Russia overhauls oil taxation to boost revenue
To calculate taxes on oil exports, the Kremlin will use an indicator linked to Brent (Photo:energyintel.com)
Moscow is poised to alter the taxation of Russian oil companies in order to increase state revenues by tapping into crude oil sales that exceed the G7-imposed price cap, the Financial Times reported on March 22.
Starting April 2023, Russian fiscal bodies will switch to Brent oil price indicator to calculate taxes on oil exports. The change will allow the state to capture more of the revenue Russian companies make from selling crude at above the $60 price cap, and is expected to generate $8 billion of additional annual income. The planned changes reflect the uncertainty of Russian oil market amid sanctions and competition between the Kremlin and oil producers for potential additional revenue sources.
After the G7 countries set a $60/barrel price cap for Russian exports in December 2022, some Russian crudes have exceeded that limit this March.
Russian Urals crude is selling for $40 a barrel below Brent, mostly because the EU has banned seaborne imports from Russia.
Western countries have welcomed the discounts as proof that their approach to sanctions is working. But customs data suggests that Russian oil producers have been able to secure higher prices – for at least some of their exports.
Price anomalies have consequences for Moscow's tax deductions. According to customs’ data, after the embargo on all blends of Russian oil exported in December 2022, the average price was closer to $74 per barrel. This is only $10 below the price of Brent crude over the same period and way above the $60 cap.
However, Russian pricing agency Argus estimated that Urals price was on average at $43/barrel.
Argus estimates the source of discrepancy is that the price paid by countries such as India includes shipping and insurance costs. Those prices have skyrocketed as Russian oil exports to Europe have plummeted, and Western sanctions have limited Moscow’s access to oil tankers.
The pricing agency Platts introduced another index in January, showing that the price of Russian oil delivered to the west coast of India is $16-20 higher than the usual Urals estimate.
In accordance with the new tax system, the maximum Urals discount to Brent will be $34 per barrel, and will decrease to $25 in July.
On March 20, Bloomberg reported that the G7 countries are unlikely to revise the price cap for Russian oil this week (March 21-26), despite the fact that it is already being sold well below the current threshold of $60 per barrel.
On March 14, Bloomberg reported that Estonia, Lithuania, and Poland called for lowering the price cap for Russian oil.
Recently, the Russian government reported its oil revenues were cut nearly in half.
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