MOSCOW — The Russian government may raise taxes on its main source of revenue— crude producers— to narrow its budget deficit next year, two people with knowledge of the matter said Friday.
The authorities in Moscow have started discussions with companies about changing a crude-extraction tax formula, one of the people said. Both asked not to be identified because the information isn’t public yet. Modifications are also possible in the export duty formula, the news service Interfax reported, citing an unidentified person familiar with the situation. Together with the extraction levy, that would raise the tax burden on oil producers by about 600 billion rubles ($9.04 billion), according to Interfax.
“The producers haven’t been impacted by the drop in prices while the government take has fallen a great deal,” said Sarah Emerson, managing director of ESAI Energy Inc., a consulting company in Wakefield, Massachusetts. “We won’t know if there will be an impact on production until we get all the details.”
While different ministries are now suggesting various measures to increase budget revenue and reduce spending, there’s no final decision yet, Natalya Timakova, a spokeswoman for Prime Minister Dmitry Medvedev, said by phone Friday. Officials should agree on the measures to be included in next year’s budget, she said. The government is set to submit the draft budget to parliament by Oct. 25.
The world’s biggest energy exporter is struggling to shake off its first recession in six years after a slump in oil prices. Russia relies on energy for about half of its budget earnings, with taxes on the extraction and export of crude accounting for about 32 percent of revenue. These earnings were 2.49 trillion rubles from January to July, 16 percent lower than a year ago, according to Bloomberg calculations based on Russia’s Treasury data.
Russia is facing an “unprecedented” financial squeeze from the selloff in oil, which is similar to the 1980s collapse in world crude prices that undermined the Soviet Union, Deputy Finance Minister Maxim Oreshkin said Thursday.
The nation’s budget deficit was 994 billion rubles through August this year, or 2.1 percent of gross domestic product, according to the Finance Ministry. It forecasts a 2016 deficit of no more than 3 percent of GDP if oil averages $50 a barrel, Oreshkin said. Brent crude, the international benchmark, traded at about $48 in London Friday.
The ministry proposed adding the 2014 ruble-dollar exchange rate into the oil extraction tax formula, as well as adjusting it with the 2015 inflation rate, one of the people said. Those changes may increase the tax levy by about 10 percent, Interfax reported Friday, citing people with knowledge of the matter. Similar revisions could also be applied to the oil-export duty formula, the news service said.
A tax increase would affect the valuations of all Russian oil producers, Artem Konchin, an oil analyst at Otkritie, said by email. Rosneft, Russia’s most indebted oil company, could be hit hardest, he said.
The Russian government may raise taxes on its main source of revenue— crude producers— to narrow its budget deficit next year, two people with knowledge of the matter said Friday.
The authorities in Moscow have started discussions with companies about changing a crude-extraction tax formula, one of the people said. Both asked not to be identified because the information isn’t public yet. Modifications are also possible in the export duty formula, the news service Interfax reported, citing an unidentified person familiar with the situation. Together with the extraction levy, that would raise the tax burden on oil producers by about 600 billion rubles ($9.04 billion), according to Interfax.
“The producers haven’t been impacted by the drop in prices while the government take has fallen a great deal,” said Sarah Emerson, managing director of ESAI Energy Inc., a consulting company in Wakefield, Massachusetts. “We won’t know if there will be an impact on production until we get all the details.”
While different ministries are now suggesting various measures to increase budget revenue and reduce spending, there’s no final decision yet, Natalya Timakova, a spokeswoman for Prime Minister Dmitry Medvedev, said by phone Friday. Officials should agree on the measures to be included in next year’s budget, she said. The government is set to submit the draft budget to parliament by Oct. 25.
The world’s biggest energy exporter is struggling to shake off its first recession in six years after a slump in oil prices. Russia relies on energy for about half of its budget earnings, with taxes on the extraction and export of crude accounting for about 32 percent of revenue. These earnings were 2.49 trillion rubles from January to July, 16 percent lower than a year ago, according to Bloomberg calculations based on Russia’s Treasury data.
Russia is facing an “unprecedented” financial squeeze from the selloff in oil, which is similar to the 1980s collapse in world crude prices that undermined the Soviet Union, Deputy Finance Minister Maxim Oreshkin said Thursday.
The nation’s budget deficit was 994 billion rubles through August this year, or 2.1 percent of gross domestic product, according to the Finance Ministry. It forecasts a 2016 deficit of no more than 3 percent of GDP if oil averages $50 a barrel, Oreshkin said. Brent crude, the international benchmark, traded at about $48 in London Friday.
The ministry proposed adding the 2014 ruble-dollar exchange rate into the oil extraction tax formula, as well as adjusting it with the 2015 inflation rate, one of the people said. Those changes may increase the tax levy by about 10 percent, Interfax reported Friday, citing people with knowledge of the matter. Similar revisions could also be applied to the oil-export duty formula, the news service said.
A tax increase would affect the valuations of all Russian oil producers, Artem Konchin, an oil analyst at Otkritie, said by e-mail. Rosneft OAO, Russia’s most indebted oil company, could be hit hardest, he said.
Contributors: Olga Tanas and Andrey Biryukov in Moscow and Mark Shenk in New York.
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