Cheap crude makes Russian oil companies pay extra to budget

“Dampening” tax allocations increased by 13% in September

When oil prices go up, Russian oil companies receive additional money from the state to avoid a price surge in the domestic fuel market. Now, when the global crude market is down, the picture is reversed and Russian oil majors have to make additional payments to the budget.

Russian oil producers are expected to pay more than 33 billion rubles ($420 million) for September under a “dampening” excise tax, says ETEnergyWorld citing Reuters’ calculations. The existing tax system envisages that the state compensates Russian oil companies for keeping domestic fuel prices stable in case of higher oil prices. It helps to prevent excessive exports to more lucrative foreign markets. However, now companies have to pay into the state budget, as oil prices are low and exports less profitable.

In the first nine months of 2020, Russian oil producers were supposed to pay around 335 billion rubles to the budget under this rule, while in 2019, when oil prices were higher, they received 237 billion rubles from the state the same period. For September, oil companies have to pay by 13% more than for August due to a new drop in global oil prices, read the calculations adding that the “dampening” tax amounts to 4,075 rubles per tonne of petrol and 6,928 rubles per tonne of diesel. According to the Ministry of Energy of Russia, petrol supplies to the domestic market totalled 2,89 million tonnes last month, while deliveries of diesel reached 3,13 million tonnes.

In September, the Kremlin announced a plan to increase taxes for some mining and oil companies in order to plug a budget gap left by lower oil prices and the COVID-19 pandemic. On 23 September, Russian lawmakers approved the proposal, which is expected to bring the budget 340 billion rubles ($4,4 billion) per year.

Meanwhile, head of the Accounts Chamber and former Minister of Finance Alexey Kudrin considers the government’s tax innovations too much of a burden for companies. “This is more than 0,5% of GDP or more increase in the tax burden on the economy during the crisis, when all these processes have not yet recovered,” he said at parliamentary hearings in the Federation Council last week. According to the economist, spending more reserves for the sake of stability of the tax system would be the best solution. “It is clear that winter and the first quarter will be difficult for economic growth, and indicators for next year may be adjusted,” said Kudrin.

By Anna Litvina