For the first time, since 1999 Russia has decided to implement radical changes to its taxation system on crude and oil products export. The government goal is to raise funds for a far-sighted plan to inject it back into the local economy.

The major changes to expect are the following:

–    A steady decrease in export duties on crude and oil products until they cease to exist by 2024. The idea is to substitute export duties with higher oil extraction taxes instead.

–    To relieve the burden of increased processing costs, local refineries will be offered tax breaks. To receive a tax break the refinery has to meet one of the following criteria: bearing large transportation costs, have a minimum investment of 60 billion in upgrades between 2016 and 2024, have at least 10% of total output consist of high-octane gasoline products or conform to international sanctions.

Should international market expect a rise in Russia’s oil export?

The refineries which will not receive tax breaks make up only a small fraction of the total output, resulting in an unlikely event of seeing a considerable increase in the country’s oil export volume. With growing oil market prices, drafted reforms include a mechanism which will deter Russia’s major oil producers from focusing on exports by allowing for a re-establishment of high export duties.

Who wins?

High extraction taxes would ultimately place a greater burden on the consumers, specifically those in Belarus and Kazakhstan who are a part of Eurasian Economic Union. With the new tax system in place, consumers will be bearing higher production tax already factored into the price.

How will it affect oil export internationally?

With Russia being one of the top 3 oil producers worldwide, if an international oil market will be seeing no substantial increase in its export there is a lower chance in an increase in oil prices. As commented by Russia’s officials the primary goal is to localize the effects of new duty-free policy and bring in additional funds to Russia’s national budget.

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