Overview of Key Taxation Changes in the Russian Federation
with the Largest Impact on the Company’s Financial and Business Operations
Tax Regime in Oil Industry
The main parameters of the tax regime in 2018, in general, corresponded to the year-on-year taxation parameters of the oil industry. In 2018, there was a planned increase to RUB 357 per tonne of Kk coefficient, increasing the mineral extraction tax (MET) rate for oil (in 2017 – RUB 306 per tonne).
Also, since January 2018, a tax deduction from the MET in an amount of RUB 2.9 bln per month has been applied to oil produced in certain areas of the subsoil in the Nizhnevartovsk district of the Khanty-Mansi Autonomous Area. This deduction is applicable to the subsoil areas of the Samotlor field, with the rights of use belonging to the Company.
Excise Taxes on Petroleum Products
From 1 January 2018, the excise rates on Euro-5 gasoline, diesel fuel, and middle distillates were raised (by 11–13% year-on-year). However, pursuant to the Federal Law No. 199-FZ dtd 19 July 2018, excise rates on these goods were significantly reduced for the period from 1 June 2018 to 31 December 2018 in order to stabilize prices for motor fuels on the domestic market against rising global oil prices.
| Excisable Products | from 1 January to 31 December 2017 | from 1 January to 31 May 2018 | from 1 June to 31 December 2018 |
|---|---|---|---|
| Motor gasoline | |||
| non-compliant with Euro-5 | 13,100 | 13,100 | 13,100 |
| compliant with Euro-5 | 10,130 | 11,213 | 8,213 |
| Straight-run gasoline | 13,100 | 13,100 | 13,100 |
| Diesel fuel | 6,800 | 7,665 | 5,665 |
| Jet fuel | 2,800 | 2,800 | 2,800 |
| Motor oil | 5,400 | 5,400 | 5,400 |
| Benzene, paraxylene, orthoxylene | 2,800 | 2,800 | 2,800 |
| Middle distillates | 7,800 | 8,662 | 6,665 |
Further Changes in Tax Legislation
In 2018, a number of laws were passed, significantly changing the fiscal mode in the oil industry and in the economy as a whole. The Company’s mainstream innovations are as follows:
Imposing a Tax on Additional Income from Oil Production
From 1 January 2019, a tax is imposed on additional income from hydrocarbons production, which is charged at a rate of 50% of oil income calculated as the difference between estimated revenue and costs associated with the production, preparation, and transportation of crude hydrocarbons. The projects that have switched to this tax regime are provided with a reduction in the level of rental payments – MET and export customs duties. The additional income tax regime applies to subsoil areas in new production regions (with a voluntary switch-over option) and a limited number of pilot projects in the Western Siberia (the list is fixed by law).
Completion of “Tax Maneuver” in the Oil Industry
Pursuant to the laws adopted in 2018, from 2019 on, there is a gradual decrease in export customs duties on oil (down to zero from 1 January 2024) with an equivalent increase in the MET rate. Another important element of the fiscal regime amid the completion of the “tax maneuver” is a “reverse excise” on oil feedstock introduced on 1 January 2019 – a mechanism involving the accrual of the excise tax with the right to receive an increased deduction. The “reverse excise” mechanism provides for additional incentive measures for oil refineries located far from export markets (largely, for enterprises in the Krasnoyarsk Territory and the Republic of Khakassia), as well as the introduction of a special “damping” component necessitated by the need to stabilize prices for motor fuel in the domestic market.
Increase in Generally Applicable Vat Rate
The VAT rate increases from 18% to 20% (0% and 10% rates remain unchanged). The new VAT rate will be applied to the goods (works, services), property rights shipped (completed, rendered) transferred starting from 1 January 2019.
Introduction of Tax Benefits for Movable Property
From 1 January 2019, movable property is excluded from the item taxable by corporate property tax.