Moscow Bans New Tax Relief

Russia has imposed a temporary ban on the award of new tax breaks at oil and gas fields, according to a document published on the Kremlin’s website on July 22.

Moscow uses tax relief as a means of galvanising development of more challenging projects. This aid is applied at fields in remote areas lacking infrastructure as well as deposits considered geologically complex or containing a large quantity of hard-to-recover resources.

Russian operators are increasingly relying on such projects to drive growth, as easier-to-develop finds become scarcer. As such, generous tax breaks are becoming the norm rather than the exception. And this has irked the finance ministry, which has complained about the impact of these incentives on the federal budget.

Citing sources, Russia’s Vedomosti reported this week that finance minister Anton Siluanov had asked  the president, Vladimir Putin, several weeks ago for a moratorium to be introduced on the issue of new tax breaks until 2024. According to the documents published this week, however, the Kremlin has instructed the government to put in place a ban only up until December 31. Relevant ministries will also be required to compile an inventory of all fields and their reserves by December 1, so that the effectiveness of tax breaks can be assessed.

An exception to the moratorium has been made for Priobskoye, a giant Western Siberian oilfield where state-owned Rosneft is currently seeking tax relief, citing the high cost of recovering oil in the deposit’s water-filled reservoirs. The Kremlin’s document requires the energy and finance ministries to assess the economic justifications for granting Rosneft this support, however.