terms of distribution standards between the levels of the budget system of revenues from severance tax for oil. The changes imply a reduction in the standards of contributions to the Federal budget from 100% to 70% and the establishment of standards of contributions to the budgets of subjects of the Russian Federation in the amount of 30%.

It is proposed to compensate for the shortfall in revenues of the Russian Treasury by reducing the volume of inter-budget transfers for oil and gas producing regions. The authors of the project consider it necessary to switch to a new taxation scheme when working on the Federal budget for 2020.

“I have not seen the desire of Moscow to share with the regions in such a size”

Tatarstan in the first quarter of the year collected 85,44 billion rubles of severance tax (+16%). In last year, the income was $358,43 billion (+57%). According to the project of the Communists, it turns out that almost a third of this amount could remain to the republic. The official representative of the Kazan Kremlin, Lilia Galimova, said that the Tatarstan authorities are studying the document submitted to the State Duma.

Meanwhile, industry experts do not believe in the chances of success of this draft bill and refer it to the category of “impassable” initiatives. The author of the project is also not included in the group of authoritative deputies, whose proposals have a high probability of passing in the parliament.

“The Communist party does not always manage to bring to mind their initiatives, and this is unlikely to pass. The severance tax is one of the most significant collected taxes on the oil industry. Because of the tax manoeuvre that zeroed export duties, the entire burden of taxation passed to this tax. There are huge amounts, and they have grown very well in recent years. For the Federal centre to give to the regions so much crazy money — 30% — is a revolution in inter-budgetary relations. Offhand, our Tatarstan budget can get at least 50-60 billion a year from this. Naturally, there are no signs for changes in the rhetoric of the ministry of finance or in the rhetoric of the authorities. I did not see the desire of Moscow to begin to share with the regions in such a size. Therefore, I do not believe,” blogger analyst Albert Bikbov expressed his opinion on the bill.

“For the Communists, this initiative is an extra populism”

Other experts do not exclude completely and yet strongly doubts the chances of success of this bill. Russian economist Sergey Khestanov pointed out that Russia has long been in the process of centralization of a significant part of those taxes that are easily administered, because they are easily collected:

“It happened like in a fairy tale about tops and roots: the federal centre kept most of the taxes that are easily administered and effectively collected, and transferred to the regions those taxes that are difficult to collect and that are highly dependent on the economic situation. At the same time, Moscow periodically issues budget subsidies to those regions that it considers necessary. Here there are also disputes — it is fair or not. This is a very serious lever of influence of the federal centre. Everything lasts more than 10 years. Imagine who would want to change the system, which has been working for a long time as it suits our authorities?”

“I don't believe in this initiative. But I remember that earlier there was a good tax on the reproduction of the mineral resource base, and oil companies were deducted to the budgets of the regions where they explored reserves and extracted oil and gas. And it was really useful, because part of the taxes went to the regions, and the other part was spent on exploration and production. It all was taken away and said — everything will be centralized, but that didn't work. Oil workers began to receive much less money for the reproduction of reserves. All efforts to return the situation to its former course were drowned, nothing came of it. And now any tax proposal that reduces revenues to the federal budget is rejected by the ministry of finance,” adds Mikhail Krutikhin, a partner of the consulting agency RusEnergy.