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Russia's oil industry can shoulder extra taxes, finance ministry says
[MOSCOW] Russia's oil industry is awash with cash and will be able to withstand the planned 1 trillion roubles (S$20.5 billion) in extra taxes over the next six years, Alexei Sazanov, the head of the tax department in the finance ministry, said in an interview.
The government is looking for extra money to implement President Vladimir Putin's pledges of higher social spending and better infrastructure over the next six years, expected to cost around 8 trillion roubles.
The new oil tax changes will see an increase in the mineral extraction tax and a gradual reduction in oil and oil products export duty. The changes will be introduced step by step over the next six years starting from Jan. 1, 2019.
"The oil industry expects 2 trillion roubles worth of free cash flow this year. This is the money which they may send either for dividends, share buybacks or to redeem loans. Those are huge figures," Sazanov said.
"So we have found resources to additionally finance budget spending worth 1 trillion roubles over six years (from oil taxes)." Russia's top oil producers Rosneft and Lukoil both recently announced share buyback plans.
Sazanov said the oil tax reform was unlikely to affect domestic oil production, which is close to a 30-year high of more than 11.2 million barrels per day.
As a protective measure against Western sanctions over Moscow's role in Ukraine's conflict and alleged hacking in the United States, and part of the tax overhaul, oil refineries will be able to get compensation in the form of a negative excise tax.
Sazanov said the negative excise tax would amount to around 600 roubles per tonne of oil on average under a scenario where the oil price was US$60 per barrel and the rouble at 58 per US$1.
He said the level of negative excise tax, as well as some other components of the tax reform, were still subject to discussions and tweaks.
The government in May decided to curb excise tax on fuel to rein in fast rising retail gasoline prices, which led to protests among drivers across the country.
Sazanov said excise tax on fuel would rise in 2019, as initially planned.