RF Ministry of Energy assessed possible risks of cancellation of oil import duty after 2018, which the Ministry of Finance suggests conducting, RIA News reports quoting Kommersant Daily.

Thus, the proposal of the Ministry of Finance may result in worsening of relationships between RF and Belarus, which imports Russian oil free of duty, the newspaper reports. At the oil price of USD 40 per barrel and the currency rate of 64.8 RUB/USD, the Ministry of Energy assesses the losses of the neighboring country at 96 billion rubles, because, along with cancellation of the duty, MET will increase, which is fraught with the oil price increase for internal market as well as for Belarussians.

It is reported that due to cancellation of the duty, for internal market the refining margin will, on the average, decrease from RUB 2.7 ths per ton to RUB 1 ths. In certain cases, the oil refining will be less profitable for oil producers than its export; that is why, the Ministry of Energy expects for “one-time decrease of oil refining volumes” in the amount of up to 60 million tons, which is equivalent to nearly 20% of the total oil refinery in RF. As a result, the fuel production will decrease (petrol – by 6 million tons, diesel – by 14 million tons), which, in its turn, will lead to the deficit of oil products on the internal market and social problems.

As the newspaper notes, in this regard the Ministry of Energy asks “to ensure stable tax regime” for the industry, setting fiscal parameters of 2017 «with the purpose of ensuring investment attractiveness of oil production and refinery segments by 2020». The Ministry of Finance told the edition that in 2017 they should discuss with the parties concerned the future changes in the tax system, in 2018 – to adopt the relevant laws, so that they come into force in 2019.

The history of this issue

The disputes between the Ministry of Finance and the Ministry of Energy regarding the cancellation of duties was mainly triggered by Valued Added Tax (VAT), which will be charged not from oil volumes, but from cash flow.

It is expected that the new tax will initially extend over pilot projects of deposit development, and, as per the idea of the Ministry of Finance, should replace the export duty. The Ministry of Energy speaks out for voluntary transition to the new tax, the Ministry of Finance considers that the oil company should choose – whether the operating tax system with duty benefits, or EPT. In many cases, EPT is less profitable than oil duty benefit in the operating tax system, and it is not profitable for oil companies to transition to EPT. However, the prospect of full cancellation of the duty and loss of the relevant benefits can make market players more flexible.